1 in the HIGH COURT of JUSTICE Claim No: CP-2018

IN THE HIGH COURT OF JUSTICE Claim No: CP-2018-000038 BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES COMPETITION LIST (ChD) B E T W E E N: PHONES 4U LIMITED (in administration) Claimant - and -

(1) EE LIMITED (2) DEUTSCHE TELEKOM AG (3) ORANGE SA (4) VODAFONE LIMITED (5) VODAFONE GROUP PUBLIC LIMITED COMPANY (6) TELEFÓNICA UK LIMITED (7) TELEFÓNICA, S.A. (8) TELEFÓNICA EUROPE PLC Defendants

DEFENCE OF THE SIXTH, SEVENTH AND EIGHTH DEFENDANTS

INTRODUCTION

1. This is the Defence of the Sixth to Eighth Defendants (collectively the “Telefonica Defendants”).

2. In this Defence:

2.1. References below to paragraph numbers are to corresponding paragraphs of the Particulars of Claim unless otherwise indicated.

2.2. Where they are adopted, definitions and headings in the Particulars of Claim are used for convenience alone and without making any admission thereby.

2.3. In this Defence, the Telefonica Defendants do not plead to allegations directed exclusively at other Defendants.

2.4. Unless expressly admitted or not admitted, the allegations contained in the Particulars of Claim are denied.

SUMMARY

3. The Telefonica Defendants’ response to the facts alleged against them is summarised below.

Overview

4. In overview:

4.1. Under the terms of an agreement concluded in 2009, P4U was authorised to procure connections to O2’s mobile network.1 That agreement was due to expire on 31 January 2013 for certain categories of connections, and on 31 January 2014 for the remainder.

4.2. From O2’s perspective, the terms of its existing relationship with P4U were commercially unsatisfactory. O2’s internal assessment at the time was that P4U was O2’s least profitable distribution channel for new “Post-Pay” connections and upgrades.

4.3. In 2012, P4U proposed terms for a renewal of the parties’ relationship. O2’s internal assessment showed that the suggested terms would be even less favourable to O2 than those of the existing agreement. Following a detailed internal analysis and extensive discussions with P4U, O2 therefore decided in autumn 2012 that it would not renew the rights that expired in January 2013, unless P4U offered satisfactory terms in the meantime. P4U did not do so. P4U also rejected terms proposed to it in December 2012 by O2. Certain categories of P4U’s distribution rights therefore expired on 31 January 2013.

4.4. From autumn 2012 onward, O2’s working assumption was that it would cease

1 To the extent that defined terms are used in this overview paragraph, the definitions are given where the said terms first appear in the paragraphs below. 2

selling mobile network connections via P4U completely after January 2014, when the remaining elements of the existing agreement expired, unless P4U proposed revised terms that were satisfactory to O2. P4U did not make any proposal that was satisfactory to O2, and so P4U’s remaining rights to sell O2’s mobile network connections expired in January 2014.

4.5. P4U’s allegation that the Telefonica Defendants colluded or co-operated with Vodafone and/or EE in respect of O2’s decision to stop using P4U as a distributor is wrong. None of the Telefonica Defendants discussed that decision with Vodafone or EE, or with any other company in those corporate groups. P4U’s contrary case against O2 is based entirely on two pieces of hearsay evidence. Neither of these is true.

4.6. O2’s decision to stop selling mobile network connections through P4U was taken unilaterally by O2, in its own commercial interests (with some routine internal discussion amongst O2, Telefónica Europe and Telefónica).

4.7. O2 stopped selling many categories of mobile network connections through P4U in early 2013, over a year-and-a-half before P4U went into administration in September 2014. P4U’s remaining rights to procure connections for O2 expired over seven months before P4U went into administration. O2’s decision not to enter into a new agreement with P4U did not cause P4U to go into administration.

Background: direct and indirect sales

5. In 2011 and 2012, the Sixth Defendant (Telefónica UK Limited, “O2”) supplied voice (sometimes “airtime”) and data connections to its mobile network (“O2 Connections”) to consumers2 in the United Kingdom (“UK”) via the following routes:

5.1. first, O2 sold O2 Connections directly to customers, through O2-owned shops, O2-only franchise stores, online and over the telephone; these are referred to as “direct sales”; and

2 The present proceedings, and this document, relate to the supply of mobile network connections to retail customers (i.e. end consumers). References herein to “customers” and “consumers” should be construed accordingly. The supply channels for mobile network connections to business customers were different and are not relevant for present purposes. 3

5.2. second, O2 appointed a number of third parties to offer O2 Connections to consumers through retail channels; these are referred to as “indirect sales”. In addition to P4U, the said third parties included The Carphone Warehouse Limited (“CPW”), Tesco Stores Limited (“Tesco”) and A1Comms Limited (“A1”). These parties offered both O2 Connections and connections to the mobile networks of other mobile network operators, including mobile virtual network operators (“MVNOs”). In paragraph 13 of the Particulars of Claim, the term “MNOs” is defined as referring only to the four largest mobile network operators in the UK. That is inapt, because there were other mobile network operators, namely the MVNOs. In this Defence, the Telefonica Defendants use the term “MNOs” to refer to all mobile network operators, including MVNOs.

6. In 2011-2012, O2 conducted an internal review of the profitability of its sales channels in the UK. This demonstrated that:

6.1. indirect sales were, in general, substantially less profitable for O2 than direct sales; and

6.2. certain indirect sales partners (including P4U) were materially less profitable for O2 than other indirect sales partners (including CPW).

7. O2 therefore wished to increase the number and proportion of direct sales that it made. It also wished to reduce the number and proportion of indirect sales that were insufficiently profitable from O2’s perspective to be commercially justified.

8. O2 recognised that certain customers would prefer to purchase O2 Connections via indirect sales channels, in particular because this would enable them to compare mobile network connections (“MNO Connections”) offered by a number of MNOs. O2 therefore expected and accepted that it would continue to sell O2 Connections via a mixture of direct and indirect sales channels. The key issue that O2 had to consider was which indirect sales channels were sufficiently profitable and efficient for it to be commercially attractive for O2 to make sales through them.

2009 Agreement: distribution of O2 Connections by P4U

9. O2’s existing agreement with P4U (the “2009 Agreement”) was due to expire on 31 January 2013 for certain types of O2 Connections (referred to as P4U’s “Post-Pay/Pre-

Pay Rights” to procure “O2 Post-Pay Connections” and “O2 Pre-Pay Connections”), and on 31 January 2014 for others (referred to as P4U’s “Upgrade/SIM-only Rights” to procure “O2 Upgrade Connections” and “O2 SIM- only Connections”).3

10. As at 31 December 2012, using O2 Post-Pay Connections as an illustration:

10.1. O2 was providing O2 Post-Pay Connections to approximately 7.3 million customers in the UK.

10.2. 613,458 of these Post-Pay Connections (i.e. approximately 8.4%) had been sold through P4U (the “P4U Post-Pay Customer Base”).4

10.3. In or around 2012, there were approximately 43.4 million customers for MNO Post-Pay Connections in the UK.5

10.4. It follows that, as at the end of 2012, the P4U Post-Pay Customer Base accounted for approximately 1.4% of UK Post-Pay customers.

10.5. By way of comparison, at the same date, 1,198,061 of the 7.3 million O2 Post- Pay Connections had been sold through CPW (i.e. approximately 2.8% of UK Post-Pay customers, double the number delivered by P4U).

11. There was a relatively high “churn” rate amongst customers who had purchased O2 Connections via P4U (“P4U-acquired customers”). This means that, on average, P4U-acquired customers were more likely to terminate their relationship with O2 at the end of their current “Contract cycle” (i.e. the minimum term of a mobile phone deal) than the average O2 consumer. P4U-acquired customers were also characterised by relatively high levels of fraud and credit default. It may be that these characteristics were associated with the young adult market segment, which P4U alleges (e.g. at paragraph 3(b)) was its key customer base.

12. These factors were amongst the reasons for which customers that bought O2

3 The meanings of the terms “Post-Pay”, “Pre-Pay”, “Upgrade”/“Upgrades” and “SIM-only” are stated at paragraph 66 below. 4 Due to the passage of time, it is no longer possible for O2 to be sure whether the data referred to here and below in respect of the P4U Post-Pay Customer Base relates to customers within the said group as at 31 December 2012 or as at 31 January 2013. The difference is not believed to be material to any issue raised by the claim, since the 2009 Agreement remained fully in force until 31 January 2013. To be concise, the said data is referred to below as relating to 31 December 2012. 5 Without prejudice to footnote 2 above, this figure includes MNO Post-Pay Connections supplied both to end consumers and to business customers. Data disaggregating the total number of MNO Post-Pay Connections by customer type is not readily available. 5

Connections through P4U generated, on average, comparatively low margins for O2. Specifically, O2’s analysis of the 2009 Agreement indicated that P4U was O2’s least profitable sales channel for new and upgraded O2 Post-Pay Connections.

Expiry of 2009 Agreement

13. The Particulars of Claim focus almost exclusively on the expiry of the Upgrade/SIM- only Rights under the 2009 Agreement in January 2014. As further set out below, however, O2 decided in 2012 to allow the Post-Pay Rights to expire in January 2013. From the time of this decision, O2’s expectation was that it would cease selling all O2 Connections via P4U upon the expiry of the 2009 Agreement, unless P4U offered terms for a future relationship that were substantially more favourable to O2.

14. In mid-2012, O2 and P4U entered into negotiations regarding terms for a possible new agreement. It became apparent, however, that P4U was not prepared to enter into a new agreement on terms that would be commercially acceptable to O2. Indeed, O2’s internal analysis showed that the terms offered by P4U would be more disadvantageous to it than those of the 2009 Agreement.

15. O2 therefore decided in September 2012 to allow the Post-Pay Rights to expire in January 2013 without being renewed, unless P4U offered substantially improved commercial terms. Although negotiations continued, P4U did not offer terms that were acceptable to O2. The Post-Pay Rights therefore expired on 31 January 2013. The parties agreed that the Pre-Pay Rights would be allowed to continue on the terms of the 2009 Agreement (as amended) until the remaining aspects of the 2009 Agreement expired on 31 January 2014.

16. From O2’s perspective, it followed from its decision not to renew the Post-Pay Rights that the remaining aspects of the 2009 Agreement would also be allowed to expire in January 2014, unless substantially improved terms were offered by P4U in respect of all O2 Connection categories. P4U did not offer terms that were acceptable to O2. P4U also rejected terms that O2 proposed to it in December 2012. In consequence, the remaining aspects of the 2009 Agreement expired on 31 January 2014.

17. In summary, therefore, the decision not to enter into a new agreement to make indirect sales of O2 Connections via P4U was taken, following substantial internal analysis and detailed discussions with P4U, because P4U and O2 were unable to agree on terms that 6

were commercially acceptable to both parties.

18. O2 assumed (as it expected to be the case) that P4U would remain in business, and would continue to distribute Connections sold by O2’s rival MNOs. O2 recognised that it would risk some loss of market share if P4U no longer procured O2 Connections, because some O2 customers would purchase MNO Connections offered by other MNOs via P4U. O2’s expectation was, however, that any loss of market share would be modest. O2 also considered that a substantial number of customers who were buying O2 Connections through P4U would in future continue to buy O2 Connections through sales channels that were more profitable for O2. In fact, the said expectations on the part of O2 turned out to be correct.

19. O2’s decision not to enter into a new agreement with P4U was therefore a rational decision based on O2’s own commercial interests. Alternatively, the said decision was a rational response to O2’s assessment of its commercial interests, which O2 believed to be correct.

Withdrawal from certain other indirect sales channels

20. In or around late 2013, O2 decided that, as of the end of 2013, it would stop making indirect sales of O2 Connections via A1. It also decided that, as of early 2014, it would stop making indirect sales of O2 Post-Pay Connections via Tesco. These decisions were taken because the said sales channels were insufficiently profitable to be justified. By contrast, O2 considered that indirect sales via CPW were sufficiently profitable to continue making sales via this route. O2 also sought to make it as attractive as possible for customers to purchase O2 Connections via its direct sales channels, for instance by developing its “Refresh” offering (further described below).

Telefónica Europe and Telefónica

21. The Eighth Defendant (Telefónica Europe, “Telefónica Europe”) was not directly involved in dealing with P4U. Telefónica Europe did take part in routine internal discussions (including with O2) regarding O2’s decisions not to renew the Post-Pay Rights, the Pre-Pay, Upgrade and SIM-only Rights and the 2009 Agreement generally. Telefónica Europe agreed with the said decisions. Telefónica Europe also approved

O2’s proposal to stop trading with P4U in respect of Upgrade, SIM-only and Pre-Pay Connections.

22. The Seventh Defendant (Telefónica SA, “Telefónica”) was also not directly involved in dealing with P4U. Telefónica did take part in routine internal discussions, of a high- level and summary nature (including with O2) regarding O2’s decision not to enter into a new agreement with P4U for the distribution of O2 Connections (“not to enter into a new agreement with P4U”) upon the expiry of the constituent elements of the 2009 Agreement. Telefónica agreed with the decision not to enter into a new agreement with P4U, but did not approve it in any formal sense.

Response to allegations of collusion

23. The decision to stop making indirect sales of O2 Connections via P4U was taken by O2 independently of any other undertaking or corporate group. P4U’s allegation that any of the Telefonica Defendants engaged in collusion or co-operation with any other party regarding the said decision is wrong.

24. Much of the Particulars of Claim is irrelevant to the Telefonica Defendants. P4U’s case against the Telefonica Defendants rests entirely on two pieces of hearsay evidence.

25. First, it is alleged that at a meeting on 27 January 2014, Ronan Dunne (“Mr Dunne”), then the CEO of O2, informed Timothy Whiting (“Mr Whiting”), then the CEO of the P4U Group, of the following matters:

25.1. that certain representatives of Telefónica and Telefónica Europe had made “commitments” to certain representatives of the Vodafone corporate group. This allegation is untrue. No commitments were made. Mr Dunne did not make the alleged statements; and

25.2. that Mr Dunne was “less sure” of EE’s intentions in this respect, because Olaf Swantee, then the CEO of EE (“Mr Swantee”), was not “inclined” to discuss EE’s distribution plans. This allegation is untrue. Mr Dunne did not make any such statement. Further, this allegation appears to be intended to suggest that Mr Dunne had approached Mr Swantee and attempted to obtain information from Mr Swantee regarding EE’s distribution plans relating to retail intermediaries. That is also denied.

26. Second, it is alleged that in or around February 2014, Mr Whiting met with Mr Swantee. It is further alleged that, at that meeting, Mr Swantee told Mr Whiting that Mr Dunne had approached Mr Swantee and attempted to have an “inappropriate” conversation regarding “cooperation” between the MNO Defendants in the UK market, which Mr Swantee had rebuffed. Mr Swantee is also reported to have claimed that EE had prepared a letter to be sent to Telefónica protesting at the said approach. P4U does not appear to allege that Mr Swantee suggested to Mr Whiting that Mr Dunne’s claimed approach related to indirect sales in the UK, whether specifically via P4U or at all. The purported relevance of this allegation is therefore not understood. For the avoidance of doubt, however, it is denied that Mr Dunne had at any time attempted to have an inappropriate or unlawful conversation with Mr Swantee regarding cooperation between the MNO Defendants in the UK market. It is further denied that any of the Telefonica Defendants received any letter from EE of the type described.

27. For those reasons, the Telefonica Defendants deny that they have, or that any of them has, engaged in collusive and/or anti-competitive conduct amounting to a breach of Article 101 TFEU and/or the Chapter I prohibition, as alleged or at all. The claim against them is factually, and therefore legally, misconceived.

A RESPONSE TO P4U’S INTRODUCTION AND SUMMARY

28. The first sentence of paragraph 1 is denied, for the reasons given at paragraph 3 above (which does not address P4U’s allegations of breach of contract, since no such claim is made against the Telefonica Defendants). In the premises, the second sentence is also denied, insofar as it is directed at the Telefonica Defendants.

29. The allegations in paragraph 2 of unlawful and/or improper behaviour by the Telefonica Defendants are denied, for the same reasons. Otherwise, paragraph 2 is noted.

30. Paragraph 3 is understood to be a summary of the alleged factual basis for the claim. The Telefonica Defendants’ position is summarised at paragraphs 3 to 27 above. A full response to the details of the Claimant’s allegations is set out below. For present purposes, the Telefonica Defendants make the following points as to the matters alleged in paragraph 3, insofar as they are directed at the Telefonica Defendants:

30.1. As to paragraph 3(a):

a) The defined term “Connections” is imprecise and apt to cause confusion; it is therefore not admitted. O2’s understanding is that there were differences between the types of mobile network connections offered by the various MNOs, including by the MNO Defendants. The Telefonica Defendants therefore use the term “O2 Connections” to describe the supply of airtime and data services via mobile network connections offered by O2 (as already noted at paragraph 5 above). As noted at paragraph 8 above, the term “MNO Connections” is used to describe the supply of airtime and data services via mobile network connections offered by the MNOs in general. Although handsets were sometimes supplied as part of MNO Connections, including O2 Connections, this was not always the case.

b) P4U is required to prove that its business was successful and profitable. It is admitted that, after CPW, P4U was the second largest indirect distributor of MNO Connections in the UK by volume before it was placed into administration.

30.2. As to paragraph 3(b), P4U’s claimed focus on selling MNO Connections to young adults is addressed at paragraphs 11 and 12 above. Although P4U’s sales of MNO Connections to young adults may have been profitable for P4U, it is denied that this fact conferred a “particular importance” on P4U from O2’s perspective. Indeed, for the reasons summarised at paragraphs 11 and 12 above, customers that bought O2 Connections through P4U generated, on average, comparatively low margins for O2.

30.3. Paragraph 3(c) is not admitted, save that it is admitted that, until the 2009 Agreement expired, P4U was appointed by O2 to sell O2 Connections.

30.4. As to paragraph 3(d), a summary of O2’s approach to indirect sales channels is set out at paragraphs 6 to 8 above. If or to the extent that the UK was a less profitable market than other European countries (which is not admitted as a statement of general principle), it is denied that this was caused simply by the presence of indirect sales channels in the UK. The relative profitability of selling MNO Connections in any national market depended, and depends, on a large number of factors. For example, the said factors include the number and

strength of MNOs competing in the relevant market, the relative preference of consumers for different categories of mobile network connections, the amount and distribution of disposable income enjoyed by consumers, the technological sophistication of consumers, the prices for which network services and handsets can be sold and the costs of providing mobile network services in the relevant market.

30.5. As to paragraphs 3(e)(i) and (ii), O2’s expectations as to the effect of not entering into a new agreement with P4U on O2’s market share and profitability are stated at paragraph 18 above.

30.6. The final sentence of paragraph 3(e) and the whole of paragraphs 3(f) and 3(g) are specifically denied, for the reasons given at paragraph 25 above. None of the Telefonica Defendants engaged in unlawful collusion and/or was a party to an unlawful agreement and/or decision and/or concerted practice, with the object or effect of preventing, restricting and/or distorting competition in the market for the sale of MNO Connections in the UK, as alleged or at all. None of the Telefonica Defendants gave an unlawful commitment to any other party, unlawfully disclosed or received confidential and commercially sensitive information or unlawfully concerted together with other parties in relation to any party’s current or future intended trading arrangement with P4U, rather than independently determining its future conduct in respect of P4U, as alleged or at all.

30.7. Paragraph 3(h) is not understood, in that it appears to make an allegation directed at all of the Defendants, but the particulars given in support of that allegation do not relate to any of the Telefonica Defendants. Further, the said paragraph relates to events after 27 January 2014. The alleged relevance of these matters to the claim against the Telefonica Defendants is not understood, given that the Post-Pay Rights had already expired in January 2013, and (as is alleged at paragraph 52) O2’s decision not to renew the Pre-Pay, Upgrade and SIM-only Rights was communicated to P4U in or around October 2013. For the avoidance of doubt, if or to the extent that the said paragraph is directed at the Telefonica Defendants or any of them, it is denied.

30.8. Paragraph 3(i) is not directed at the Telefonica Defendants.

30.9. Paragraphs 3(j)(i) and (ii) are denied. Paragraph 30.6 above is repeated.

30.10. Although paragraph 3(j)(iii) appears to be directed at the Telefonica Defendants, the Particulars of Claim do not identify any factual basis for making this allegation against the Telefonica Defendants.

30.11. Paragraph 3(k) is not directed at the Telefonica Defendants.

31. Paragraph 4(a) is denied. Paragraph 27 above is repeated.

32. Paragraphs 4(b) and (c) are not directed at the Telefonica Defendants.

B PARTIES

Claimant

33. Paragraph 5 is admitted, save for the allegation that P4U was the principal trading company in the P4U Group. That is outside the knowledge of the Telefonica Defendants and is therefore not admitted.

34. Paragraph 6 is admitted, save for the date on which the P4U Group was acquired by BC Partners. That is outside the knowledge of the Telefonica Defendants and is therefore not admitted. In the course of 2013, BC Partners withdrew a dividend of approximately £200 million from the P4U Group.

35. As to paragraphs 7 and 29 and the first and third sentences of paragraph 30, it is admitted that P4U engaged in the activities referred to. It is not admitted that these activities were P4U’s business focus, or the core of its business, as this is outside the knowledge of the Telefonica Defendants.

36. As to paragraph 8, the trading agreement between P4U and O2 (i.e. the 2009 Agreement) is addressed below. Otherwise, the said paragraph is not directed at the Telefonica Defendants.

37. As to paragraph 9:

37.1. As to the first sentence:

a) It is not understood what the material times referred to are intended to be. The allegation relating to this period is therefore not capable of being understood or responded to.

b) The allegation that P4U was a “valuable business” before it went into administration in September 2014 is too vague to bear any identifiable meaning or to be capable of a response. If P4U wishes to make a case as to what value the P4U business had at this (or any other) time, it will have to state that case with specificity and identify the factual particulars that have led it to assert the claimed valuation. The Telefonica Defendants will then respond.

37.2. The second sentence is not directed at the Telefonica Defendants.

37.3. Paragraph 9(a) to 9(c) are admitted as partial quotations from the documents referred to.

38. P4U is required to prove the matters alleged in paragraph 10, which are not within the knowledge of the Telefonica Defendants.

39. Paragraphs 11 and 12 are admitted.

Defendants

40. As to paragraph 13:

40.1. The first sentence is admitted in respect of the Telefonica Defendants.

40.2. The second sentence is admitted.

40.3. The third sentence is understood to refer to the Defendants’ activities in 2014. It is admitted that O2’s business in the UK included the activities referred to, save that (1) O2 did not make any sales through P4U after 31 January 2014; and (2) as is further set out below, even in January 2014, O2 only supplied some of the range of O2 Connections via P4U.

41. Paragraphs 14 to 18 are not directed at the Telefonica Defendants.

Telefónica group

42. Paragraph 19 is admitted.

43. The first sentence of paragraph 20 is admitted. As to the second sentence, this aspect of the corporate structure has changed over time during and since the events to which the claim relates. Telefónica Europe has, however, been an indirect parent company of

O2 at all times during that period, although not always a 100% parent company.

The MNO Defendants

44. Paragraph 21 is noted.

C SALE AND DISTRIBUTION OF CONNECTIONS IN THE UK

Independent retail intermediaries in the UK

45. As to paragraph 22:

45.1. It is noted that late 2013/early 2014 was approximately a year after the expiry of the Post-Pay Rights. The relevance of this paragraph to the case against the Telefonica Defendants is therefore unclear.

45.2. As to the first sentence, it is admitted that, as of late 2013/early 2014, most UK consumers that wanted a network-connected mobile phone had such a device. It is nonetheless denied that it follows that the market for the sale of MNO Connections in the UK was highly saturated. For instance, at around this time a number of customers were moving from Pre-Pay Connections to Post-Pay Connections (see paragraph 66.1 below for the definitions of these terms). Further, an increasing number of customers were purchasing greater volumes of mobile data services, for example because they were choosing smartphone handsets and/or because the launch of 4G increased the speed at which data services were available. Further still, certain customers wished to obtain the latest new handsets as soon as these became available, and were prepared to pay more in order to do so. These were substantial developments that offered opportunities to MNOs to increase the value of services sold to existing customers (as well as to persuade customers of other MNOs to switch provider).

45.3. The second sentence is denied:

a) As to the allegation that the market was oligopolistic, the characterisation of a market as oligopolistic requires an analysis of its structural features and the behaviour of the market participants. If P4U wishes to allege that the UK market for Connections was oligopolistic, it must set out proper particulars in support of that allegation. Pending such proper particularisation, the allegation is denied. Neither the

structure of the relevant market nor the behaviour of the parties within it provides a sound basis for a description of the said market as oligopolistic.

b) It is not understood whether the allegation that the UK market for Connections was highly concentrated is intended to add anything to the allegation that the market was oligopolistic. If so, that allegation is too vague to be understood or to be capable of a response.

45.4. As to the third sentence, it is admitted that a focus of competition between MNOs was gaining market share at the expense of other MNOs. MNOs also, however, sought to increase the size of the total market, for instance by seeking to take advantage of the market changes identified at paragraph 45.2 above.

45.5. The fourth sentence is admitted. It is further noted that O2 recognised that certain customers were more profitable from its perspective than others. O2 was less strongly motivated to seek to retain and acquire customers from less profitable market segments.

46. As to paragraph 23:

46.1. Pending economic expert evidence, it is not admitted (if it be alleged) that there was a single product market for the types of MNO Connections referred to in paragraph 23, or for all MNO Connections in the UK. The Telefonica Defendants therefore respond to paragraph 23 without admitting that the “market” referred to is aptly defined.

46.2. It is noted that, between May 2013 and April 2014, the 2009 Agreement was in the process of expiring.

46.3. The figures stated in paragraph 23 are admitted as approximately accurate figures in respect of new and upgraded Post-Pay and Pre-Pay Connections offered by the MNOs referred to (the terms “Post-Pay” and “Pre-Pay” are defined at paragraph 66 below).

46.4. The said figures do not, however, appear to take into account the proportion of customers purchasing SIM-only MNO Connections (defined at paragraph 66.2 below). Once SIM-only MNO Connections are also taken into account, the position was as follows:

a) EE: 31.1%;

b) Vodafone: 18.4%;

c) O2: 21.8%;

d) Three: 13.3%; and

e) MVNOs: 15.4%.

47. As to paragraph 24:

47.1. The first sentence is admitted as a broad summary of the effect of the UK regulatory framework until the late 1990s. For the avoidance of doubt, however, MNOs were permitted during this period to sell MNO Connections through retail intermediaries that they owned. The O2 business, which was until 2002 part of the BT corporate group, traded as Cellnet until 1999, and from 1999 until 2002 as BT Cellnet. During this period, it sold mobile network connections through such an intermediary, namely Call Connections Limited.

47.2. As to the second and third sentences, it is admitted that independent retail intermediaries were, in general, less common in other European countries in which members of the Telefónica corporate group operated than in the UK. Otherwise, P4U is required to prove the said sentences.

48. As to paragraph 25:

48.1. As to the first sentence, it is admitted that in the late 1990s, regulatory changes permitted MNOs to deal directly with customers. It is further admitted that O2 purchased The Link (a retail intermediary) in or around September 2006, having previously been a part-owner of the said business. Otherwise, the first sentence is not admitted. In particular, P4U is required to prove that the majority of retail intermediaries and/or their assets were purchased by MNOs. Further, consolidation of sellers of MNO Connections was driven by indirect sellers as well as by MNOs; for instance, in or around February 2008, P4U acquired Dial- a-Phone, an indirect seller of MNO Connections that did business online.

48.2. As to the second sentence, it is admitted that, as of 2011/2012 (the start of the period relevant to these proceedings), CPW and P4U were the two largest retail intermediaries in the UK. The allegation that P4U and CPW were the only significant retail intermediaries in the UK is, however, denied. Other

intermediaries (including Tesco and A1) were also competing to make indirect sales of Connections to customers, and cannot fairly be described as insignificant.

48.3. The third sentence is admitted.

49. The Telefonica Defendants are unable to respond to paragraph 26 until P4U identifies the source of the figures stated and/or the way in which they have been calculated. In particular:

49.1. CPW has stated publicly6 that it had a share of 16.2% of the market for Post- Pay Connections in the UK between May 2013 and April 2014. This is substantially lower than the 21% market share claimed by P4U in paragraph 26.

49.2. It is not clear whether the figures in paragraph 25 refer to all categories of MNO Connections, or whether, as at paragraph 23, the said figures exclude SIM-only MNO Connections. In the latter case, the figures given are likely to overstate P4U’s market share, since P4U was less successful in procuring SIM-only Connections than other categories.

50. As to paragraph 27, the first two sentences of paragraph 124(b)(ii) and paragraph 142(a):

50.1. As to the first sentence of paragraph 27 and the like allegation in paragraph 142(a), paragraph 30.4 above is repeated.

50.2. As to the second sentence of paragraph 27 and sub-paragraphs (a) to (c), it is admitted that it was in many (although not all) cases less profitable for O2 to make an indirect sale of a Connection than to make a direct sale. The principal reason for this was that, as is stated at paragraph 27(c) and in the first two sentences of paragraph 124(b)(ii), which are admitted, when O2 sold Connections indirectly, it was obliged to pay the intermediary a commission on the said sales, which increased O2’s costs.

50.3. As to the first sentence of paragraph 27(a), it is admitted that customers were able to choose between mobile network connections offered by a number of

6 https://www.dixonscarphone.com/~/media/Files/D/Dixons-Carphone/documents/preliminary-results- 2018-presentation.pdf, page 35: under the heading “Carphone market share 2013/14 to 2017/18”, the text reads “Postpay handset up 570bps to 21.9%”. It follows that CPW’s claimed market share in Post-Pay Connections in 2013-2014 was 16.2% (21.9% less 570 basis points). 17

MNOs at retail intermediaries such as P4U and CPW. It is denied, if it be alleged, that P4U provided impartial advice to potential customers, for the reasons given at paragraph 57.2 below.

50.4. As to the second sentence of paragraph 27(a) and as to paragraph 27(b), it is admitted that sellers of MNO Connections competed with other direct and indirect sellers on price, in addition to competing in respect of other matters such as network coverage, after-sales service and contract duration. Such price competition was one of a number of factors that affected the prices charged by O2 for O2 Connections.

50.5. O2’s direct sales channels and P4U did not compete in respect of the pricing of airtime services, since the prices charged to customers for these services were set by O2. It is, however, admitted that it was open to P4U to compete with O2’s direct sales channels in respect of pricing by offering bundled packages that combined airtime services and mobile phone handsets at lower prices than those offered by O2’s direct sales channels.

50.6. As to the effect of price promotions, O2 did not in general seek to match price promotions offered by indirect sellers such as P4U for airtime and handset bundles. Instead, O2 sought to compete with such promotions by offering better customer service, and benefits exclusively available to customers who shopped with O2 directly. For instance, O2’s Refresh offering, which was developed in late 2012 (described at paragraph 82 below), provided customers with increased flexibility to upgrade their handsets and certainty as to costs.

50.7. It is denied that it is useful to consider the advantages and disadvantages of making indirect sales by reference to revenue, as distinct from profit. In order to calculate whether it was commercially attractive for O2 to sell an O2 Connection, it is necessary to consider both the revenue achieved from the said sale and the costs incurred in making the sale and providing the relevant service – i.e. the profit. Considering revenue in isolation is not a meaningful exercise.

51. As to paragraph 28:

51.1. Whether it was, on balance, commercially advantageous to O2 to reduce or stop making indirect sales via a particular intermediary depended principally on the following two factors:

a) first, the commercial terms that could be agreed with the intermediary; and

b) second, the risk of losing business if O2 no longer supplied the intermediary.

51.2. It is therefore further admitted that O2 was incentivised to stop making sales through a retail intermediary where, in O2’s judgment, the commercial terms that could be agreed with the relevant intermediary were so disadvantageous to O2 that O2 considered it preferable to take the risk of losing at least some of the relevant business by no longer making sales via the said intermediary.

51.3. Otherwise, paragraph 28, which appears to be drafted for rhetorical effect, is denied. It is in particular denied (if it be alleged) that O2 perceived indirect sales as invariably less advantageous than direct sales. This depended on a number of factors, which O2 analysed and evaluated on a case-by-case basis. It would, for example, be attractive to O2 to make indirect sales if doing so enabled O2 to sell Connections:

a) to customers who would or might not otherwise purchase Connections from O2, either at all or without O2 incurring additional costs (for instance by making capital investments in opening new retail premises);

b) on commercial terms that were sufficiently advantageous to O2.

P4U’s business

52. As to paragraph 29 and the first and third sentences of paragraph 30, paragraph 35 above is repeated.

53. The second sentence of paragraph 30 is an imprecise statement of the approach to handset pricing and is therefore denied. The position is more accurately set out, in respect of handsets, in the second sentence of paragraph 31. It is admitted that, in some (although not all) cases, customers were supplied with handsets by P4U without paying any upfront fee, or in return for a significantly discounted upfront fee. The “bundle price” charged for the O2 Connection would, however, include an element reflecting the cost of the handset.

54. Paragraph 31 is understood to relate to Post-Pay Connections, and is responded to as

follows on that basis:

54.1. As to the first sentence, it is admitted that a customer purchasing an O2 Post- Pay Connection through P4U may have received some or all of the elements identified, and also other elements such as mobile phone insurance. It is, however, denied that all of the said elements were supplied by O2. As the first sentence of paragraph 32 states, the handset was supplied by P4U rather than O2 itself. The same is true of any mobile phone insurance. It is not understood what is meant by the term “accessories”.

54.2. The second sentence is admitted in respect of handsets, but is otherwise denied. The SIM card was provided by O2 to the customer free of charge, and remained the property of O2. P4U’s relationship with O2 did not extend to hardware other than mobile phone handsets.

54.3. The third sentence is too vague and generalised to admit of any meaningful response.

55. The first sentence of paragraph 32 is admitted insofar as it relates to handsets. Otherwise it is denied, because P4U’s relationship with O2 did not extend to hardware other than mobile phone handsets. The second and third sentences are outside the knowledge of the Telefonica Defendants and are not admitted.

56. Paragraph 33(1) is admitted in respect of the costs of the handset. It is denied insofar as it relates to the cost of the SIM card, for the reason given at paragraph 54.2 above. As already noted, the term “accessories” is not understood; P4U’s relationship with O2 did not extend to hardware other than mobile phone handsets. Paragraph 33(2) is addressed at paragraph 65.2 below.

57. As to paragraphs 34, 38(b), 38(c), 38(e) (insofar as it concerns market share), 53(b)(ii), the second sentence of 53(b) and the final sentence of 53(c):

57.1. It is admitted that one aspect of the intended role of P4U’s sales staff was to inform customers about the products and services offered by the various MNOs for which P4U acted as a distributor from time to time, including the prices charged for the said products and services.

57.2. It is denied, if it be alleged, that P4U offered impartial advice to customers regarding the most appropriate MNO Connection for their needs. Any advice

offered was not impartial, for a number of reasons. First, retail intermediaries, including P4U, made “trading volume commitments” to the MNOs for whom they acted as distributors. As a result, intermediaries such as P4U were motivated to persuade customers to purchase MNO Connections in proportions reflecting the commitments that they had made to the MNOs. Second, as P4U has stated (e.g. at paragraphs 33(2) and 48), some elements of the commission payments that it received, at least from O2, reflected the revenues derived from the relevant O2 Connection. It followed that, if P4U sold a more expensive package to a customer, P4U would (as a general rule) receive more commission.

57.3. It is admitted that at least some customers interested in purchasing MNO Connections were incentivised to make such purchases via a retail intermediary that was appointed by a number of MNOs to distribute MNO Connections (such as P4U), because this enabled them to make a direct, “one-stop”, comparison between the products and services offered by more than one MNO. This does not, in and of itself, equate to brand loyalty to P4U specifically; other indirect sellers, such as CPW, were at least equally capable of enabling customers to make such a comparison.

57.4. It is nonetheless admitted that at least some of P4U’s customers had at least some brand loyalty to, and felt goodwill towards, P4U. It is also admitted that P4U attracted at least some repeat customers.

57.5. O2 customers also had brand loyalty to, and felt goodwill towards, O2. For instance, as at 31 December 2012, of O2’s 7.3 million Post-Pay customers, 54% had been purchasing an O2 Connection (or had been “with O2”) for at least three years. Almost a third of the said 7.3 million Post-Pay customers had been with O2 for at least five years. O2’s experience suggested that, once a customer had first purchased an O2 Post-Pay Connection, they would in general remain a customer of O2 when they required a new MNO Connection. Further, current and potential O2 customers would have been aware that, if P4U was no longer a distributor of O2 Connections, O2 Connections would still be available from other indirect sellers (e.g. CPW) and directly from O2 itself. Further still, O2 had access to the contact details for customers who had bought an O2 Connection through P4U. O2 was able to and did contact such customers with a view to seeking to “convert” them to buying an O2 Connection through O2’s

direct sales channels.

57.6. As further set out below, customers who had purchased an O2 Post-Pay Connection from P4U were, on average, more likely to terminate their relationship with O2 at the end of a Contract cycle than customers who had bought an O2 Connection via an O2 direct sales channel. This high churn rate was one of the factors that made distribution via P4U less attractive from O2’s perspective. Nonetheless, O2 expected that many customers who had purchased an O2 Connection from P4U would remain loyal to O2. As is also further set out below, O2’s expectation in this respect turned out to be correct.

57.7. In 2012, O2 expected that growth in direct internet sales would lead to an increased proportion of direct sales of mobile network Connections at the expense of indirect sales channels.

57.8. It is denied that a customer who had previously bought a Connection from O2 via P4U would necessarily be more likely to buy further Connections through P4U than through other sales channels, even if P4U no longer distributed Connections for O2. The channel from which such a customer bought further Connections would depend on a wide range of factors, including:

a) the number and identity of MNOs distributing Connections through P4U and rival sellers;

b) the choice of handsets and handset prices offered by the various MNOs through P4U and rival sellers;

c) the choice of contract terms (e.g. for network service contracts) and the prices for those contracts offered by the various MNOs through P4U and rival sellers;

d) where P4U’s retail premises and those of other distributors were located; and

e) whether the customer had in the past had positive or negative customer service experiences with P4U and/or other distributors.

57.9. Any brand loyalty and/or goodwill on the part of the customer to P4U would be one factor in the above analysis, but would not necessarily “trump” any or all other factors.

57.10. The extent to which P4U would be able to attract customers to its stores, or exert influence over customers’ decisions as to which Connection to buy, depended on all of the above factors.

57.11. P4U is required to prove the following allegations in the said paragraphs:

a) that it was able to identify a handset and/or network service that was suitable for a particular customer, and/or to sell the said products and services to the relevant customer;

b) that its customers placed more importance on the choice between handsets and perceived value for money of the available packages, and less on the choice between MNOs. Even if P4U were able to establish this, it would not by itself demonstrate “network agnosticity”. In order to show that customers were agnostic as between MNOs, P4U would also need to prove that customers did not associate particular MNOs with more or less preferable offerings, for instance in respect of the handsets and packages available, network coverage and/or after-sales customer support services;

c) that P4U’s customers were less loyal and/or more indifferent to MNOs than those customers who did not visit P4U’s stores; and

d) that, once a customer visited a P4U store for a new MNO Connection or an Upgrade to an MNO Connection, P4U would typically sell that customer an MNO Connection with an MNO that supplied P4U.

57.12. Otherwise, the matters alleged in the said paragraphs are denied.

58. As to paragraph 35:

58.1. It is admitted that one of a range of measures by which O2 assessed its performance was to calculate the number of “net additions” of O2 Connections.

58.2. It is noted that paragraph 35 does not give any figure for the number of net additions of O2 Connections attributable to P4U. By March 2014 (the date at which the figures alleged in respect of EE and Vodafone are given), the 2009 Agreement had expired, and O2 had not entered into a new agreement with P4U.

58.3. Other performance measures used by O2 included (1) gross sales figures; (2) gross numbers of O2 Connections; (3) churn rates; (4) margin rates; and (5)

customer satisfaction levels.

58.4. In particular, it was important from O2’s perspective to assess not only the number of customers purchasing O2 Connections, but the average profitability of the said customers, or groups of customers, for O2’s business. This depended on a number of factors, including the following:

a) spend per customer on voice and data services;

b) churn rate. By way of example, since O2 was, in or around 2012, providing O2 Post-Pay Connections to approximately 7.3 million customers in the UK, if O2 could reduce its churn rate by just 1% overall, this would equate to a retention of an additional c73,000 customers. Reducing the churn rate to which it was exposed was therefore a key priority from O2’s perspective;

c) fraud rate; and

d) credit default rate.

59. As to paragraphs 36, 53(b)(i) and the first sentence of paragraph 128(a):

59.1. As to the first sentence of paragraph 36 and the like allegations in paragraphs 53(b)(i) and 128, P4U is required to prove that it had a strong presence in respect of sales to young adults and that its share of such sales was in excess of 40%.

59.2. As to the second sentence of paragraph 36 (along with the like allegation in paragraph 53(b)(i)), it is admitted that young adults were on average a technologically sophisticated demographic.

59.3. As is further set out below, customers who bought O2 Connections through P4U offered particularly low levels of profitability to O2 relative to other customer segments. This was for reasons including the following factors:

a) There was a relatively high churn rate amongst P4U-acquired customers. Thus, even if a P4U-acquired customer initially signed up to an O2 Post- Pay Connection involving high monthly payment for mobile network services, the “lifetime value” of the said O2 Connection to O2 would be reduced if the customer terminated their relationship with O2 at the end of the minimum contract term.

b) There were also higher than average levels of credit default and fraud

amongst P4U-acquired customers.

c) The customer service costs associated with P4U-acquired customers were higher than average.

d) As already noted, when P4U procured O2 Connections, O2 was obliged to make commission payments to P4U.

59.4. In consequence of the above factors, P4U-acquired customers tended on average to be low margin customers for O2 Connections.

59.5. As to the remainder of the second sentence of paragraph 36, the third sentence of paragraph 36 and the first sentence of paragraph 128(a), O2 does not have data on whether the above factors were a product of P4U’s customer base or business model and/or whether they were associated with young adult customers as a market segment. It is in any event denied that O2 considered the young adult market segment to be a more lucrative source of revenue than other demographics.

59.6. O2’s preferred commercial strategy was to diversify the risks to which it was exposed by seeking to attract a mix of customers across all relevant market segments, including by age, rather than focussing on a particular demographic group.

59.7. O2 therefore sought to attract young adult customers as part of its overall desired customer mix. For example, “giffgaff”, which was launched in 2009, is an MVNO owned by Telefónica, which uses O2’s UK mobile network. Giffgaff offers a more limited range of products and services than O2 itself, and appeals in particular to young adult consumers. Telefónica’s ownership of giffgaff strengthened the Telefonica corporate group’s ability to reach young adult customers as part of the desired customer mix in the UK, whether or not O2 Connections were also available through P4U.

59.8. The intended meaning of the allegation that young adults were “the principal” source of new O2 Connections is not understood. For instance, it is not clear whether P4U intend to allege that young adults accounted for over 50% of new O2 Connections, or if the word “principal” is intended to bear some other meaning. If P4U clarifies its case, the Telefonica Defendants will then respond.

59.9. P4U is required to prove the fourth sentence.

60. As to paragraph 37 and the third sentence of paragraph 53(b):

60.1. The Telefonica Defendants do not respond to the said paragraph insofar as it makes allegations as to the state of awareness of other Defendants. Neither do they respond to the allegations relating to Vodafone UK’s indirect sales channels.

60.2. Paragraph 37 does not identify the time period to which the allegations therein are intended to relate. It is assumed that they are intended to relate to the year 2012, as this is the period when O2 started actively to consider whether to renew the 2009 Agreement.

60.3. It is admitted that O2 and, to some extent, Telefónica Europe and Telefónica were aware in 2012 that it was likely that, if O2 stopped making indirect sales via P4U, some customers who would otherwise have purchased O2 Connections via P4U would instead choose to buy MNO Connections offered by other MNOs via P4U.

60.4. It is, however, denied that it necessarily followed, in O2’s view at the relevant time or at all, that stopping making indirect sales via P4U would have a net disadvantageous effect on O2’s business. That would depend on (1) the commercial terms that could be concluded between P4U and O2 for the sale of O2’s products and services; and (2) the number of customers who would otherwise have purchased O2 Connections via P4U, but who would still purchase O2 Connections either directly or via another indirect seller (e.g. CPW) when O2 Connections were no longer available via P4U. Paragraph 51 above is repeated.

60.5. As to paragraph 37(b) (insofar as it is directed at O2) and the third sentence of paragraph 53(b):

a) Paragraph 37(b)(i)(2) and the first sentence of paragraph 37(b)(iii) are not admitted insofar as they are directed at O2.

b) Otherwise, the said paragraphs, which appear to be drafted for rhetorical effect, are denied insofar as they are directed at O2. At all times, including in 2006-2007, O2 kept its mix of distribution channels under

review and adjusted these over time as O2 considered appropriate, taking into account O2’s desire to maximise both the volume and value of its mobile network business. O2 accepted and expected that the optimum strategy might vary over time.

60.6. Otherwise, paragraph 37 is denied.

61. As to paragraph 38 (and the like allegations in the first three sentences of paragraph 124):

61.1. The Telefonica Defendants do not respond to this paragraph insofar as it is directed at EE and/or Vodafone.

61.2. The first sentence is admitted.

61.3. The second sentence is denied. As is further set out below, O2 unilaterally decided not to continue making sales via P4U after the expiry of the 2009 Agreement, because it had not been possible to negotiate terms that were commercially satisfactory to O2.

61.4. The factual allegations in paragraphs 38(a) to (e) are responded to in turn below. It is denied that any of these factors did or would, alone or in combination with all or any of the other factors relied on, necessarily induce O2 to supply O2 Connections via P4U. Whether O2 was prepared to supply O2 Connections via P4U did and would in any case depend on its overall assessment of the terms that could be agreed with P4U, including in particular O2’s assessment of the two factors identified at paragraph 60.4 above.

61.5. As to paragraph 38(a), P4U is required to prove that it had a particular strength in the sale of O2 Connections to young adult customers. As to the relevance and attractiveness of this market segment, paragraph 59 above is repeated. P4U is required to prove that it had an increasing strength in the sale of O2 Connections to young adult customers. As to the significance of P4U as a source of sales of O2 Connections, reference is made to paragraph 10 above and paragraph 121 below.

61.6. As to paragraphs 38(b) and (c), paragraph 57 above is repeated.

61.7. The first sentence of paragraph 38(d) is admitted as a statement of general principle insofar as it is addressed to O2. In order to remain profitable, however,

O2 had to achieve a positive return on investment on both its fixed and variable costs. As is further set out below, the terms of the 2009 Agreement were insufficiently profitable from O2’s perspective. The second sentence is denied insofar as it is addressed to O2. Whether O2 would lose a source of (net) marginal revenue and/or reduce its profitability as a result of not distributing O2 Connections via P4U would depend on the two factors identified at paragraph 60.4 above. As is stated at paragraph 18 above, O2 believed that a substantial number of customers who were buying O2 Connections through P4U would in future continue to buy O2 Connections through sales channels that were more profitable for O2, and this in fact turned out to be correct. As a result, as is further set out at paragraphs 114 to 120 below, the overall profitability to O2 of the P4U Post-Pay Customer Base improved after the 2009 Agreement expired.

61.8. Paragraph 38(e) is denied. As to the opening words of the paragraph, paragraph 60.4 above is repeated. As to the allegations in paragraphs 38(e)(i) and (ii) concerning loss of revenue, paragraph 61.7 above is repeated. As to the allegations in paragraphs 38(e)(i) and (ii) concerning loss of market share, paragraph 57 above is repeated.

62. As to paragraph 39 (and the like allegations in the first three sentences of paragraph 124):

62.1. The opening words and paragraph 39(a) are denied, for the reasons set out at paragraph 60.4 above. It appears to be P4U’s case that it could in no circumstances have been rational for any individual MNO unilaterally to stop supplying MNO Connections via P4U, regardless of the commercial terms on which such supplies would be made. That is an extreme position, and is wrong. Paragraph 17 above is repeated.

62.2. As to paragraph 39(b), O2 has responded above to paragraphs 36 to 38, and responds below to paragraphs 124 and following.

D P4U’S DISTRIBUTION AGREEMENTS WITH THE MNO DEFENDANTS

63. As to paragraph 40, O2 responds below to P4U’s case as to the trading agreement between it and O2.

64. Paragraphs 41 to 47 are not directed at the Telefonica Defendants.

O2 Agreement/2009 Agreement

65. As to paragraphs 48 and 49, and also as to paragraph 33(2):

65.1. O2 will rely on the 2009 Agreement for its full terms and effect at trial. The second sentence of paragraph 49 is noted.

65.2. As to the first sentence of paragraph 48 and the first sentence of paragraph 49:

a) It is admitted that P4U and O2 entered into an agreement (i.e. the “2009 Agreement”, as defined above) on 9 March 2009.

b) It is admitted that the 2009 Agreement was amended thereafter. References herein to the 2009 Agreement are to that agreement as amended from time to time.

c) Subject to the matters set out at paragraph 66 below and to earlier termination in accordance with its provisions, it is further admitted that the effective date of the 2009 Agreement was 1 January 2009 and that its term ran to 31 January 2014, when it was due to expire.

65.3. As to the second sentence of paragraph 48 and as to paragraph 33(2):

a) It is admitted that, by the 2009 Agreement, the parties agreed the terms on which P4U was appointed by O2 to market to consumers and procure O2 Connections (as defined, see below) in the UK.

b) It is further admitted that O2 agreed to pay P4U certain agreed commissions in return for procuring O2 Connections.

c) Although it is admitted that (as is also alleged at paragraph 33(2)) certain of these commissions reflected, or were intended to reflect, a share of the revenues generated from the relevant contracts with consumers, it is denied that this was the case for all of them. Certain of the commission payments were fixed-fee sums, which did not reflect a share of revenues.

d) It is further denied that the 2009 Agreement provided for any of the commission payments to be calculated on the basis of a share of the costs of acquiring and retaining customers.

e) It is also denied that any commission was paid simply in return for P4U promoting O2 Connections, although it is admitted that P4U was obliged to use certain commission payments for promotional activities.

65.4. The third sentence of paragraph 48 is denied. Whether O2 and P4U’s commercial interests were in any individual case aligned in relation to the sale of an O2 Connection under the 2009 Agreement calls for an analysis of a number of factors, including in particular what the relevant counterfactual would have been. For instance, on O2’s part, whether it was in its interest for P4U to procure an O2 Connection depended on whether, if P4U did not procure the said O2 Connection, the customer would go on to purchase it from another (direct or indirect) sales channel that was more or less profitable to O2, or whether the customer might not purchase an O2 Connection at all.

66. Under the 2009 Agreement, O2 appointed P4U for the purpose of marketing and procuring certain specified O2 Connections.

66.1. Pursuant to Clause 3.1.1, P4U was appointed to market and procure the following types of O2 Connections until 31 January 2013 (subject to earlier termination). These are the “Post-Pay/Pre-Pay Rights” referred to above:

a) New Post-Pay Voice Connections (“Post-Pay”, or sometimes “New Post-Pay”): these occurred where P4U procured a customer to enter into an agreement between O2 and the customer for the provision of electronic communications services over the O2 mobile network on O2’s standard terms (a “Contract”) for a post-pay combined voice and data tariff with a minimum term of more than 30 days.

b) Pre-Pay Voice Connections (“Pre-Pay”): these occurred where P4U provided a customer with a pre-pay handset containing pre-pay SIM card on a pre-pay combined voice and data tariff, for which the customer purchased credit at the time of purchase (or “topped up”).

c) Mobile Broadband Connections (“Mobile Broadband”): these occurred where P4U provided a customer with means of using broadband services outside the home, including via a USB modem. There were options allowing the customer both to pay in advance and in arrears (i.e. Pre- and Post-Pay options).

d) Fixed Home Broadband Connections (“Home Broadband”): these occurred where P4U supplied a customer with a box enabling him to receive home broadband internet access, and O2 activated that equipment so that it could connect to O2’s fixed broadband internet network, to be paid for using a tariff selected by the customer.

66.2. Pursuant to Clause 3.1.2, P4U was appointed to market and procure the following types of O2 Connections until 31 January 2014 (subject to earlier termination). These are the “Upgrade/SIM-only Rights” referred to above:

a) Upgrade Post-Pay Voice Connections (“Upgrades”): these occurred where P4U procured a Post-Pay Voice Connection in relation to which the SIM card or mobile phone number to which the Connection related was immediately previously connected to the O2 mobile network.

b) Simplicity Voice Connections (“SIM-only”): these occurred where P4U procured a customer to enter into a Contract for a combined voice and data tariff with a minimum term of 30 days, in relation to which P4U was not required to (but might) supply the customer with a handset.

E THE ALLEGED FACTUAL CIRCUMSTANCES OF THE CLAIM

67. Paragraphs 50 to 118 set out the alleged factual circumstances of the claim. The Telefonica Defendants do not respond to paragraphs 57 to 114, which are addressed to other parties.

68. As has been noted at paragraph 13 above, paragraphs 50 to 56 do not address the expiry of the Post-Pay Rights at the end of January 2013 in any detail. In order to place the expiry of the Upgrade/SIM-only Rights, and the final expiry of the 2009 Agreement, in their proper context, it is necessary to understand the events leading to the expiry of the Post-Pay Rights. These are therefore described below.

69. As to paragraph 50:

69.1. The Telefonica Defendants have responded above to paragraphs 25 to 27.

69.2. In 2013/2014, O2 sold O2 Connections in the UK both directly (through its own brick-and-mortar shops, through O2-only franchise stores and through its own direct telephone/online sales channels) and indirectly (via retail intermediaries).

It is therefore denied that O2 either sold Connections directly or indirectly, as alleged.

69.3. As to the allegation that P4U and CPW were the only retail intermediaries with any significant presence by 2013/2014, the second and third sentences of paragraph 48.2 above are repeated.

69.4. As to the allegation that O2 sold Connections via P4U in 2013/2014, paragraph 40.3 above is repeated.

2011-2012: O2 conducts an assessment of its indirect sales channels

70. In late 2011, O2 commenced an internal evaluation of the profitability of its indirect sales channels in the UK. The said evaluation included an analysis of the profitability of O2’s indirect sales via P4U. The said evaluation led to the following conclusions:

70.1. Indirect sales channels generated substantial volumes of customer business, and therefore revenue, for O2.

70.2. On the other hand, indirect sales channels were typically less profitable for O2 than making direct sales. For example, direct sales of O2 Post-Pay Connections were on average roughly twice as profitable for O2 in 2012 as indirect sales. As is alleged at paragraph 27(c), and admitted at paragraph 50.2 above, this was principally because of the need to pay commissions to intermediaries on O2 Connections sold indirectly.

70.3. Direct sales were also preferable from O2’s perspective in a number of other respects. For example, customers who dealt directly with O2 were less likely to terminate their relationship with O2 at the end of a Contract cycle. Direct customers therefore had a higher lifetime value on average for O2 than indirect customers.

70.4. O2 therefore decided to adopt a strategy of seeking to increase the number and proportion of direct sales that it made.

70.5. O2 also wished to reduce the number and proportion of indirect sales that were insufficiently profitable from O2’s perspective to be commercially justified.

70.6. O2 was, however, aware that certain customers would prefer to purchase O2

Connections via indirect sales channels, in particular because this would enable them to compare MNO Connections offered by a number of MNOs. O2 therefore expected and accepted that it would continue to sell O2 Connections via a mixture of direct and indirect sales channels.

70.7. The key issue that O2 had to consider was which indirect sales channels were sufficiently profitable and efficient for it to be commercially attractive for O2 to make sales through them.

70.8. In relation to P4U specifically, the terms of the 2009 Agreement were not delivering satisfactory levels of profit for O2. In fact, O2’s analysis suggested that P4U delivered the lowest level of profitability of any sales channel in respect of all categories of O2 Post-Pay Connections.

70.9. By contrast, O2 considered that indirect sales via CPW were sufficiently profitable to justify continuing to make sales via this route.

71. In or around early 2012, P4U and O2 opened discussions regarding a possible renewal of the 2009 Agreement, following its staged expiry in January 2013 and January 2014.

June 2012: new terms proposed by P4U

72. In or around June 2012, P4U proposed to O2 the commercial terms on which P4U would be prepared to renew the 2009 Agreement (the “June 2012 Terms”). O2 considered that the June 2012 Terms were even less favourable to O2 than those of the 2009 Agreement.

73. O2’s Executive Committee therefore decided on or around 17 July 2012 to reject the June 2012 Terms, but to continue to negotiate with P4U in the hope that P4U’s stance would change so that terms could be agreed that would be satisfactory to O2.

74. From at the latest June 2012 onward, O2 kept under active consideration whether it would be commercially preferable from O2’s perspective (1) not to enter into a new agreement with P4U; (2) to accept any new terms offered; or (3) to seek to extend the 2009 Agreement on the existing terms. This question was considered both as a freestanding matter and as an aspect of O2’s wider distribution strategy in respect of O2 Connections.

75. In considering this question:

75.1. O2 recognised that if it were not to enter into a new agreement with P4U, O2 would risk a loss of market share, because some O2 customers would purchase MNO Connections from other MNOs via P4U.

75.2. O2’s expectation was, however, that any loss of market share would be relatively modest, in part because P4U’s customer base had a high “churn” rate in any event. Specifically, customers who bought O2 Post-Pay Connections through P4U were more likely to terminate their relationship with O2 at the end of a Contract cycle than those who bought O2 Post-Pay Connections through O2’s direct sales channels or through CPW. This is illustrated by Table 1. Table 1 takes as a starting point O2’s customer base for O2 Post-Pay Connections as at the end of 2010. It shows the percentage of those customers who had stopped buying an O2 Post-Pay Connection (or “left O2”) at the end of each quarter of 2011 and 2012. Table 1 shows that, over the course of two years, 42.2% of customers who had bought O2 Connections through P4U had left O2. This compares to 34.5% of CPW customers and 25.7% of customers who bought from O2 directly.

Table 1: illustration of customer churn in 2011 and 2012

O2’s direct sales CPW P4U

31/03/2011 3.9% 4.6% 5.9%

30/06/2011 7.5% 9.6% 11.7%

30/09/2011 11.0% 14.7% 17.9%

31/12/2011 14.6% 19.4% 23.5%

31/03/2012 17.6% 23.5% 28.2%

30/06/2012 20.0% 26.8% 32.8%

30/09/2012 22.8% 30.6% 37.9%

31/12/2012 25.7% 34.5% 42.2%

75.3. Further, O2 considered that the risk of losing market share had to be weighed against an analysis of how satisfactory (or unsatisfactory) the terms offered by P4U would be to O2. Paragraph 61 above is repeated.

September 2012: O2’s Board decides not to renew 2009 Agreement

76. On or around 13 September 2012, O2’s Board of Directors (its “Board”) decided to allow the Post-Pay Rights to expire on 31 January 2013, unless substantially improved commercial terms could be agreed with P4U in the meantime. That decision was taken because O2’s Board considered that the terms offered by P4U (in particular the June 2012 Terms) were so commercially unattractive for O2 that the disadvantages of entering into a new agreement outweighed the risks of no longer offering O2 Connections via P4U.

77. Since, however, the Upgrade/SIM-only Rights under the 2009 Agreement would not expire until 31 January 2014, O2’s Board also decided to continue to trade with P4U under the 2009 Agreement in respect of these Connection types until 31 January 2014.

78. From O2’s perspective, it followed from the above decision not to renew the Post-Pay Rights that the Upgrade/SIM-only Rights were also expected to be allowed to expire in January 2014 without being renewed. O2 did, however, remain open at all times from mid-2012 onward to renewing all categories of Connections if terms could be agreed with P4U that were satisfactory to O2.

79. Telefónica Europe was not involved in dealing with P4U in respect of the expiry of the Post-Pay Rights. Telefónica Europe did take part in some routine internal discussion of O2’s decision not to renew the said rights, including with O2. Telefónica Europe agreed with the said decision.

80. Telefónica was also not involved in dealing with P4U. Telefónica did take part in routine internal discussions, of a high-level and summary nature (including with O2) regarding O2’s decision not to renew the Post-Pay Rights upon their expiry in January 2013. Telefónica agreed with the said decision, but did not approve it in any formal sense.

81. On or around 16 October 2012, Mr Dunne informed Mr Whiting that the June 2012 Terms were not acceptable to O2, and that O2 intended to stop distributing O2 Post- Pay Connections through P4U once the Post-Pay Rights had expired.

Late 2012: O2 develops “Refresh”

82. In or around late 2012, O2 developed “O2 Refresh”, which was launched in April 2013.

This offering has at all times only been available from O2’s direct sales channels. O2 Refresh splits a customer’s contractual relationship with O2 into two parts, a “Device Plan” representing the cost of the mobile device, and an “Airtime Plan” representing the cost of voice and data services. This is designed to make it easier for customers to upgrade their mobile device, whilst providing increased certainty as to costs. If the customer pays off the amount outstanding on their Device Plan, they are able to obtain a new mobile device while continuing to use the same Airtime Plan (i.e. to use the same monthly deal for calls, texts and data allowances and prices). One of the reasons for introducing O2 Refresh was to attract customers to purchase Connections directly from O2.

November 2012: revised terms proposed by P4U

83. In or around November 2012, P4U proposed to O2 revised commercial terms on which P4U would be prepared to renew the 2009 Agreement (the “November 2012 Terms”). O2 considered that the November 2012 Terms:

83.1. offered similar or worse value to O2 from a financial perspective as the June 2012 Terms; and

83.2. would be less favourable to O2 than the June 2012 Terms, in that they would deliver less volume/market share to O2.

84. As in respect of the June 2012 Terms, O2’s view was that the November 2012 Terms were commercially unsatisfactory for O2.

85. O2 nonetheless continued to negotiate with P4U in the continued hope that P4U’s stance would change so that terms could be agreed that would be satisfactory to O2. For example:

85.1. O2 considered that P4U’s June and November 2012 Terms were based on unrealistically high assumptions as to the average revenues per user (“ARPU”) for O2 Connections procured by P4U. On 28 November 2012, O2 therefore provided P4U with data demonstrating the true ARPU for O2 Connections procured by P4U.

85.2. On 5 December 2012, O2 made an offer to P4U of terms that would be acceptable to O2’s Board for a new agreement with P4U. P4U indicated to O2

on the following day, 6 December 2012, that these proposed terms were not acceptable to P4U.

31 January 2013: Post-Pay Rights expire

86. It did not prove possible to identify new terms for O2 Post-Pay Connections that were acceptable to both P4U and O2. The Post-Pay Rights therefore expired, pursuant to the 2009 Agreement, on 31 January 2013, without being renewed. By a series of variation agreements, the parties agreed that the Pre-Pay Rights would be allowed to continue on the terms of the 2009 Agreement (as amended) until the remaining aspects of the 2009 Agreement expired on 31 January 2014.

87. As a result, from 1 February 2013 onward, P4U was only appointed by O2 to procure Pre-Pay, Upgrade and SIM-only Connections. The first sentence of paragraph 51 is admitted as to Upgrade and SIM-only Connections; as to Pre-Pay Connections, the final sentence of paragraph 86 above is repeated.

2013: after expiry of Post-Pay Rights

88. Throughout 2013, O2’s working assumption was that it would stop allowing P4U to distribute O2 Connections completely once the Upgrade/SIM Rights had expired in January 2014. In the course of 2013, O2 continued to analyse and forecast the likely business impact of not entering into a new agreement with P4U.

September 2013: consideration of Upgrade/SIM-only Rights

89. O2 considered in or around September 2013 that it would be commercially preferable for it not to enter into a new agreement with P4U, although O2 remained open-minded to a change in approach if circumstances changed (e.g. if P4U put forward terms that O2 would consider satisfactory). Paragraph 74 above is repeated.

90. Telefónica Europe was not involved in dealing with P4U in respect of the expiry of the Upgrade/SIM-only Rights. Telefónica Europe did take part in some routine internal discussion of O2’s decision not to renew the Upgrade/SIM-only Rights or the 2009 Agreement generally, including with O2. Telefónica Europe agreed with the said

decision. On 25 September 2013, a sub-committee of Telefónica Europe’s Board of Directors, the Project Approval Committee, approved O2’s proposal to stop trading with P4U in respect of Pre-Pay, Upgrade and SIM-only connections.

91. Telefónica was also not involved in dealing with P4U. Telefónica did take part in some routine internal discussions, of a high-level and summary nature (including with O2) regarding O2’s decision not to renew the Pre-Pay, Upgrade and SIM-only Rights upon the expiry of the 2009 Agreement in January 2014. Telefónica agreed with the said decision, but did not approve it in any formal sense.

92. Following the decision to stop trading with P4U, O2 continued to analyse the likely impact of the said decision. In October 2013, O2’s internal analysis work suggested that P4U was the least profitable sales channel for new and upgraded Post-Pay Connections, from O2’s perspective.

93. O2 also worked to identify and develop a commercial strategy that it hoped would enable it to minimise the loss of market share after the 2009 Agreement expired. This work reflected O2’s expectation that P4U would continue to distribute Connections offered by other MNOs.

94. As to the second sentence of paragraph 51, it is admitted that negotiations took place between O2 and P4U, including in the second half of 2013, regarding a possible new agreement for the distribution by P4U of O2 Connections following the expiry of the Upgrade/SIM-only Rights on 31 January 2014. Otherwise, the sentence is denied. Paragraph 78 above is repeated.

95. As to paragraph 52:

95.1. As to the first sentence, it is admitted that O2 informed P4U on or around 10 October 2013 that O2 did not intend to renew the 2009 Agreement. Otherwise, the said sentence is not admitted.

95.2. As to the first two lines of paragraph 52(a), paragraph 94 above is repeated. It is denied that O2’s decision not to renew the O2 Agreement was abrupt. Paragraph 78 above is repeated.

95.3. As to the third and fourth lines of paragraph 52(a), it is admitted that P4U started to procure O2 Upgrade Connections to O2’s 4G mobile network system in the course of 2013. That is consistent with the scope of the 2009 Agreement after

January 2013, under which P4U remained entitled to sell O2 Upgrade Connections. It did not reflect or imply any decision on the part of O2 to extend the temporal scope of the 2009 Agreement, or to permit P4U to procure O2 Post- Pay Connections again, whether to O2’s 4G mobile network system or otherwise.

95.4. As to paragraph 52(b):

a) It is admitted that O2 wanted to reduce its sales of O2 Connections through indirect sales channels that were insufficiently profitable from O2’s perspective to be commercially justified, such as sales through P4U.

b) It is admitted that O2 also wanted to increase its number and proportion of sales made through direct sales channels, and that this would have the effect of reducing the number and proportion of sales made through indirect sales channels.

c) It is further admitted that, in light of the above considerations, it was likely that O2’s indirect sales would be focussed on a smaller number of intermediaries. O2’s objective was that these would be the intermediaries that offered the most satisfactory levels of profitability to O2.

d) It is denied that O2 wanted to make indirect sales exclusively through CPW, or any other single intermediary. It is further denied that O2 informed P4U that this was the case.

e) Otherwise, paragraph 52(b) is not admitted.

95.5. Paragraph 52(c) is not admitted. The purported distinction between “strategic” and “commercial” considerations is not understood.

96. As to paragraph 53:

96.1. The opening words are denied, because:

a) Paragraphs 51 and 57 above are repeated. O2’s analysis demonstrated that the terms offered by P4U were so commercially unattractive for O2 that the disadvantages for O2 of entering into a new agreement with P4U outweighed the risks for O2 of not doing so. On that basis, it was rational

and commercially sensible for O2 to decide not to renew the 2009 Agreement.

b) Alternatively, even if (which is denied) O2’s own analysis over- estimated the risks and/or disadvantages and/or under-estimated the opportunities and/or advantages of renewing the 2009 Agreement on the terms offered by P4U, it was rational and commercially sensible for O2 to rely on that analysis in deciding not to enter into a new agreement with P4U, and O2 in fact did so.

96.2. The factual allegations in paragraphs 53(a) to (c) are responded to in turn below. It is denied that any of these factors, alone or in combination with all of any of the other factors relied on, rendered it irrational and/or commercially nonsensical for O2 to decide not to renew the 2009 Agreement.

96.3. P4U is required to prove paragraph 53(a). As to the relevance of this factor, paragraphs 51 and 65.4 above are repeated. Further, the volume of sales offered by P4U would be a negative factor from O2’s perspective if or to the extent that the only commercial terms that could be agreed with P4U would or would be likely to be loss-making to O2.

96.4. As to paragraph 53(b)(i), paragraphs 59.1 and 59.2 above are repeated.

96.5. As to paragraph 53(b)(ii), the second sentence of paragraph 53(b) and the second sentence of paragraph 53(c), paragraph 57 above is repeated.

96.6. As to the third sentence of paragraph 53(b), paragraph 60.5 above is repeated.

96.7. As to the final sentence of paragraph 53(b), O2 has responded above to paragraphs 35 to 39.

96.8. As to the first sentence of paragraph 53(c), it is denied that it was foreseeable that O2 would lose to its MNO competitors the great majority of existing O2 customers that shopped at P4U. Further, paragraph 75 above is repeated.

96.9. The second sentence of paragraph 53(c) appears to contain an allegation that, after the expiry of the 2009 Agreement, more than half of customers who had previously purchased O2 Connections and who chose to approach P4U with a view to purchasing a new MNO Connection decided to purchase an MNO Connection from another MNO via P4U. P4U is required to prove this

allegation.

96.10. For the avoidance of doubt, the majority of customers who had purchased O2 Post-Pay Connections through P4U chose to continue purchasing O2 Connections after the expiry of the Post-Pay Rights. This point is illustrated in Table 2 below. Table 2 breaks down the P4U Post-Pay Customer Base, to show how many did and did not continue to purchase O2 Connections following the expiry of the Post-Pay Rights. Table 2 shows that:

a) eleven months after the Post-Pay rights had expired, on 31 December 2013, nearly 80% of the P4U Post-Pay Customer Base was still with O2; and

b) over half of the P4U Post-Pay Customer Base was still with O2 on 31 December 2015, nearly three years after the Post-Pay Rights had expired.

Table 2: Sales of O2 Connections to P4U-acquired customers

31/12/13 31/12/14 31/12/15

Proportion of P4U Post-Pay Customer Base 9.6% 23.0% 24.0% purchasing an O2 Connection via O2’s direct sales channels

Proportion of P4U Post-Pay Customer Base 3.6% 10.5% 13.8% purchasing an O2 Connection via CPW

Proportion of P4U Post-Pay Customer Base 1.9% 5.8% 6.7% purchasing an O2 Connection via another intermediary

Proportion of P4U Post-Pay Customer Base still 64.6% 21.8% 9.0% attributed to P4U7

Total proportion of P4U Post-Pay Customer 79.7% 61.1% 53.5% Base still purchasing O2 Connections (from any seller)

Proportion of P4U Post-Pay Customer Base 20.3% 38.9% 46.5% who had left O2

Withdrawal from certain other indirect sales channels

97. In or around late 2013, O2 decided that, as of the end of 2013, it would stop making indirect sales of O2 Connections via A1. It also decided that, as of early 2014, it would stop making indirect sales of O2 Post-Pay Connections via Tesco. These decisions were taken because the said sales channels were insufficiently profitable to be justified. By contrast, O2 considered that indirect sales via CPW were sufficiently profitable to continue making sales via this route.

7 Figures in this row will include both customers who remained on the O2 network without purchasing a new Connection and customers who bought O2 SIM-only Connections or O2 Upgrade Connections through P4U between 31 January 2013 and 31 January 2014. During this period, P4U retained the SIM-only and Upgrade Rights. 42

P4U’s offer of free equity in its business

98. In or around early November 2013, P4U approached O2 to offer O2 a 15% equity stake in P4U. P4U was not asking O2 for any upfront fee for the said transaction, but indicated that it would expect O2 to make increased trading volume commitments to P4U. P4U further informed O2 that it had made the same offer to each of EE and Vodafone, and that the proposed transaction would only be viable from P4U’s perspective if all three of the said MNOs agreed to proceed.

99. O2 and P4U discussed P4U’s proposal in the course of November and early December 2013. On or around 12 December 2013, Feilim Mackle, the Director of Sales and Service for O2, informed P4U that O2 did not wish to proceed with the transaction. Acquiring an equity stake in P4U would not make any difference to the commercial terms on which P4U was prepared to distribute O2 Connections. For the reasons set out above, the parties had been unable to agree on terms that were satisfactory to O2. It was not an attractive proposition from O2’s perspective to increase its trading volume commitments to P4U, on terms that O2 considered would be unsatisfactory.

January 2014: expiry of Upgrade/SIM-only Rights

100. The first sentence of paragraph 54 is admitted.

101. During the meeting:

101.1. Mr Whiting sought to persuade O2 (through Mr Dunne) to renew the 2009 Agreement.

101.2. In particular, Mr Whiting wished to reiterate and discuss P4U’s earlier offer to transfer shares in P4U to O2 in return for O2 agreeing to allow P4U to continue distributing O2 Connections.

101.3. Mr Dunne indicated that O2 did not wish to renew the 2009 Agreement, or to take an equity stake in P4U.

101.4. Mr Dunne did, however, note that O2 remained open to engaging with P4U regarding distribution of O2 Connections, if satisfactory terms could be agreed.

101.5. Mr Whiting and Mr Dunne discussed how O2 and P4U would conduct communications with press representatives regarding the expiry of the 2009

Agreement. Both parties agreed that O2’s decision not to enter into a new agreement with P4U would be kept low profile, if it was possible to do so.

101.6. Mr Whiting further suggested that the parties should agree to extend the 2009 Agreement for 30 or 60 days and continue negotiations in the meantime. This request appeared to be motivated at least in part by P4U’s desire to be able to continue to use O2’s logo and branding in P4U stores. Mr Dunne indicated that O2’s preferred approach was to allow the 2009 Agreement to expire, but for the parties to continue to engage regarding a possible new deal.

101.7. At the end of the meeting, Mr Whiting left O2’s Slough offices.

102. The first sentence of paragraph 54(a) is not admitted. The second sentence of paragraph 54(a) is admitted.

103. Save that it is admitted that the individuals referred to held the offices alleged, paragraphs 54(b) to (d) are denied. In particular:

103.1. It is denied that Mr Dunne made the statements alleged in paragraphs 54(b) and (c) to Mr Whiting, at the 27 January 2014 meeting or at any other time.

103.2. As to paragraph 54(b), it is denied that Cesar Alierta Izuel (not “Izull”, as is alleged; the Executive Chairman and CEO of Telefónica, “Mr Alierta”), had given or at any time gave the alleged or any “commitment” to Vittorio Colao (the CEO of Vodafone Group, “Mr Colao”), or any other representative of the Vodafone corporate group.

103.3. As to paragraph 54(c), it is denied that Eva Castillo Sanz (the Chairwoman and CEO of Telefónica Europe, “Ms Castillo”) had given or at any time gave the alleged or any “commitment” to Philipp Humm (the Regional CEO of Vodafone Group’s European division, “Mr Humm”), or any other representative of the Vodafone corporate group.

103.4. As to paragraph 54(d), it is denied that Mr Dunne made the alleged statement to Mr Whiting, at the 27 January 2014 meeting or at any other time.

103.5. The second sentence of paragraph 54(d) appears to be intended to suggest that Mr Dunne had approached Mr Swantee and attempted to obtain information from Mr Swantee regarding EE’s distribution plans relating to retail intermediaries. The said allegation is denied.

103.6. Also as to the second sentence of paragraph 54(d), it is denied that Mr Whiting could have held the alleged understanding, reasonably or at all, because Mr Dunne did not make the statement from which it is said to have been drawn.

103.7. As to the third sentence of paragraph 54(d), the Telefonica Defendants respond below to paragraph 56.

104. As to paragraph 55:

104.1. The said document does not provide an accurate account of the discussion between Mr Whiting and Mr Dunne on 27 January 2014, or on any other date. The said document will be referred to for its full terms and effect at trial.

104.2. Paragraphs 101 to 103 above are repeated. To the extent that they differ from the allegations in paragraph 54, the allegations set out in the e-mail at paragraph 55 are also inaccurate. No commitments were in fact given, as alleged or at all, and Mr Dunne did not say that any commitments had been given.

105. On 31 January 2014, the Pre-Pay Rights, Upgrade Rights and SIM-only Rights (and therefore the remaining aspect of the 2009 Agreement) expired. After that date, P4U was not appointed to procure O2 Connections. O2 then required P4U to remove O2’s branding and signage from P4U’s shops.

February 2014: alleged meeting between Mr Whiting and Mr Swantee

106. As to paragraph 56:

106.1. P4U is required to prove the first four sentences and paragraphs 56(a) and (b), which relate to matters outside the scope of O2’s knowledge.

106.2. The Telefonica Defendants do not know whether Mr Whiting and Mr Swantee met in February 2014, nor whether Mr Swantee made any of the claimed comments. It is noted that P4U does not allege that the claimed approach by Mr Dunne related to indirect sales in the UK, whether specifically via P4U or at all. It is therefore not understood whether or in what way these allegations are purportedly relevant to P4U’s claim.

106.3. It is, in any event, denied that Mr Dunne had at any time attempted to have an inappropriate or unlawful conversation with Mr Swantee regarding cooperation

between the MNO Defendants in the UK market. It follows that, if Mr Swantee did claim that such an attempt had been made by Mr Dunne, that claim was inaccurate.

106.4. Paragraph 56(c) is admitted. None of the Telefonica Defendants received any letter from EE protesting at any alleged approach by Mr Dunne.

106.5. Paragraph 56(d) is not directed at the Telefonica Defendants. It is, however, admitted that it is to be inferred from the fact that no such letter was received by any of the Telefonica Defendants that no such letter was sent.

107. As already noted, paragraphs 57 to 114 are not directed at the Telefonica Defendants.

P4U goes into administration

108. As to the first sentence of paragraph 115:

108.1. P4U is required to prove that, as at September 2014, the directors of P4U had no reasonable alternative but to apply to the High Court for an administration order.

108.2. The allegations relating to the Vodafone Agreement, the EE Agreement and the state of EE’s knowledge are not directed at the Telefonica Defendants. Neither do the Telefonica Defendants respond to the allegation relying on “the matters set out above”, as this is too vague to be understood.

108.3. It is admitted that, as of September 2014, the 2009 Agreement had expired (and, in consequence, terminated).

108.4. It is denied that the expiry of the 2009 Agreement caused P4U to go into administration. It is further noted that P4U’s allegation that the application for an administration order was caused by the expiry of the 2009 Agreement is inconsistent with the following aspects of P4U’s case:

a) the claim that P4U’s customers “were, in general, loyal to P4U” (first sentence of paragraph 38(b), addressed at paragraph 57 above); and

b) the claim that after P4U ceased distributing O2 Connections, customers who had previously visited P4U to buy O2 Connections “typically” bought Connections offered by other MNOs via P4U, instead of going

elsewhere to buy O2 Connections (second sentence of paragraph 53(c), addressed at paragraph 96.9 above).

108.5. Further or alternatively, the 2009 Agreement expired on 31 January 2014, and since 31 January 2013, P4U had been appointed to procure only certain O2 Connections. After the expiry of the Pre-Pay, Upgrade and SIM-only Rights on 31 January 2014, P4U continued to trade for over seven months before the application for an administration order was made. It appears that P4U learned in the course of the said intervening period that it would no longer be authorised to distribute MNO Connections by Vodafone or EE. In those circumstances, it is denied that the expiry of the 2009 Agreement between P4U and O2 was, in fact or in law, a sufficiently proximate cause of P4U going into administration to found a proper basis for any claim.

108.6. Further or alternatively yet, even if there had been any unlawful contact and/or collusion between any of the Telefonica Defendants and any other Defendant in respect of O2’s decision not to enter into a new agreement with P4U (which there was not), O2 would have taken the same decision absent such contact/collusion. For the reasons set out herein, it was commercially preferable for O2 not to enter into a new agreement with P4U, alternatively O2 believed that the said decision was commercially preferable from its perspective. Any unlawful contact/collusion (of which there was none) was therefore not the cause of O2’s decision not to enter into a new agreement with P4U. Neither, it follows, could this have been a factual and/or legal cause of P4U going into administration.

109. The second sentence of paragraph 115 is admitted.

110. Paragraph 116 is not directed at the Telefonica Defendants.

111. It is not clear whether paragraph 117(a) is directed at the Telefonica Defendants. The Telefonica Defendants respond to P4U’s case on loss at paragraph 160 below.

112. Paragraph 117(b) is not directed at the Telefonica Defendants.

113. As to paragraph 118:

113.1. This paragraph relates to alleged changes to P4U’s business “over the course of a few weeks in September 2014”. Since the final element of the 2009 Agreement

– i.e. the Upgrade/SIM-only rights – expired in January 2014, this paragraph appears not to be directed at the Telefonica Defendants.

113.2. Further, P4U’s reliance on events in September 2014 undermines its allegation at paragraph 115 regarding the effect of the expiry of the 2009 Agreement; paragraph 108 above is repeated.

113.3. For the avoidance of doubt, however, given that it is stated to be directed at all of the Defendants, including the Telefonica Defendants, paragraph 118(d) is denied. None of the Telefonica Defendants took any step in respect of P4U at any time in September 2014. The final aspects of the 2009 Agreement had expired over seven months previously.

113.4. Further, it is denied that the Telefonica Defendants had, at any time, any objective of removing and/or reducing the indirect sales channel in the UK market and/or of removing one of the major retail intermediaries. As to O2’s commercial objectives, paragraph 70 above is repeated. To the extent that they were aware of the said objectives, Telefónica Europe and Telefónica agreed with them. To the extent that any of the Telefonica Defendants had any relevant objective, this was restricted to identifying the channels through which O2 specifically would seek to make more, or fewer, sales. None of the Telefonica Defendants had any broader objective regarding the presence of indirect sales channels, the volume of sales transacted by such sellers or the number of indirect sellers used by other MNOs in the UK market generally.

113.5. If or to the extent that the allegations relating to “market repair” are directed at the Telefonica Defendants, the said allegations are addressed below in response to paragraphs 141 to 145.

Impact on O2’s business of not entering into a new agreement with P4U

114. The P4U Post-Pay Customer Base was made up of essentially four groups of customers: (1) customers who had bought a New O2 Post-Pay Connection in a bundled package including a handset; (2) customers who had bought a New O2 Post-Pay Connection on a SIM-only basis; (3) customers who had bought an Upgraded O2 Post-Pay Connection in a bundled package including a handset; and (4) customers who had bought an Upgraded O2 Post-Pay Connection on a SIM-only basis. 48

115. O2 holds information enabling it to calculate the average profitability to O2 of approximately 60% of the P4U Post-Pay Customer Base. O2 notes the following two features of the methodology used by it to calculate the average profitability of a customer:

115.1. O2 did, and does still, calculate average profitability taking into account the following three categories of costs:

a) The first category is average procurement costs, including but not limited to the costs of any commission or revenue share payable to a third party in respect of the procurement of the O2 Connection or, in the case of direct sales, the average costs of subsidising mobile handsets.

b) The second category is average variable costs, including but not limited to customer service costs and the costs of bad debt.

c) The third category is O2’s average cost per customer of operating its network (“network operating costs”). Network operating costs are made up of a mixture of fixed and variable costs. For example, O2 incurs the fixed costs of operating its mobile network infrastructure, and also variable costs relating to the provision of services over that mobile network (e.g. the provision of mobile data services). At the material time, O2 calculated its network operating costs per megabyte of data used by the average user of each distribution channel.

115.2. O2 did, and does still, measure the average profitability of a customer by reference to their net value to O2 in any given Contract cycle (i.e. a minimum Contract term, typically two years for customers purchasing an O2 Post-Pay Connection including a handset, and one year for customers purchasing an O2 Connection on a SIM-only basis).

116. The data held by O2 regarding the P4U Post-Pay Customer Base shows the following:

116.1. For each of the four categories of customers in the P4U Post-Pay Customer Base, an O2 Post-Pay Connection sold via P4U was on average less profitable from O2’s perspective than the same product sold via any of (1) O2’s direct sales channels; (2) CPW; or (3) a weighted average of other indirect sales channels.

116.2. Taking a weighted average of all categories of customer in the P4U Post-Pay Customer Base, if only variable costs are taken into account, the average member of the P4U Post-Pay Customer Base had a positive average profitability for O2 of per Contract cycle. This figure assumes, however, that the said customer made no contribution to O2’s (fixed and variable) network operating costs.

116.3. If O2’s network operating costs are taken into account, a customer in the P4U Post-Pay Customer Base had a negative average profitability for O2 of per Contract cycle.

117. Table 3 below compares the average profitability to O2 of the P4U Post-Pay Customer Base with the average profitability to O2 of customers who had purchased the same categories of O2 Connections from different sales channels as of the end of 2012 (again, based on the customers in respect of whom O2 holds information). The figures in Table 3 do not take into account any share of network operating costs.

Table 3: average profitability per Contract cycle of customers purchasing O2 Post-Pay Connections via different sales channels as at end 2012

Channel Average profitability per customer (taking account of variable costs only and excluding average network operating costs)

P4U

O2’s direct sales channels

CPW

Other intermediaries (average)

118. Given that, as at the end of 2012, the P4U Post-Pay Customer Base included 613,458 customers:

118.1. The total value to O2 of the P4U Post-Pay Customer Base in the current Contract cycle was approximately .

118.2. Taking into account a share of O2’s network operating costs, the P4U Post-Pay Customer Base was loss-making from O2’s perspective to the extent of over in the current Contract cycle (i.e. per customer).

119. The profitability to O2 of the P4U Post-Pay Customer Base improved after the 2009 Agreement expired, even though (as Table 2 above shows) a proportion of the said customers left O2.

120. Table 2 above is repeated. In particular, by the end of 2014:

120.1. 23.0% of the P4U Post-Pay Customer Base had switched to buying an O2 Connection via O2’s direct sales channels.

120.2. 10.5% of the P4U Post-Pay Customer Base had switched to buying an O2 Connection via CPW.

120.3. In total, over 60% of the P4U Post-Pay Customer Base continued to buy an O2 Connection.

121. The above figures, which relate to the P4U Post-Pay Customer Base, do not include customers who had bought an O2 Pre-Pay Connection via P4U. As at 31 December 2012, there were approximately 400,000 such customers who had used their Pre-Pay O2 Connection at some time over the preceding 90 days (“active UK Pre-Pay Customers”). The total number of active UK customers for Pre-Pay MNO Connections in the UK at the said date was approximately 37.7 million. It follows that P4U had delivered approximately 1.1% of active UK Pre-Pay Customers to O2. By way of comparison, as at the end of 2012, there were approximately 1 million active UK Pre-Pay Customers who had bought Pre-Pay O2 Connections via CPW (c.2.7% of the total active UK Pre-Pay customers). From O2’s perspective, the profitability of P4U-acquired customers for Pre-Pay O2 Connections was more satisfactory than in respect of Post-Pay Connections. O2 considered, however, that this was not sufficient to justify continuing to allow P4U to distribute O2 Connections, in particular given the relatively small number of Pre-Pay O2 Connections procured by P4U.

F RESPONSE TO CLAIMS AGAINST THE DEFENDANTS

Response to claim for infringement of EU and UK competition law

Article 101(1) TFEU and Chapter I

122. As to paragraph 119:

122.1. As to paragraph 119(3), it is admitted that the Telefonica Defendants are

members of a single undertaking for the purposes of EU and UK competition law.

122.2. As to the second sentence, it is admitted that Telefónica Europe and Telefónica were able to exercise decisive influence over O2’s commercial policy in the UK.

122.3. It is not admitted that Telefónica Europe or Telefónica did in fact exercise decisive influence over O2’s decision not to enter into a new agreement with P4U, or any aspect of the said decision. But it is admitted that, to the extent that Telefónica Europe and/or Telefónica were involved in the said decision, they agreed with it. Paragraphs 79, 80, 90 and 91 above are repeated.

122.4. As to paragraphs 119(a) and 119(e)(1), paragraph 43 above is repeated.

122.5. Paragraphs 119(b) and 119(e)(3) are denied. Paragraphs 100 to 103 above are repeated. No such commitments were given. Neither, it follows, were any such commitments adhered to.

122.6. As to paragraph 119(e)(2), paragraphs 106.4 and 106.5 above are repeated. None of the Telefonica Defendants, including Telefónica, received any such letter from EE.

122.7. The Telefonica Defendants do not respond to paragraphs 119(1), (2), (c) or (d), which are directed at other Defendants.

123. Paragraph 120 is admitted as a broad summary of Article 101 TFEU and section 2 of Chapter I of the Act. The relevant provisions will be referred to at trial for their full terms and effect.

124. Paragraph 121 makes legal submissions. These are properly matters for trial and will be responded to at the appropriate stage.

125. As to paragraph 122, it is denied that the Telefonica Defendants or any of them infringed Article 101 TFEU and/or the Chapter I prohibition, as alleged or at all. Paragraph 122 is, however, too vague to be capable of any meaningfully detailed response. The Telefonica Defendants respond below to the claims against them.

126. As to paragraph 123, it is admitted that the matters alleged in the Particulars of Claim, if they were established, would be capable of creating appreciable effects on trade between Member States and within the UK.

127. As to paragraph 124:

127.1. The first three sentences are denied, for the reasons given at paragraphs 61 and 62 above. O2’s decision not to enter into a new agreement with P4U was taken unilaterally and independently of any other business. In taking the said decision, O2 assumed that P4U would continue to distribute MNO Connections offered by other MNOs. As to whether O2’s decision not to enter into a new agreement with P4U was rational and/or taken in furtherance of O2’s own commercial interests, paragraphs 96.1 and 114 to 121 above are repeated. O2’s decision not to enter into a new agreement with P4U was a rational decision based on O2’s own commercial interests. Alternatively, the said decision was a rational response to O2’s assessment of its commercial interests, which O2 believed to be correct.

127.2. As to the first sentence of paragraph 124(a), it is admitted that the MNO Defendants were in competition with one another (and also with other, non- defendant, MNOs) for new Connections.

127.3. The second sentence of paragraph 124(a) appears to allege that O2 sought only to obtain market share at the expense of other major MNOs, rather than also seeking to increase the size of the total market. As is set out at paragraph 45 above, O2 sought to achieve both.

127.4. As to the third sentence of paragraph 124(a), whether an MNO lost market share upon ceasing to allow P4U to distribute its mobile network connections would depend on a wide range of factors in addition to whether P4U remained in business. The said factors would include the range and attractiveness of products offered by that MNO and its competitors, the trading performance of P4U and the availability and attractiveness of other sales channels. It is, however, admitted that O2 expected to lose a (relatively modest) amount of market share when P4U stopped distributing O2 Connections; paragraph 75 above is repeated. The actual effect of the expiry of the 2009 Agreement on O2’s market share is illustrated by paragraph 96.10 and Table 2 above.

127.5. As to paragraph 124(b):

a) As to the first sentence, it is admitted that O2 carried out a number of analyses, from at least early 2012 onward, of the impact that not entering

into a new agreement with P4U would have on O2’s business, compared with the level of return that the terms agreed with P4U and/or offered by P4U provided for O2. These included analyses of the likely effect on O2’s profitability of both scenarios. The term “net present value”, or “NPV”, carries a technical meaning used in the preparation of accounts. The analyses carried out by O2 did not focus on the relative NPVs of the two scenarios in the technical accounting sense of that term. b) Whether other MNO Defendants would have compared the NPV of their customers depending on whether they continued to use P4U as a distributor is outside the scope of the knowledge of the Telefonica Defendants. c) Paragraph 124(b)(i) is admitted. d) As to the first two sentences of paragraph 124(b)(ii), paragraph 50.2 above is repeated. e) The third sentence of paragraph 124(b)(ii) is so vague as to be embarrassing. It is, however, averred (insofar as the said sentence is addressed to O2) that:

i. from O2’s perspective, the average profitability of new customers procured by P4U under the 2009 Agreement was insufficient for those terms to be commercially satisfactory to O2;

ii. indeed, certain customers procured by P4U under the 2009 Agreement were on average loss-making for O2, if O2’s network operating costs were taken into account. This was, for example, the case on average for O2 Post-Pay Connections procured by P4U, as set out at paragraph 116 above; and

iii. O2 considered that the terms proposed by P4U for a renewal of the 2009 Agreement (i.e. the June 2012 Terms and the November 2012 Terms) would be even more unfavourable to O2 than the terms of the 2009 Agreement. Paragraphs 72 and 83 above are repeated. f) It is further noted that the final sentence of paragraph 124(b)(ii), and paragraphs 124(d), (e), (f) and (g), are not directed at the Telefonica

Defendants. It follows that P4U has not stated any case as to the actual or projected value to O2 of the 2009 Agreement, the June 2012 Terms and/or the November 2012 Terms. It is to be inferred from P4U’s omission to state any such case that O2 had reasonable grounds for concluding that the said terms did not deliver or would not have delivered satisfactory levels of profit for O2.

127.6. As to paragraph 124(c), it is admitted that it would have been rational for O2 to decide not to distribute O2 Connections via P4U in the circumstances described. It is denied, however, that these are the only circumstances in which it would have been rational for O2 to make the said decision. By way of non-exhaustive example, it would also have been rational for O2 to decide not to distribute O2 Connections via P4U if the average P4U-acquired customer buying an O2 Connection would be loss-making for O2, or insufficiently profitable from O2’s perspective for a continued relationship to be commercially justified (or if O2 believed that this would be the case). O2 does not respond to the said paragraph insofar as it is directed at other MNO Defendants.

128. The Telefonica Defendants respond below to paragraphs 126 to 128. If paragraph 125 is intended to add anything to the said paragraphs, it is not understood.

129. Paragraph 126 does not appear to be directed at the Telefonica Defendants, since it builds on paragraph 124(f), which is not directed at the Telefonica Defendants. For the avoidance of doubt, the Telefonica Defendants’ case on consumer loyalty (1) to P4U; and (2) to O2 is set out at paragraph 57 above.

130. Insofar as they are directed at O2, the opening words of paragraph 127, paragraph 127(a) and the second sentence of paragraph 128(c) are understood to allege that if O2 unilaterally decided not to enter into a new agreement with P4U but P4U remained in business and continued to offer Connections for other MNOs, O2 would and would expect to (1) become less profitable; and (2) lose market share compared to a counterfactual in which O2 continued to allow P4U to procure O2 Connections. O2 responds as follows:

130.1. In analysing the impact of not entering into a new agreement with P4U, O2 assumed (as it expected to be the case) that P4U would remain in business, and would continue to distribute Connections sold by O2’s rival MNOs.

130.2. The allegations that O2 would become less profitable and lose market share, and that O2 expected to become less profitable and lose market share, as a result of not entering into a new agreement with P4U are denied:

a) As to the factors relevant to an assessment of whether, as a matter of principle, not entering into a new agreement with P4U (or any other indirect sales channel) would have a positive or negative effect on O2’s business, paragraph 51 above is repeated.

b) As to O2’s expectation as to the impact on its market share of not entering into a new agreement with P4U, and also as to the actual impact of not entering into a new agreement P4U on O2’s market share, paragraphs 75 and 96.10 and Table 2 above are repeated.

c) As to O2’s expectation as to the impact on its profitability of not re- committing to P4U, paragraphs 72 and 83 above are repeated. The terms offered by P4U (i.e. the June 2012 Terms and the November 2012 Terms) would, and O2 expected that they would, have been heavily loss making for O2 once a share of O2’s network operating costs had been taken into account. It was, and O2 believed that it was, commercially better for O2, acting unilaterally, not to enter into a new agreement with P4U than to accept the terms offered by P4U. As to the actual impact on O2’s profitability of not entering into a new agreement with P4U, paragraphs 114 to 121 above are repeated.

131. Paragraphs 127(b)(i) to (iv) are admitted, save for the reference to paragraph 107, which is not directed at the Telefonica Defendants. As a matter of fact, when the 2009 Agreement expired (as to Post-Pay Rights in 2013, and as to the remaining categories of O2 Connections in 2014), P4U did continue distributing Connections offered by the brands stated in paragraph 127(b)(i).

132. To the extent that it is directed at O2, the first sentence of paragraph 127(b)(v) is too vague to admit of any meaningful response. The allegation that O2 would expect to lose market share as a result of unilaterally deciding not enter into a new agreement with P4U is addressed at paragraph 130.2 above.

133. As to the second sentence of paragraph 127(b)(v), it is admitted and averred that, when it decided not to enter into a new agreement with P4U, O2 expected P4U to remain in

business, and to continue to distribute Connections sold by O2’s rival MNOs.

134. As to paragraph 128:

134.1. The first and second sentences are so vague as to be meaningless. They cannot be responded to.

134.2. The first sentence of paragraph 128(a) is addressed at paragraph 59 above.

134.3. The second sentence of paragraph 128(a) is not directed at the Telefonica Defendants.

134.4. Insofar as it is directed at O2, P4U is required to prove paragraph 128(a)(1).

134.5. Insofar as it is directed at O2, paragraph 128(a)(2) is denied; paragraph 59 above is again repeated.

134.6. Paragraph 128(b) is not directed at the Telefonica Defendants. By February 2014, the final elements of the 2009 Agreement had expired, and O2 was no longer distributing O2 Connections via P4U.

134.7. As to the first, second and fourth sentences of paragraph 128(c), it is admitted that, had O2 considered that it was in its commercial interests to continue distributing Connections through P4U, it would have been able to finance the payments that would be associated with that relationship.

134.8. The third sentence of paragraph 128(c) is denied. It was contrary to O2’s commercial interests to renew the 2009 Agreement on the terms offered by P4U. Paragraph 127.5.e) is repeated. Indeed, as is further explained at paragraphs 114 to 120 above, the profitability to O2 of the P4U Post-Pay Customer Base improved after the 2009 Agreement expired, even though a proportion of the said customers left O2.

134.9. Paragraph 128(d) is not directed at the Telefonica Defendants.

135. Insofar as it is directed at O2, paragraph 129 is denied, for the reasons set out above. O2 acted without collusion and independently to decide that, taking account of all of the relevant factors (including those listed in the first sentence of paragraph 129), permitting the 2009 Agreement to expire was commercially preferable for O2 over accepting the terms offered by P4U for a new agreement. O2 therefore decided unilaterally not to enter into a new agreement with P4U.

136. Paragraph 130 is noted.

RESPONSE TO PARTICULARS

OF ALLEGED ANTI-COMPETITIVE BEHAVIOUR

Alleged anti-competitive commitments and/or disclosures – O2 and Vodafone UK

137. Paragraph 131 is denied, for the reasons stated at paragraphs 100 to 104 above.

137.1. As to paragraph 131(a), no “commitments” were made, as alleged or at all. Neither did Mr Dunne make the statements alleged.

137.2. Paragraph 131(b) is understood to recite an alternative characterisation of the same allegations of fact as paragraph 131(a), namely the matters claimed at paragraphs 54(b), 54(c) and 55. The previous sub-paragraph is therefore repeated.

138. In the premises, paragraph 132 is denied.

138.1. As to paragraph 132(a):

a) The reference to “O2’s termination of the O2 Agreement” is inapt. The 2009 Agreement expired (and therefore terminated) in two stages in 2013 and 2014 by the effluxion of time, pursuant to its agreed terms. It was not terminated either by O2 or P4U.

b) O2’s decision not to enter into a new agreement with P4U was not caused or influenced by, nor was it the consequence of, the alleged commitments (or disclosures), since these were not made.

138.2. As to paragraph 132(b), the alleged collusive agreement, understanding and/or exchange did not exist.

139. Paragraph 133 appears not to be directed at the Telefonica Defendants. Further, given that no “commitments” were given by Telefónica Europe and/or Telefónica, as alleged or at all, the said paragraph is based on a false premise. Nonetheless and for the avoidance of doubt, it is denied that Vodafone Group made the alleged commitments (or disclosures) to any of the Telefonica Defendants.

140. Paragraphs 134 and 135 are denied (although paragraphs 134(c) and (d) and 135 are not

directed at the Telefonica Defendants). The said paragraphs are based on the false premise that unlawful commitments and/or disclosures were given and received by the Vodafone Defendants and the Telefonica Defendants.

Alleged anti-competitive commitments and/or disclosures – EE

141. The first sentence of paragraph 136 is denied. Paragraphs 100 to 104 above are repeated.

142. As to the second sentence of paragraph 136, the Telefonica Defendants do not know whether Mr Swantee made the claimed statement. In the terms set out in paragraph 136, the allegation is so vague as to be meaningless. As to the allegation made at paragraph 56, paragraph 106 above is repeated.

143. Paragraphs 137 and 138 are denied, because they are based on the false premise that there was an unlawful agreement and/or concerted practice between EE and one or more of the Telefonica Defendants. Further:

143.1. As to paragraph 137(a), paragraphs 100 to 106 above are repeated.

143.2. Paragraph 137(b) is denied:

a) It is assumed that the reference to “Mr Dunne’s remarks in relation to EE” is intended to allude to the remarks alleged at paragraph 54(d). Mr Dunne did not make the said alleged remarks, at the 27 January 2014 meeting or at any other time. Paragraphs 103.5 and 103.6 above are repeated.

b) Paragraph 137(b) goes on to allege that one or more of the Telefonica Defendants made unlawful disclosures and/or commitments to EE as to their future intentions in respect of P4U. This allegation, which is not made in paragraphs 54 to 56, is denied. It is further noted that P4U does not allege that either Mr Dunne or Mr Swantee suggested to Mr Whiting that any of the Telefonica Defendants had made such a disclosure and/or commitment. Thus, not even the multiple hearsay evidence relied on by P4U in support of its claim against the Telefonica Defendants provides any basis for this allegation.

143.3. As to the first sentence of paragraph 137(c), paragraph 106.5 above is repeated. Otherwise, paragraphs 137(c) to (g) and paragraph 138 are denied, although they

are not directed at the Telefonica Defendants. The said paragraphs are based on the false premise that there was unlawful collusion between EE and the Telefonica Defendants.

The corporate and natural persons allegedly involved in the claimed infringement

144. Paragraph 139 is noted.

145. For the reasons already stated, paragraph 140(a) is denied. No such anti-competitive commitments and/or disclosures were made or received by any of the Telefonica Defendants.

146. As to paragraph 140(b):

146.1. The Telefonica Defendants were involved in the following ways and to the following extent in the decision that O2 should not enter into a new agreement with P4U:

a) The decision that O2 should not enter into a new agreement with P4U was primarily taken by O2 itself.

b) As to Telefónica Europe and Telefónica, paragraph 122.3 is repeated.

146.2. No exclusive arrangement was entered into between any of the Telefonica Defendants and CPW.

146.3. As to the second sentence, the Telefonica Defendants have responded to paragraph 119 at paragraph 122 above.

147. Paragraph 140(c) is not directed at the Telefonica Defendants.

148. In the premises, paragraph 140(d) is denied.

Alleged “market repair”

149. As to paragraph 141:

149.1. For the reasons already given, the allegations of collusive conduct against the Telefonica Defendants are denied.

149.2. As to the remainder of the paragraph:

a) In relation to O2’s view on the relative merits of direct and indirect sales channels generally, paragraphs 50 and 51 above are repeated.

b) In relation to O2’s wish to increase direct sales, paragraph 70 above is

repeated.

c) In relation to the unsatisfactory levels of profitability offered to O2 by the terms of the 2009 Agreement, paragraphs 70, 92 and 114 to 121 above are repeated.

d) In relation to the unsatisfactory levels of profitability offered to O2 by the terms proposed by P4U for a renewal of the 2009 Agreement (i.e. the June 2012 Terms and the November 2012 Terms), paragraphs 72 and 83 above are repeated.

e) In relation to O2’s desire to reduce its sales of Connections through indirect channels that were insufficiently profitable from O2’s perspective, such as sales through P4U, paragraph 95.4 above is repeated.

f) It is therefore admitted that, between early 2012 and the end of January 2014, O2 wished to remove, restrict and/or reduce its reliance on the indirect sales channels in the UK that were insufficiently profitable from O2’s perspective. It is further admitted that the said channels included P4U.

g) As to Telefónica Europe and Telefónica, paragraph 122.3 is repeated.

149.3. Otherwise, the paragraph is denied insofar as it is directed at the Telefonica Defendants.

150. As to paragraph 142(a), the Telefonica Defendants have addressed paragraph 26 (to the extent possible) at paragraph 49 above, and have responded to paragraphs 27 and 142(a) at paragraph 50 above.

151. Paragraphs 142(b) to (h) are not directed at the Telefonica Defendants. As to the allegations of so-called “market repair”:

151.1. O2’s objectives in respect of its own commercial relationships with indirect sales channels in general, and P4U in particular, are stated at paragraph 149.2 above.

151.2. None of the Telefonica Defendants had any objective of reducing or eliminating the volume of Connections sold by other MNOs through P4U, or of marginalising or eliminating P4U itself in the UK market.

151.3. O2’s only interest (and to a lesser extent that of Telefónica Europe and Telefónica) was to ensure that any terms agreed with P4U were commercially satisfactory for O2, or conversely to avoid entering into a new distribution arrangement with P4U on terms that would be commercially unsatisfactory for O2.

152. Paragraph 143 is denied, insofar as it is directed at the Telefonica Defendants. The alleged collusion did not take place. Further, none of the Telefonica Defendants was commercially motivated to act in any way unlawfully.

153. The first sentence of paragraph 144 is noted. Otherwise, the said paragraph is denied, because the alleged collusion did not take place. Paragraphs 144(a) to (c) therefore proceed on a false premise. As to the allegation of “market repair”, paragraph 151 above is repeated.

154. Paragraph 145 is denied; for the reasons already given, the allegations of collusive conduct against the Telefonica Defendants are denied.

155. Paragraph 146 is not directed at the Telefonica Defendants.

156. Paragraph 147 is not directed at the Telefonica Defendants, save that it is alleged that the decisions that Vodafone UK and EE should stop distributing MNO Connections via P4U were in each case “part of an agreement and/or understanding and/or a result of informal concerted action or coordination among the Defendants (and/or some of them), to put P4U out of business and/or to reduce or eliminate their respective reliance on retail intermediaries in the UK”. The said allegation is denied:

156.1. None of the Telefonica Defendants either was or sought to be involved in any way in the decisions that Vodafone UK and/or EE would stop distributing MNO Connections via P4U. The said decisions were not part of any agreement, understanding, informal concerted action or coordination involving the Telefonica Defendants or any of them.

156.2. None of the Telefonica Defendants either was or sought to be involved in any agreement, understanding, informal concerted action or coordination to put P4U out of business, or to reduce or eliminate the reliance of the Defendants on retail intermediaries in the UK.

Allegations against other Defendants

157. As already noted, paragraphs 57 to 114 are not directed at the Telefonica Defendants. These paragraphs set out the bulk of P4U’s factual case. Further, as has also been noted above, P4U’s case stated at paragraph 126 on the commercial value to the MNOs of its role as a distributor is directed almost exclusively at the other Defendants.

158. The entire evidential basis for P4U’s claim against the Telefonica Defendants is made up of two items of hearsay, stated in three paragraphs of the Particulars of Claim (paragraphs 54 to 56). For the reasons already given at paragraphs 100 to 106 above, the said allegations are denied.

159. The allegations that O2’s decision not to enter into a new agreement with P4U was part of a collusive scheme, and that the said decision caused P4U to go into administration, are therefore denied and are unsupported by the available evidence. Further, the far- fetched nature of the said allegations is apparent from the following facts and circumstances:

159.1. P4U’s Post-Pay Rights expired in January 2013, over a year and a half before P4U went into administration. The Pre-Pay, Upgrade and SIM-only Rights expired in January 2014, over seven months before P4U went into administration. The alleged events of August and September 2014 that are claimed (in particular at paragraphs 104 to 114) to have forced P4U into administration do not involve any of the Telefonica Defendants. Indeed, P4U’s positive case, as pleaded at paragraph 118, is that “over the course of a few weeks in September 2014” (emphasis added), P4U was transformed from a valuable and profitable business to a business in administration. This is inconsistent with P4U’s case that the expiry of the 2009 Agreement in, at the latest, January 2014, caused P4U to go into administration.

159.2. It appears to be P4U’s case that the non-renewal of the relationship between O2 and P4U following the expiry of the 2009 Agreement in January 2014 was the product of a collusive scheme between one or more of the Telefonica Defendants and one or more of the EE and Vodafone Defendants. If, however, this had been the result of collusion between the MNOs, it would have been commercially irrational for O2 voluntarily to stop distributing Connections substantially in advance of its fellow MNOs doing likewise.

159.3. The point made in the previous sub-paragraph sounds with particular force because, as stated at paragraph 101 above, P4U invited O2 in January 2014 to agree to extend the 2009 Agreement by 30 or 60 days. If O2’s decision not to enter into a new agreement with P4U had been one limb of a concerted attempt to force P4U out of the UK market, as part of which O2 expected EE and/or Vodafone to do likewise later in 2014, O2 would logically have accepted this offer. O2’s rejection of P4U’s offer reflects the fact that O2’s decision not to enter into a new agreement with P4U was the result of O2’s own assessment that it was commercially preferable to stop allowing P4U to procure O2 Connections.

Alleged causation, loss and damage

160. Paragraph 148 is denied:

160.1. None of the Telefonica Defendants breached Article 101(1) TFEU and/or the Chapter I prohibition, as alleged or at all.

160.2. As to paragraphs 148(a) to (c) (and also as to paragraph 117(a), if the said paragraph is directed at the Telefonica Defendants), the Telefonica Defendants note that P4U has not identified the head or heads of loss in respect of which the claim is brought, or stated how it contends that its loss should be calculated. Neither does P4U specify how paragraphs 148(a) to (c) and paragraph 117(a) are intended to relate to one another. Based on the way in which it is set out in the Particulars of Claim, P4U’s claim appears to involve substantial elements of double recovery.

160.3. Paragraph 148 is headed “Causation, loss and damage” (emphasis supplied). The Telefonica Defendants note, however, that P4U has not set out any case as to how the expiry of the Upgrade Rights under the 2009 Agreement in January 2014 (to which P4U’s case against O2 appears from paragraph 148 to be confined) caused P4U to go into administration in September 2014, over seven months later. Further or alternatively, as to causation, paragraph 108 above is repeated.

160.4. Although paragraph 149 is noted, it is not acceptable for the Claimant to fail to set out any case on the above matters in terms that can be understood and responded to. If P4U seriously wishes to pursue any claim against the