PHONES 4U LIMITED (In Administration) Claimant - and

Claim No. CP-2018-000038 IN THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY COURTS COMPETITION LIST (Ch D) BETWEEN: 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) TELEFONICA UK LIMITED (7) TELEFÓNICA, S.A. (8) TELEFONICA EUROPE PLC Defendants ______DEFENCE OF THE SECOND DEFENDANT ______

OVERVIEW AND SUMMARY

1. This is the Defence of the Second Defendant, Deutsche Telekom AG (“DT”).

2. The claims against DT are totally without merit. By way of summary:

a) DT was, together with France Télécom S.A. (“FT”, now the third Defendant, Orange SA), a 50% shareholder in EE Limited (“EE”), a joint venture. The revenues from EE’s business were not consolidated within those of DT.

b) Under the joint venture contractual framework, DT had two non-executive members on the EE Board, which generally met every other month. DT also participated in regular EE business review meetings. The day-to-day operational control or running of EE was, however, conducted by EE’s senior management. c) Under the EE joint venture agreement with FT (“JVA”), DT’s consent was required for certain key joint venture matters, such as EE’s annual budget and business plan. d) The approach outlined in sub-paragraphs b) and c) above also applied in general to EE’s dealings with P4U, as well as indirect partners more generally. DT therefore denies the allegation in the Particulars of Claim that it sought to “impose” its objectives as respects P4U and/or indirect partners generally on EE. DT’s interest and interventions would come from an overall strategic perspective of protecting and maximising the value of its financial investment in EE. e) P4U’s allegations against DT assume that an MNO in general has a strong and dominating incentive to detach itself from retail intermediaries such as P4U. This over-simplistic assumption is at odds with the business experience of DT:

i. Acquiring or extending customer contracts via intermediaries has for more than 20 years been a substantial and integral part of many MNOs’ sales strategies. A mix between direct and indirect sales channels may be optimal in certain circumstances. For example, a direct sales channel may not be profitable in rural areas where the set-up costs for a single brand retail shop could not be recovered by sales in the local catchment area. Similarly, from a consumer perspective, a consumer in a rural area may be less attracted by an MNO’s individual brand shop, and more attracted by a multi-brand (intermediary) retailer shop.

ii. For example, even in Germany today approximately every second customer of DT’s subsidiary (Telekom Deutschland GmbH) is acquired via intermediaries or service providers/MVNOs (mobile virtual network operators).

iii. Retail intermediaries may in some circumstances exercise some downward pressure on pricing, but this is contingent on a range of factors. In particular, due to a predominantly commission-based sales model, intermediaries have a clear incentive to sell contracts that earn them the best margin, whether or not this also happens to be the cheapest offering to a customer.

f) Against this background, EE had to find the right combination of distribution channels, direct and indirect, that would allow it to at least maintain its market share in a highly competitive market like the UK whilst, self-evidently, managing and controlling its cost profile. It follows that P4U’s suggestion that DT was determined, as a general matter, to eliminate intermediaries, or generally believed that driving EE’s intermediaries out of business would be advantageous, is incorrect, including as respects P4U.

g) Beyond the baseless allegation of a per se hostile approach of the Defendants/DT in relation to retail intermediaries, the core of P4U’s case is that EE (and thus DT) had no legitimate reason to scale back their reliance on P4U, and pursued an underhand agenda of colluding with other MNOs to drive P4U out of business. P4U’s case is, however, confused and illogical. In 2012 and 2013, the reality is that the relationship between EE and P4U was actually extended. On 10 October 2012, a new three-year agreement was signed between the parties, and in December 2012 the agreement was amended to allow P4U to sell higher volumes of EE Connections. DT expected that this deal would likely run its full course to 2015. The suggestion that EE and/or DT was, in relation to P4U, motivated by any “commitments” made by other MNOs prior to the P4U contract being entered into and/or amended is therefore wrong. h) After entering the EE Agreement in 2012, EE, like any other responsible commercial operator, kept its distribution arrangements, direct and indirect, under constant review, on a legitimate and responsible commercial basis, for both general and specific reasons:

i. Whilst (as addressed above) an indirect distribution channel, such as P4U, can in principle offer advantages (e.g., if there are geographic gaps in retail

coverage for an MNO), it also involves costs, since an intermediary will require an additional margin over and above the MNO. Moreover, the value of the Connections acquired via indirect sales channels constantly needs to be reassessed on the basis of performance indicators (such as average revenue per customer, bad debt and fraud rates). An intermediary also does not in general contribute to building the value of an MNO’s brand (particularly as compared with a direct sales channel).

ii. There were also specific factors affecting the assessment of P4U’s status as an intermediary in 2013 and 2014:

1. O2 had, in early 2013, reduced P4U’s business to upgrades for existing O2 customers.

2. In early 2014, O2 then eliminated its reliance on P4U for upgrades as well (which P4U itself announced).

3. In February 2014, talks for a merger between Carphone Warehouse (“CPW”) and Dixons were publicly announced. This had a potentially transformational impact on the indirect distribution landscape, since the scale and scope of retail coverage of the merged entity had the real potential to offer a standalone indirect distribution alternative to P4U.

4. In April 2014, Vodafone announced plans to invest £100 million in opening 150 new stores under its own brand.

5. EE itself kept the optimal balance between direct distribution in own- retail outlets versus indirect distribution via P4U and others under specific review in late 2013 and 2014. This was not only due to the market developments adverted to above, but also because EE was itself keen to maximise its margin (and, therefore, from DT’s perspective, its investment in EE) by using direct distribution where commercially justified. i) Accordingly, when EE and DT (and the other parent company, FT, as shareholders) considered options in respect of the renewal of the 2012 EE

Agreement in the latter part of 2013 and particularly in the first half of 2014, it was against a potentially quite different set of circumstances compared to when the EE Agreement was concluded in October 2012. Indeed, there were realistic scenarios in which extending the EE Agreement beyond the September 2015 expiry date may not have made commercial sense for EE and its shareholders.

j) EE announced a review of its internal retail strategy on 31 January 2014, building on work undertaken in late 2013. At that stage, however, EE (and DT as a shareholder) had not made any final decision about the options of that retail strategy. By around May 2014, EE had developed a detailed picture on its options in the changing and fluid market environment outlined in sub-paragraph h) above. This involved weighing the pros and cons of various commercial options, seeing which options made the most financial sense to EE, and then presenting them to the shareholders, DT and FT. Out of that analysis, the option identified as the most favourable (and hence recommended by EE) was one to the effect that EE would: (1) seek to have CPW become its largest (and, depending on the terms, possibly sole) indirect distribution partner; (2) make additional investments in developing EE’s own direct sales channel (with circa 150 stores); and (3) honour the existing EE Agreement, certainly at least until its expiry at the end of September 2015 (and thereafter seek to spread the P4U volume between its new direct retail outlets and an expanded CPW indirect distribution base). This option was considered preferable by EE because it had the most favourable impact on EE’s earnings before interest, tax, depreciation and amortisation (“EBITDA”) over a forward-looking four- to five-year cycle. DT agreed with EE’s preference for this option. k) However, throughout this process of evaluation, EE was open to the possibility of extending the P4U arrangements beyond 2015 provided, crucially, that better terms could be offered than those applicable under the current deal, and better than those that could be offered by CPW, which (given its dealings with Dixons) was keen to retain EE as a customer and/or grow volumes with EE. In this regard, it was significant that the terms under the EE Agreement provided P4U with an artificially strong incentive to acquire customers by discounting handsets (for which EE bore 50% of the costs). The profile of customers

acquired by P4U for EE also tended to be less profitable, to carry higher risks (notably bad debt and fraud), and to have shorter tenure than those acquired through other channels. The above circumstances directly and strongly contradict P4U’s allegation that EE’s decision not to renew the EE Agreement in September 2014 involved, or was the product of, unlawful collusion with other MNOs or MNO undertakings. l) In line with the approach outlined in sub-paragraph k) above, discussions with P4U progressed throughout the summer of 2014. Unexpectedly, however, P4U took an offer it had made to EE for revised terms off the table on 31 July 2014. On 7 August 2014, EE reached agreement with CPW, subject to shareholder approval, on appointing CPW as EE’s sole ‘Large Consumer Specialist Retailer’ from 1 October 2015 onwards. This agreement was consistent with the analysis of distribution options carried out in May 2014 (which was updated over time) identifying this option as the most profitable. Shareholder approval for the CPW contract was then given on 29 August 2014. m) In late August 2014, P4U informed EE that Vodafone would not be renewing its existing agreement with P4U. DT had no prior notice of Vodafone’s decision. This development was a serious concern for EE since the scenario preferred in May 2014 was to see out the EE Agreement until its expiry in September 2015. A view was quickly formed that, without Vodafone, P4U would likely struggle to survive. Moreover, an indirect distributor who had only one MNO brand supplier would be of much less value to customers, since part of their role was to offer comparative advice on offers from multiple brands.

n) The above matters were concerning, since, if P4U’s survival was imperilled, EE would certainly suffer material business disruption and short-term losses. Thus, when P4U announced its entry into administration in September 2014, this caused difficulties, and had significant financial and other implications, for EE.

o) Accordingly, by letter dated 12 September 2014, EE decided not to renew the EE Agreement, which was a decision that did not require DT’s vote under the terms of the JVA. The EE decision not to renew the EE Agreement was not the product of collusive or other unlawful conduct involving DT. The non-renewal

of the EE Agreement was not a matter on which DT held a veto right. Through various market developments outside DT’s/EE’s control, P4U’s attractiveness (and eventually its viability) as an indirect distribution option for EE had rapidly diminished, eventually to the point where EE, out of self-protection (albeit still suffering losses), had no realistic choice but to decide not to renew the EE Agreement and eventually terminate it one year early (after P4U had gone into administration). p) In these circumstances, P4U’s claims against DT, both indirectly as a shareholder in EE and directly against DT, are baseless. In particular:

i. Insofar as P4U alleges that “commitments” were made by other MNOs/MNO undertakings in 2012, the fact that EE entered a new three- year contract with P4U (then amended further in December 2012 to add more volume for P4U) completely contradicts the suggestion that EE was colluding against P4U. From DT’s perspective, EE was making these decisions based purely on its unilateral commercial interests at the time, which also benefitted P4U to a very substantial extent through the new and then (as of December 2012) amended and expanded P4U contract.

ii. The suggestion that absent anticompetitive collusion it could make no economic sense not to renew the EE Agreement (due to continue until September 2015) is baseless:

1. While utilising P4U as an intermediary could have advantages (as set out above), these had to be considered against other factors, including the additional margin required, and the profile of the business brought in. There could well be circumstances in which a decision not to renew an intermediary’s contract could be attractive for commercial reasons. The objective would be to find the right balance of distribution channels, and to make decisions on those channels at the optimal time.

2. There were also UK-specific factors providing potential reasons for an MNO not to extend arrangements with an intermediary.

The MNO Three had already reached this conclusion in 2012 when it ended dealings with P4U, as did O2 when, with effect from 31 January 2014, it stopped dealing with P4U entirely. Moreover, as P4U’s stable of MNOs narrowed, its value to consumers as a way of comparing offers would also reduce. It is impossible therefore to see on what basis P4U can maintain that not renewing the EE Agreement made sense only as a result of an anticompetitive agreement or concerted practice. iii. In a rapidly and materially changing UK market landscape in the first half of 2014, DT, through work undertaken by EE, had a clear unilateral commercial basis on which to conclude that it may not have been economically rational to extend the EE Agreement beyond September 2015, based on the scenario analysis conducted by EE in May 2014 and refined thereafter. Throughout this analysis, however, EE continued to consider a renewal of the EE Agreement as a possibility, albeit only on acceptable and improved commercial terms. iv. In the event, the further developments described above that led to P4U’s entry into administration in September 2014 left EE with no effective choice but to decide not to renew, and subsequently to terminate the EE Agreement a year early. P4U’s entry into insolvency exposed EE to the risk of additional costs, and disrupted the distribution channels that EE had anticipated would remain in place until the end of September 2015, the full term of the EE Agreement.

v. The second and third claims advanced only against DT and Orange add nothing substantive to the primary competition law claims. The conspiracy claim is based on the same baseless theory of underhand collusion and illicit motives as the competition law claim. The claim of inducement to breach contract is based on the same theory, and also ignores the reality that EE acted legitimately to protect its commercial interests in response to the rapid and significant deterioration in P4U’s position and reliability as a commercial partner.

ALLEGATIONS IN THE PARTICULARS OF CLAIM

3. The paragraphs that follow respond to the allegations in the Particulars of Claim. References below to paragraphs are to paragraphs in the Particulars of Claim (save where otherwise indicated). For convenience, this Defence adopts the defined terms and organises the pleadings below under the headings used in the Particulars of Claim. In so doing, no admissions are made, and each heading must be read and understood from the perspective of the content of the responsive paragraphs that follow it.

A. Introduction and Summary

4. The first sentence of paragraph 1 is noted. The second sentence is denied.

5. As to paragraph 2, DT denies any unlawful conduct and the allegation that its conduct was secretive in some improper sense. It is noted that P4U relies on inferences and intends to provide further particulars following disclosure; as set out in this Defence, P4U’s case against DT is built on highly improbable inferences which are contradicted by the facts and are at odds with the more plausible, if not obvious, inferences to be drawn.

6. As to the summary of P4U’s case in paragraph 3, DT has summarised its Defence to the claims above and pleads to the specific allegations as made in the Particulars of Claim below. DT denies any unlawful conduct or any liability in damages.

7. Paragraph 4 is noted. DT denies liability for any of the claims advanced by P4U.

B. Parties

Claimant

8. The first sentence of paragraph 5 is admitted. As to the details of P4U’s particular role within its corporate group, these matters are beyond DT’s direct knowledge and are not admitted.

9. Paragraph 6 is beyond DT’s direct knowledge and is not admitted.

10. As to paragraph 7, it is admitted that the business of the P4U group included the sale of Connections as alleged. Whether and to what extent this was the main business focus of P4U is beyond DT’s direct knowledge and is not admitted.

11. Paragraph 8 is noted. DT pleads below to the specific allegations as to the circumstances in which P4U entered into trading arrangements with the Defendants.

12. As to paragraph 9:

a) The allegation in the first sentence that P4U was valuable is vague and the sentence is not admitted. Insofar as relevant, P4U is put to strict proof as to its alleged value prior to going into administration.

b) The second sentence pertains to communications between P4U and EE, and is not admitted by DT.

c) It is admitted that the trading updates prepared by Phones4u Finance plc (and supplied to DT’s solicitors by P4U’s solicitors) contained the information pleaded at sub-paragraphs (a)-(c) in respect of the performance of the P4U group, save that the EBITDA figure pleaded at paragraph 9(c) was described as the “underlying EBITDA”. The trading update stated that EBITDA (including certain losses) was £18.2 million. No admissions are made as to the accuracy of those trading updates.

13. The matters pleaded in paragraph 10 concern P4U’s business operations and are beyond DT’s knowledge and are not admitted, save that it is averred that the effect of the merger between CPW and Dixons in February 2014 was to end P4U’s store concession arrangement with Dixons.

14. As to paragraphs 11 and 12, it is admitted that P4U was placed into administration in September 2014, but the details of the administration are beyond DT’s knowledge and these paragraphs are otherwise not admitted.

Defendants

15. As to paragraph 13:

a) It is admitted that EE in 2014: (1) carried on the business of providing mobile telephony and communications services in the UK; (2) was one of several MNOs to do so; and (3) sold Connections directly and also through indirect distribution channels such as the Claimant and CPW.

b) It is admitted that DT was a shareholder in EE in 2014. Reference is made to paragraphs 16-17 below for more detail.

c) The reference to “corporate groups” is not understood in the absence of further specification by the Claimant as to the meaning and significance of this term.

16. Under paragraph 14 it is admitted that:

a) Under the JVA each of DT and FT combined their respective T-Mobile and Orange UK mobile businesses into a joint venture through the transfer of the two businesses into a joint venture company (then named T-Mobile (UK) Limited) in consideration for the issue to each of them of 50.00% of the total issued share capital of the joint venture (with 11,025,153 “A” and “B” shares, respectively).

b) At the material time, EE was an MNO providing Connections in the UK.

17. As to paragraph 15:

a) Under paragraph 15(a) it is admitted that:

i. At the material time, DT held 50.00% of the total issued share capital of the joint venture, with 11,025,153 “A” shares.

ii. Under Clause 5.3 of the JVA the joint venture had: (1) two non- executive Directors appointed by DT; (2) two non-executive Directors appointed by FT; and (3) two executive directors acting as CEO and CFO respectively.

iii. Thomas Dannenfeldt was a non-executive DT representative on the EE Board of Directors during 2014. The other non-executive DT director (from 1 February 2014) was Michael Tsamaz. b) DT does not plead to paragraph 15(b), which concerns FT. c) Save that it is admitted that, per Clause 12.2.1 of the JVA, the “approval, amendment and adoption of the Post-Completion Integration Plan, the Business Plan or the Annual Budget (including its reforecast) or allowing the Group to deviate from the provisions of the Post-Completion Integration Plan, the Business Plan or Annual Budget”, and that per Clause 12.2.10 of the JVA, “any transaction, agreement or arrangement entered into by any Group Company that: … (c) could involve the payment by the Group, in cash or otherwise, of amounts in excess of GBP 15 million, in the aggregate in any 12 month period, and/or any termination or material amendment of any such transaction, agreement or arrangement” required the positive vote of all DT and FT Directors present and entitled to vote at a meeting of the Board, convened and held in accordance with the terms of the JVA, paragraph 15(c) is denied. Furthermore:

i. It is denied that the need for the DT directors voting on a quorate Board to approve the Business Plan and Annual Budget is sufficient to amount to decisive influence for the purposes of Article 101(1) TFEU and/or Section 2 of the Competition Act 1998 (“1998 Act”).

ii. DT cannot plead to the references in paragraph 15 to other “strategic decisions” and/or “commercial policy” in the absence of any specific indication by the Claimant as to what those decisions or policies are said to comprise.

iii. The Claimant’s claim that “such influence and control is to be inferred from the fact of full joint ownership in circumstances where both parent companies form part of the same corporate group and had formed EE as a joint venture” is not an intelligible pleading. The mere formation of a “joint venture” is neither necessary nor sufficient to confer decisive influence and/or joint control upon the shareholders and reference to the

“same corporate group” is vague in the absence of any pleaded allegation in paragraph 15 as to the existence of a single undertaking.

18. Paragraph 16 is admitted.

19. DT does not plead to paragraphs 17-20, which concern other Defendants.

20. Paragraph 21 is noted.

C. Sale and Distribution of Connections in the UK

Independent retail intermediaries in the UK

21. As to paragraph 22:

a) Save that it is admitted that in late 2013/2014 a majority of UK consumers owned a mobile phone, no admissions are made as to the precise levels of saturation.

b) It is denied that the UK mobile market was highly concentrated and oligopolistic. The market was intensely competitive, among the most competitive in the EU. In addition to MNOs (EE, Vodafone, O2, and Three), MVNOs sold Connections under their own brand using the network of one or more of the MNOs. Leading MVNOs included Tesco Mobile and Virgin Mobile. Sky, Lycamobile, and Lebara were other (albeit smaller) MVNOs.

c) It is denied that competition in the mobile market was limited to gaining market share at the expense of other MNOs. As noted above, there was competition from MVNOs and also a desire by MNOs to increase substitution away from fixed-line services to mobile services. During 2013/2014 a key market development focused on 4G services in the UK. As well as the four MNOs, Tesco Mobile, Lycamobile and Relish also offered 4G service to consumers during this period. There was also competition from telephone and video calls routed over the Internet (voice-over-IP), which allowed consumers to by-pass traditional copper networks through, e.g., Wi-Fi Internet services. Competition took place inter alia over the dimensions of price, network quality (e.g., speed,

coverage and reliability), and other factors such as handsets offered and branding.

22. DT does not admit paragraph 23 in the absence of any source(s) for the market shares in question. It is admitted and averred that the intensity of competition between MNOs and MVNOs led to market share fluctuations over time.

23. As to paragraphs 24 and 25:

a) It is admitted and averred that, due to historic regulatory interventions, the direct retailing of Connections had historically been constrained in the UK and indirect distribution required or at least encouraged.

b) DT considered that this historic regulatory intervention had an effect on normal market forces, since it had restricted MNOs from using direct retailing and required or encouraged it to use indirect channels, whereas (depending on the circumstance) an MNO may otherwise have used a mix of distribution methods giving less emphasis to indirect channels. DT notes that when the UK regulatory constraints on direct retail selling of Connections were relaxed in the 1990s, most indirect distributors either disappeared from the market or were purchased by MNOs.

c) It is admitted and averred that the MNOs were in competition with P4U and CPW with respect to Connections.

24. Save that it is admitted that in or around March 2014, P4U and CPW were the two largest indirect distribution channels in the UK, no admissions are made as to the significance of P4U’s or CPW’s market shares as set out in paragraph 26 in the absence of any specification of the source(s) of the information set out therein.

25. As to paragraph 27:

a) It is admitted and averred that the commissions and other payments made to indirect distributors were a cost incurred by an MNO and, accordingly, that if some or all of that cost were passed on to consumers, that could give rise to an adverse effect on consumers.

b) The profit margin and revenues from customers acquired through intermediaries would depend on a range of factors, including the terms of the distribution agreement and the profile of business brought in by an intermediary. The EE Agreement provided P4U with an artificial incentive to obtain business by offering discounts on handsets, for which EE bore 50% of the costs. The customers acquired by P4U for EE also tended to be less profitable, to have higher risks, and to be of shorter tenure than those acquired through other distribution channels.

c) It is admitted and averred that any rational, profit-maximising firm would, all else being equal, seek to minimise its costs and avoid or reduce any unnecessary costs. To do so, an MNO would seek to achieve the optimal mix of direct and indirect distribution channels.

d) Such is the level of generality in sub-paragraphs 27(a) and 27(b) that DT is unable to plead to them. For example, the Claimant makes a generic reference to unspecified provisions in unspecified “trading agreements” concerning alleged control over pricing.

e) Save as aforesaid no admissions are made as to paragraph 27.

26. Save that it is admitted and averred that any profit-maximising firm would be incentivised to reduce and minimise its costs where possible, including, but not limited to, the costs of third party indirect distribution, no admissions are made as to paragraph 28.

P4U’s business

27. Save that it is admitted that from time to time P4U sold Connections on behalf of EE, Vodafone, and O2, no admissions are made as to paragraph 29.

28. Save that it is admitted that from time to time P4U sold Connections (or upgrades) on behalf of EE, Vodafone, and O2 to existing and new customers, no admissions are made as to paragraphs 30 and 31.

29. As to paragraphs 32-33:

a) It is admitted that under the EE Agreement, P4U had certain obligations to purchase mobile devices from EE: see for example Clause 5.

b) Paragraphs 31-33 contain no specific references to any provisions of the EE Agreement or any other contractual document setting out the terms of the commercial relationship between the parties. In the premises, save as aforesaid, paragraphs 31-33 are not admitted.

30. Paragraphs 34-36 set out on a general level certain alleged “attractions” of P4U. These are matters within the sphere of P4U and DT does not plead to them. For the avoidance of doubt, no admissions are made as to the P4U attributes alleged therein. DT notes and avers that the attractiveness of an intermediary would diminish as the number of MNOs for whom it could sell connections narrows, as its value to consumers as a way of comparing offers would also reduce. In particular, a mono-brand intermediary would be of limited use to consumers seeking to compare multi-brand offers.

31. As to paragraph 37, it is admitted that DT (through EE) was aware in a general sense that ceasing to sell through P4U (or another intermediary) could entail commercial risks, and it is averred that (as set out herein) EE (and DT) sought to optimise the mix of distribution channels by reference to those risks and to the range of other material factors. DT otherwise does not plead to the matters set out in paragraph 37 since it contains no specific allegation against DT (or even EE), and instead concerns either abstract assertions (e.g., sub-paragraph 37(a)) or matters falling within the sphere of Vodafone and/or O2 (e.g., sub-paragraphs b(i)-b(iii)).

32. As to paragraphs 38 and 39:

a) It is denied that, in the absence of any unlawful conduct by the Defendants, the risk of termination of dealings with P4U was “very small”. There are obvious circumstances where such terminations may well make sense as a unilateral matter to the MNO concerned. For example:

i. In the UK, Three has long since terminated dealings with indirect distribution.

ii. O2 also terminated its dealings with P4U for all contracts other than upgrades of then existing customers with effect from 31 January 2013 (and it is not pleaded by P4U that this termination was anticompetitive: see Particulars of Claim, paragraph 51), before then terminating upgrade customers as well in early 2014.

iii. An MNO may decide to forward integrate directly into retail itself and cut out or reduce reliance on third party indirect distribution channels. It cannot sensibly be suggested that vertical integration is unlawful.

iv. An indirect distribution channel other than P4U (e.g., CPW) may have sufficient scale and scope for the purposes of indirect distribution to make P4U redundant.

b) The commercial rationale for an intermediary such as P4U was that it offered the individual consumer the opportunity directly to compare products of various MNOs. The business case for an intermediary therefore depended on being supplied by multiple MNOs. If that was not the case, any such intermediary would be less attractive to consumers and to an MNO.

c) DT understands that – when it went into administration in 2014 – P4U had circa 720 retail stores in its portfolio, 358 of which were sold to other networks and 362 stores closed completely. Thus, half of P4U’s retail operations were considered entirely superfluous by the market.

d) It is therefore denied that P4U’s position was secured by the matters relied on or by the ordinary competitive processes and risks facing MNOs. The risk of agreements being terminated or not renewed was therefore a real and continuous one for P4U and other intermediaries.

D. P4U’s Distribution Agreements with the MNO Defendants

33. Paragraph 40 is noted. DT pleads to the specific terms of the agreements in the paragraphs that follow.

EE Agreement

34. Paragraph 41 is admitted.

35. As to paragraph 42:

a) The first sentence is admitted.

b) The second sentence is admitted only as a general summary of aspects of the EE Agreement.

c) As to the third sentence:

i. Insofar as it is alleged that EE and P4U both earned revenue from the sale by P4U of EE Connections to customers, this is admitted.

ii. DT infers that P4U had an interest in maximising its revenues from the sale of Connections from all MNOs. DT avers that the EE Agreement provided P4U with an artificially strong incentive to acquire customers for EE by discounting handsets (for which EE bore 50% of the costs), which was disadvantageous to EE.

iii. DT avers that P4U acquired customers who generally carried higher risks (including of fraud and bad debt) and who were otherwise less profitable than those acquired through other channels or distributors, and that this was disadvantageous for EE.

iv. DT infers that P4U may in some instances have had greater incentives (through earning higher commissions or financial incentives) to sell Connections from rival MNOs than it did to sell EE Connections.

v. Save as aforesaid, the third sentence is not admitted.

36. The terms of the EE Agreement pleaded at paragraph 43 are admitted insofar as they reproduce the terms of the Agreement. DT further notes that clause 14.1 provided for rights of termination as follows:

“14.1 Either party may at any time by giving notice in writing to the other terminate this Agreement with immediate effect:

14.1.1 if the other party commits a material breach of this Agreement and either such breach is incapable of remedy or, if capable of remedy, has not been remedied to the reasonable satisfaction of the other party within 30 days of a written request from the other party to remedy such breach; or

14.1.2 if the other party is unable to pay its debts (within the meaning of Section 123 of the Insolvency Act 1986) or… appoints an administrator, receiver or manager over all or any part of that other party’s business undertakings or assets…”

37. The EE Agreement was amended in December 2012 by a further agreement between EE and P4U, allowing P4U to trade additional volumes of EE Connections. DT will rely on the terms of EE Agreement (and the amending agreement entered into in December 2012) for their full meaning and effect.

38. Paragraph 44 is noted.

Vodafone Agreement

39. The matters alleged in paragraphs 45-47 concern P4U and Vodafone and are beyond DT’s direct knowledge. No admissions are made.

O2 Agreement

40. The matters alleged in paragraphs 48-49 concern P4U and O2 and are beyond DT’s direct knowledge. No admissions are made.

E. The Factual Circumstances of the Claim

41. As to paragraph 50, DT refers to its pleadings on the specific features of the market for sales to customers above at paragraphs 23-25.

O2 decides not to renew the O2 Agreement

42. The matters alleged in paragraphs 51-53 concern O2 and P4U and are beyond DT’s direct knowledge. No admissions are made.

O2 reveals the fact of anti-competitive commitments

43. The matters alleged in paragraphs 54–55 concern O2, Vodafone and P4U and alleged approaches of O2 representatives to Olaf Swantee (CEO of EE), and are beyond DT’s direct knowledge. No admissions are therefore made. DT addresses the specific allegation that it was directly informed of an alleged approach to Mr Swantee below at paragraph 87.f) of this Defence.

44. As to paragraph 56, the communications alleged between Mr Whiting and Mr Swantee are not within DT’s direct knowledge. No admissions are made.

Negotiations to extend the EE Agreement

45. As to paragraph 57, it is admitted that in late 2013 EE and P4U were in discussions regarding the possible extension of the trading arrangements provided under the EE Agreement. Those discussions continued into 2014. EE announced a review of its internal retail strategy on 31 January 2014 (building on earlier work in late 2013), and consequently P4U was aware that EE was considering its distribution channels.

46. The matters alleged in paragraph 58 as to statements made at a meeting are beyond DT’s direct knowledge and no admissions are made.

47. The first sentence of paragraph 59 is admitted. The details of P4U’s arrangements with Dixons are not within DT’s knowledge and paragraph 59 is otherwise not admitted.

48. The matters alleged in paragraphs 60 and 61 are beyond DT’s direct knowledge and no admissions are made.

49. The matters alleged in paragraphs 62 and 63 are beyond DT’s direct knowledge and no admissions are made. DT however notes and avers that:

a) No allegation is made that EE had made any binding commitment to enter into the extension, whether conditional on Board or shareholder approval, or otherwise.

b) P4U acknowledges that any extension of the agreement between EE and P4U would require Board approval.

c) The communications cited by P4U in paragraph 63 did not on their face provide assurances that EE’s shareholders would or were very likely to approve any deal or that all of the terms under discussion had in fact been settled. DT notes, for example, that the communications referred to “outstanding” issues on the deal.

50. As to paragraph 64, it is denied that as at 5 June 2014 the proposed agreement between EE and P4U was simply awaiting shareholder approval. Even on P4U’s case, the proposed agreement required consideration by EE’s Board. It is admitted that The Times and Bloomberg reported Mr Pellissier as having made the comments described. Paragraph 64 is otherwise denied.

51. As to paragraph 65, it is admitted (based on a copy of the messages supplied by P4U in these proceedings) that Mr Whiting and Mr Allera had the exchange of messages alleged. Paragraph 65 is otherwise not within DT’s knowledge and is not admitted.

52. As to paragraph 66, it is admitted that the Daily Telegraph reported in the terms alleged. The substance of the report and the other allegations in paragraph 65 are beyond DT’s direct knowledge and no admissions are made.

53. As to paragraph 67, it is admitted and averred that Mr Whiting emailed Mr Swantee in the terms alleged and withdrew P4U’s offer. Paragraph 67 is otherwise not admitted.

54. As to paragraph 68, it is denied that approval of an extension was the natural or obvious course of action, that no alternative arrangement could compensate EE for the loss of

21 volumes from P4U’s sales channels, or that collusion or anti-competitive conduct can be inferred from EE’s (and its shareholders’) decision not to approve an extension:

a) Any extension of the trading arrangements between EE and P4U fell to be assessed on its commercial merits compared to the alternatives, as did the other arrangements for distribution of EE Connections. P4U was not “secure” in its position in the market (as alleged at paragraph 39), given competition from other sales channels, including CPW and direct sales by EE, and the fact that MNOs would seek to optimise their mix of sales channels in light of inter alia the particular downsides and upsides of using intermediaries. Paragraphs 23.b), 25.a) to 25.c), and 32 of this Defence above are repeated.

b) EE in fact did consider and compare its distribution channels and in May 2014 prospectively assessed its options for the period 2015-2019. It considered four options/scenarios:

i. First, continuing its distribution arrangements with both CPW and P4U, while seeking to rebalance some volumes of sales from P4U to CPW;

ii. Second, not renewing the distribution arrangements with P4U, and seeking to move volumes of sales from P4U to CPW;

iii. Third, not renewing distribution arrangements with both P4U and CPW, and seeking to move all sales volumes to EE’s direct sales channels; and

iv. Fourth, not renewing the distribution arrangements with P4U beyond their expiry at the end of September 2015, and seeking to spread the sales volume between CPW and strengthened EE direct sales channels.

c) EE identified the fourth option above as producing, longer term, the highest EBITDA, and the highest EBITDA net of capital expenditure, by a significant margin over the other options. The fourth option was therefore the preferred option, albeit EE continued to consider its options (including exploring a renewed relationship with P4U on better terms) on an iterative basis throughout the summer of 2014. For the avoidance of doubt, no final decision had been

taken in this regard in May 2014. An option/scenario was preferred, and remained under ongoing review.

d) EE shared the above assessment with its shareholders. It acknowledged that the first option, of continuing arrangements with CPW and P4U, had some short term advantages over the fourth option. EE’s preference, as expressed to its shareholders, was for the fourth option.

e) P4U’s unexpected withdrawal of its offer on 31 July 2014 self-evidently detracted from the attractiveness from EE’s perspective of seeking a renewal of those arrangements.

Negotiations to extend the Vodafone Agreement

55. The matters alleged in paragraphs 69-75 concern Vodafone and P4U and are not within DT’s knowledge. No admissions are made.

Project Spring

56. The matters alleged in paragraphs 76-78 concern Vodafone and P4U and are not within DT’s knowledge. No admissions are made save that DT admits and avers that it was aware of Vodafone’s public announcements in April 2014 that it was significantly expanding its own direct distribution arrangements.

Vodafone Group’s and EE’s potential acquisition of P4U

57. As to paragraph 79 and 80, save as to sub-paragraph 79(c), the discussions alleged are beyond DT’s direct knowledge and are not admitted. As to sub-paragraph 79(c), DT admits that it understands Mr Swantee to have been approached by Vodafone regarding P4U, but denies that any agreement was reached on any acquisition. Save as aforesaid these paragraphs are not admitted.

58. As to paragraph 81, it is admitted (based on a copy of the email supplied by P4U in these proceedings) that the email was sent as alleged.

59. The matters alleged in paragraph 82 are beyond DT’s knowledge and are not admitted.

Parallel discussions between CPW and EE, and between CPW and Vodafone UK

60. As to paragraph 83:

a) It is admitted that EE was in discussions with CPW regarding the future trading arrangements, including the possibility of EE agreeing to place significantly larger volumes with CPW or to use CPW as its sole intermediary for indirect sales.

b) In the first half of 2014 until the end of August 2014, EE was considering a range of options, which were assessed and compared by EE on a commercial basis. Paragraph 54 of this Defence above is repeated.

c) The allegation that the agreement reached between EE and CPW entailed “a relationship” of exclusivity or that discussions between the two were with a view to extending their trading agreements on an “exclusive basis” is vague and, pending clarification by P4U, DT does not plead to it.

d) It is admitted and averred that the contract between CPW and EE appointing CPW as EE’s sole ‘Large Consumer Specialist Retailer’ was exchanged on 7 August 2014, and that Board approval was given on 29 August 2014.

61. The allegations made in paragraph 84, and sub-paragraphs 84(a) and (b), concern CPW and are beyond DT’s knowledge and are not admitted. As to sub-paragraph 84(c), to DT’s knowledge EE was from April 2014 in discussions with CPW and that those discussions included the possibility of entering an agreement under which CPW would act as EE’s sole (or sole major) intermediary distributor. EE was considering a range of options at that time, which it continued to test and assess throughout spring and summer 2014. Paragraph 60 of this Defence is repeated. Sub-paragraph (c) is otherwise not admitted.

62. As to paragraphs 85-87, the allegation that EE ought (if acting in a rational commercial manner) to have sought exclusivity arrangements in its discussions with P4U and that EE not doing so is suggestive of unlawful knowledge or confidence of Vodafone’s

24 intention to enter exclusive arrangements with CPW, and/or collusion with Vodafone, is denied. The allegation is fundamentally misconceived:

a) It made clear commercial sense for EE to explore an expanded relationship with CPW following its merger with Dixons (and hence its expanded store capacity). The scale and scope of the newly-merged entity made it potentially an even more attractive indirect distribution partner.

b) P4U was evidently not in a position to match the opportunity offered to EE by the CPW/Dixons merger.

c) P4U’s relative attractiveness as an intermediary reduced further following O2’s decision not to renew its arrangements with P4U, initially by restricting P4U to upgrades only and then removing this as well with effect from 31 January 2014 (which lessened the appeal of P4U to customers as a means of comparing a broad range of MNO options).

d) The allegation that an exclusive offer from P4U would have provided EE with a benchmark for its negotiations with CPW is untenable given the significant differences between P4U and CPW in the first half of 2014.

e) As pleaded above, EE was in the first half of 2014 and through to the end of August 2014 considering a range of options for distribution. From DT’s perspective, EE assessed and compared these options and, based on unilateral commercial considerations, identified an arrangement expanding volumes with CPW as its preferred option. EE also identified, however, certain limited short- term potential advantages of renewing the arrangements with both CPW and P4U. In a similar vein, but prior to the overall assessment of options made in May 2014, EE had in a 23 January 2014 business review made the assessment that “at the same time EE wants to improve the terms and conditions by renewing the contract with P4U”. These internal assessments are flatly inconsistent with P4U’s allegations of collusion and confidence.

Vodafone agrees an exclusive agreement with CPW and terminates the Vodafone Agreement

63. As to paragraphs 88-93, DT understands Vodafone to have terminated the Vodafone Agreement in late August 2014. The particular circumstances in and contractual provisions under which this termination is said to have occurred are beyond DT’s direct knowledge and are not admitted.

EE agrees an exclusive agreement with CPW

64. As to paragraph 94, paragraph 60 above is repeated. Paragraph 95 is admitted.

65. Paragraph 96 concerns P4U’s knowledge and is not admitted.

Vodafone UK appears to continue negotiations with P4U

66. The matters alleged in paragraphs 97-103 are beyond DT’s direct knowledge and no admissions are made.

P4U goes into administration

67. As to paragraph 104:

a) It is denied that P4U had been given an unequivocal indication by EE that renewal of the arrangements depended only on shareholder approval, and paragraph 54 of this Defence above is repeated.

b) It is admitted and averred that, on 29 August 2014, P4U informed EE of Vodafone’s notice of termination and proposed an arrangement for EE to purchase P4U.

c) Notwithstanding P4U’s withdrawal of its offer on 31 July 2014, all of the options under consideration by EE (prior to P4U’s entry into administration) involved continuing the existing arrangements between EE and P4U until their contractual expiry on 30 September 2015. EE had a certain degree of dependence on P4U’s continuing to operate (and succeed) as a multi-brand intermediary over that period, and was supportive of P4U.

d) The details of the discussions alleged are beyond DT’s knowledge and the paragraph is otherwise not admitted.

68. As to paragraph 105, it is admitted that EE’s Board approved the new contract with CPW on 29 August 2014 and paragraph 60 above is repeated. No admissions are made as to the communications alleged as between P4U and Vodafone.

69. Paragraph 106 is admitted.

70. As to paragraphs 107 and 108:

a) The communications alleged between P4U and EE are beyond DT’s direct knowledge and are not admitted.

b) To DT’s knowledge, EE was committed to continuing to support P4U through the duration of the arrangements then in place, which were not due to expire until 30 September 2015. Paragraph 67.c) above is repeated.

71. As to paragraph 109, it is admitted that P4U made the announcement to the Irish Stock Exchange as alleged. P4U’s reasons for doing so are not within DT’s knowledge and no admissions are made.

72. As to paragraphs 110 and 111, these allegations are directed at EE and are a matter for it to respond to and so are not admitted by DT.

73. Paragraph 112 is admitted.

74. As to paragraphs 113 and 114:

a) It is admitted and averred that on P4U entering administration, EE would be entitled to terminate the EE Agreement.

b) The allegations otherwise concern EE’s knowledge and communications with P4U and/or P4U’s circumstances, and are not admitted.

75. As to paragraph 115, the reasons for P4U’s directors applying for an administration order are beyond DT’s direct knowledge and are not admitted. The final sentence of paragraph 115 is admitted.

76. As to paragraph 116:

a) Under sub-paragraph (a), the first sentence is admitted. The second sentence is denied. P4U’s entry into administration in fact had significant adverse effects on EE’s operations and its commercial interests. EE was (as set out above) partly dependent on P4U for its sales strategy. EE also had exposure to significant costs in the event of P4U entering administration (from customers, suppliers and credit insurers who had otherwise dealt with P4U).

b) Sub-paragraph (b) concerns Vodafone and is not admitted.

c) Under sub-paragraph (c), points (ii) and (iii) are admitted. The allegations concerning Vodafone in point (i) are beyond DT’s knowledge and are not admitted.

77. As to paragraph 117, P4U avers that the retail stores and subsidiary businesses would have attracted a significantly higher price had P4U not been in administration. No basis is given for this bare assertion and P4U gives no particulars of any value attributed to the retail stores and subsidiaries (as assets separate from the rest of the P4U business) while P4U was a going concern. No admissions are made.

78. As to paragraph 118:

a) As to sub-paragraph (a), no admissions are made as to the turnover, profit or valuation of P4U.

b) Sub-paragraph (b) concerns Vodafone, and DT makes no admissions.

c) As to sub-paragraph (c), it is admitted that EE acquired the assets listed in paragraph 116 of the Particulars of Claim. The allegation that EE had earlier perceived “regulatory hurdles” to stand in the way of acquiring these assets while P4U remained a going concern is not substantiated or explained (whether in paragraphs 79-82 of the Particulars of Claim or elsewhere).

d) As to sub-paragraph (d), DT denies that the administration of P4U realised any of its, or EE’s, objectives. As set out above, the administration of P4U caused significant disruption and cost to EE. EE’s commercial strategy depended on

P4U continuing to trade at least until the expiry of the EE Agreement, i.e., 30 September 2015.

F. Claims Against the Defendants

As against all Defendants: claim for infringement of EU and UK competition law

Article 101(1) TFEU and Chapter I

79. As to paragraph 119:

a) It is denied that DT comprised a single undertaking with EE or FT for the purposes of Article 101(1) TFEU and/or Section 2 of the 1998 Act. Paragraph 17 above is repeated. It is denied that DT (individually, jointly, or otherwise) did exert decisive influence over EE.

b) As regards the inferred basis for the alleged decisive influence, set out in sub- paragraphs 119(a)-119(e), DT pleads as follows:

i. Contrary to sub-paragraph 119(a) the mere existence of a 50% shareholding in another legal entity is neither necessary nor sufficient to establish decisive influence.

ii. The reference to the “commitments” in sub-paragraph 119(b) is not understood in the case of DT, since it is not alleged in paragraph 54 of the Particulars of Claim that DT offered any commitment(s) to other parent companies. The pleaded allegation concerns alleged “commitments” given by the parent companies of O2 and Vodafone.

iii. As to sub-paragraph 119(c):

1. As regards the cross-reference to paragraphs 14 and 15 of the Particulars of Claim, DT repeats paragraphs 16-17 of this Defence above.

2. The circumstance that DT would have to give approval for specific EE contracts above a certain value was set out in Clause 12 of the JVA. As regards the cross-reference to paragraphs 62-

68 of the Particulars of Claim, DT repeats paragraphs 49-54 of this Defence.

3. DT does not plead to the remarks attributed to Mr. Pellissier of FT.

4. It is admitted that, under the JVA, certain decisions required the approval of DT’s representatives on the EE Board. It is also admitted that the DT representatives attended EE’s monthly business review meetings. It is denied that this caused EE to act so as to further its parent companies’ commercial objectives by ceasing to supply P4U, and DT repeats paragraph 54 above.

iv. DT does not plead to sub-paragraphs 119(d)-119(e), since these concern Vodafone and O2, respectively.

80. Paragraph 120 is admitted as a bare, high-level summary of certain aspects of Article 101(1) TFEU / Section 2 of the 1998 Act. DT reserves the right to raise further legal, factual, and economic matters in this regard before and during trial.

81. Paragraph 121 contends for propositions of law under Article 101(1) TFEU and/or Section 2 of the 1998 Act that are not appropriate matters for a pleading. DT does not plead to legal propositions in this Defence.

82. Paragraph 122 is denied, for the reasons set out in paragraph 54 above and paragraphs 84 and 87-88 below.

83. In relation to paragraph 123:

a) It is admitted that if (contrary to the matters pleaded in this Defence) the Claimant establishes an infringement of Section 2 of the 1998 Act for which DT is liable, there would be an effect on trade in the UK within the meaning of Section 2.

b) It is denied that there is an effect on trade within the EU internal market. In particular:

i. The matters pleaded at points (1), (2) and (4) concern UK effects only.

ii. As to the alleged circumstance that indirect distribution was at the material time a feature of the UK market but not in other EU markets, it is denied that this is an accurate summary of the overall position and paragraph 2(e)(ii) of this Defence above is repeated. In any event, this alleged circumstance does not indicate that the alleged agreements and/or concerted practices affected the EU internal market. DT avers that they are a contraindication of such effects, since, on this P4U hypothesis, the UK market is said to be fundamentally different to other EU markets.

iii. The mere fact that DT, as a German company, held a shareholding in a UK legal entity has no direct bearing on the question of whether alleged agreements and/or concerted practices affected trade in the EU internal market. DT was not itself directly active on any of the UK markets alleged in the present case.

iv. The relevance of DT’s market shares in other, unrelated markets “in the EU more generally” is not understood.

Economic analysis

84. Paragraphs 124-130 allege an abstract hypothesis under which it would have been economically irrational for EE (or other MNOs) to cease trading with P4U unilaterally (i.e., without unlawful collusion between them). This allegation is denied, as are the specific points made by P4U in support of it. The operation of the market and the commercial incentives facing EE and other MNOs will be a matter for factual and expert economic evidence. In overview, DT makes the following points at this stage:

a) It plainly may be rational for MNOs to cease or to reduce sales through indirect channels offered by intermediaries in certain scenarios, in order to achieve the optimal mix of sales channels. Paragraph 32.a) above is repeated.

b) An MNO may also prefer some intermediaries over others. One intermediary may offer the MNO a higher share of revenues from Connections, a more profitable cohort of customers, better support to the MNO’s brand, or a better proposition to the customer (and so be more likely to increase the MNO’s

market share), or simply better commercial terms. An intermediary that has only one supplier, or a relatively limited number of suppliers, is less attractive to the customer and hence to the MNO. Paragraph 32.b) above is repeated. c) An intermediary’s business may be underperforming, leading to higher costs: given that the majority of P4U’s stores were closed after its administration and not purchased by other operators, this may imply that P4U was relatively inefficient. d) An MNO may also see clear commercial advantages in using its own direct sales channels, which may help to minimise the costs of using an intermediary, better promote the MNO’s brand, or have other benefits (e.g., reductions in fraud, bad debt). Paragraph 32.a) above is repeated. e) These are the very factors relevant to EE’s assessment in the first half of 2014 and through to August 2014 of its future options for distribution. EE compared its various options and their trade-offs and ultimately found that distribution through its own direct sales channels, and through CPW (which had greater store coverage following its merger with Dixons) was the preferred option for rational commercial reasons. EE’s analysis neither modelled what Vodafone UK might do nor was it dependent on Vodafone acting in a particular way. Paragraph 54 above is repeated. f) In any event, the factual position is that in May 2014 EE identified and compared four different scenarios, and identified one of these as its preferred scenario on the basis of a legitimate and unilateral commercial analysis (which DT in turn accepted). The process of decision-making actually followed flatly contradicts P4U’s allegation of collusion, since EE was following this preferred scenario (which DT agreed with). The abstract economic theory posited by P4U cannot alter these underlying contemporaneous facts in the actual market concerned.

Particulars of anti-competitive behaviour

Anti-competitive commitments and/or disclosures - O2 and Vodafone UK

85. The matters alleged in paragraphs 131-135 concern O2 and Vodafone and are beyond DT’s knowledge, and are not admitted.

Anti-competitive commitments and/or disclosures - EE

86. As to paragraph 136, paragraph 44 above is repeated.

87. The allegation in paragraph 137 that EE participated in an unlawful agreement or concerted practice is denied. DT notes in particular the following:

a) As set out above, EE internally conducted an assessment of its various options for distribution in the first half of 2014 through to the end of August 2014, building on work from late 2013. These options included, potentially, extending the arrangements with P4U and assessing them on a commercial basis, and all of the options considered were based on P4U continuing to trade for the duration of the existing agreement until the end of September 2015. This contradicts the suggestion that EE/DT had covertly (in concert with other undertakings, or otherwise) decided, committed or agreed to terminate its relationship with P4U.

b) No particulars are given as to the date on which the “commitments” are said to have been communicated. To the extent that the discussion of “commitments” is said to have occurred in 2012 or earlier, EE’s commercial conduct is inconsistent with EE having acted on those “commitments”. It entered into a new three-year agreement with P4U on 10 October 2012, and, in December 2012, entered an amendment to increase the sales volumes to be made through P4U.

c) To the extent that the “commitments” are said to have been given at a later stage, this is at odds with the fact that well into 2014 EE continued to consider extending the P4U contract, and assumed (under all scenarios) that P4U would continue to trade and to meet its obligations under the then existing contract (which was to last until 30 September 2015).

d) EE’s decision (as approved by its shareholders) to enter into the agreement with CPW was based on its assessment of commercial considerations on a unilateral basis. That assessment was shared with DT. DT accepted and approved the preferred option recommended by EE.

e) P4U’s reliance on a “presumption” of influence or collusion (either on the part of EE or DT) is baseless and serves only to emphasise the weakness of P4U’s case.

f) As to paragraph 137(g), insofar as it relates to DT’s direct knowledge of these matters at the time, based on investigations to date, DT has found no specific knowledge of EE communicating to it any contacts that had been made by O2, and that allegation is (subject to further investigation) therefore not admitted. Further, DT did not refuse to approve an extension of the EE Agreement, as no such approval was sought. The sub-paragraph (so far as it relates to DT) is otherwise denied.

88. In the premises, paragraph 138 is denied.

The corporate and natural persons involved in the infringement

89. Paragraph 139 is noted. P4U’s inability to identify the persons said to have been responsible underlines the inferential and speculative nature of its case.

90. As to paragraph 140:

a) Under sub-paragraph (a), it is denied that DT made any anti-competitive “commitments” or disclosures. No basis whatever is offered in support of the contention that anti-competitive “commitments” or disclosures were made by DT to other undertakings, or offered to DT by other undertakings. Any such allegation is liable to be struck out or subject to reverse summary judgment. The allegation that “commitments” or disclosures were “received” by DT is vague and DT does not plead to it.

b) Under sub-paragraph (b), it is admitted that under clause 12 of the JVA, approval of certain acts by EE was reserved for decision by the Board or required the positive vote of the directors appointed by DT and FT. P4U’s

reference to “commercial reality” is vague and DT does not plead to it. The arrangements for distribution, including entry into the CPW agreement, were in fact approved by the EE Board, including by the directors appointed by DT.

c) Sub-paragraph (c) is denied. As set out above, the contention that an extension to the agreement between P4U and EE had been agreed in principle is incorrect. Paragraphs 49 and 54 above are repeated. The contention that DT refused approval of an extension of EE’s arrangements with P4U is baseless (since no such approval was in fact sought) and is denied. This is because, under the terms of the JVA, DT’s approval was not required for the non-renewal of the EE Agreement. As set out above, EE provided DT with its own commercial assessment of its distribution options, which determined that the preferred option was not to extend the arrangements with P4U. DT accepted the assessment and recommendation presented to it by EE.

d) In the premises, sub-paragraph (d) is denied.

“Market repair”

91. As to paragraphs 141 and 142, the allegation that EE (or indirectly, DT) were motivated to engage in collusive conduct is denied. Without limitation to that denial:

a) It is admitted and averred that EE (and indirectly, DT) had an incentive or motivation to reduce the costs involved in the distribution of Connections, and that this incentive was to be considered against the relative benefits of various distribution channels. The use of intermediaries did involve certain costs, including costs passed on to consumers, but these costs were to be weighed against the other commercial factors. Paragraphs 25 and 26 above are repeated.

b) In the case of EE and P4U, EE assessed its various options for distribution and came to the conclusion that its preferred course was to utilise one main intermediary (CPW) and its own direct sales channels. Paragraph 54 above is repeated. Self-evidently therefore EE was not motivated to remove entirely its reliance on indirect sales channels.

c) It is denied that EE (or indirectly, DT) had an incentive or motivation to remove P4U from the market. As set out above, EE’s commercial strategy depended on P4U remaining in the market, at least for the duration of the then existing contract, and the entry of P4U into administration caused significant disruption to EE and caused it (and therefore DT) to incur additional costs. Paragraphs 67.c) and 76.a) of this Defence above are repeated.

d) It is denied that the incentives facing EE (and indirectly, DT) led EE to seek to remove P4U from the market, or that EE or DT engaged in any collusive conduct.

92. As to paragraph 143, in the premises, the allegation that DT or EE were strongly motivated to “eliminate” P4U (or CPW) from the market is denied.

93. As to paragraph 144, DT notes P4U’s intention to adduce expert evidence. DT will likewise adduce factual and/or expert evidence on the market. The allegation that DT engaged in collusion is denied and, therefore, so is the allegation that, as a result of P4U’s ceasing to trade, competition has been restricted or distorted (or that consumers have suffered a detriment) by any anti-competitive collusion for which DT is liable. Without limitation to that denial:

a) Intermediaries are not indispensable for effective competition to occur in the market for the supply of mobile telephone services to consumers. While intermediaries may provide some benefits for an MNO in some circumstances, the use of intermediaries may also add additional costs, which are passed on to consumers. Paragraphs 23.b) and 25.a) of this Defence above are repeated. MNOs can and do compete to sell Connections directly to the consumer, and consumers are able to compare different products.

b) The market for the supply of mobile telephone services in the UK to consumers was and remains highly competitive even following P4U’s entry into administration. The significant number of MNOs and MVNOs continue to compete through various sales channels, and CPW continues to operate in parallel. The UK was and remains a very competitive mobile market within Europe. Paragraph 21 above is repeated.

94. In the premises, paragraph 145 is denied.

EE and Vodafone enter exclusive agreements with CPW

95. As to paragraph 146:

a) The allegation in the first sentence that DT and/or EE sought to remove or reduce reliance on indirect sales channels is denied and paragraphs 91.b)-91.d) above are repeated. It is admitted that EE entered into an agreement with CPW, under which in effect CPW would act as EE’s sole ‘Large Consumer Specialist Retailer’ with effect from 1 October 2015. Save as aforesaid the first sentence is not admitted.

b) The remainder of paragraph 146 seeks to allege an entirely inferential case that, in July and August 2014, EE would not have entered into that agreement with CPW without having entered into an agreement, understanding, or other form of collusion with Vodafone. That allegation is denied. As set out in detail above, EE had throughout the first half of 2014 and until August 2014 assessed its distribution options on an entirely commercial and unilateral basis and identified a preferred option, of not extending the arrangements with P4U beyond September 2015, albeit EE was open to a possible alternative arrangement on better commercial terms for EE. Paragraph 54 above is repeated.

96. As to paragraph 147:

a) Sub-paragraph 147(a) concerns Vodafone and is beyond DT’s knowledge. No admissions are made.

b) Sub-paragraph 147(b) is denied:

i. As to the first sentence, the allegation that the decision was taken “at the behest” or “instruction” of the shareholders is incorrect. EE had itself undertaken a commercial assessment and identified its preferred approach. That assessment and preference was shared with the shareholders, and DT agreed with it.

ii. The second sentence is denied. There is no properly pleaded allegation that DT entered into an agreement, understanding, or other form of collusion and the sentence is liable to be struck out.

iii. The third, fourth and fifth sentences are denied. Following the termination of the O2 Agreement and, in August 2014, the Vodafone Agreement, P4U’s rationale as a business offering customers the ability to compare different MNOs’ products fell away. Paragraph 32.b) above is repeated. Following the end of those agreements, EE (or any MNO in its position) therefore had a further compelling commercial reason not to commit to a new multi-year distribution relationship with P4U. The allegation that EE had no bona fide commercial reason to terminate the existing agreement, and every reason to continue with it, is untenable. EE subsequently terminated the agreement with P4U because P4U had entered administration, an insolvency proceeding. To continue the trading arrangement with P4U would obviously have exposed EE to even more significant and unjustified commercial risks.

Causation, loss and damage

97. As to paragraph 148:

a) It is denied that DT is liable for any breach of Article 101(1) TFEU and/or Section 2 of the 1998 Act;

b) In any event, it is denied that the unlawful collusion alleged against EE and/or DT (the existence of which is denied) could have caused P4U any loss:

i. EE independently and unilaterally had good commercial reasons not to renew or extend the arrangements with P4U, and a clear preference as to its distribution options, which it would have acted on (and which DT would have accepted) in any event. Paragraph 54 above is repeated.

ii. P4U entered administration (at its own directors’ initiative) following Vodafone’s decision to terminate its contract with P4U. Upon entering administration, EE had compelling reasons to terminate the contract

with P4U, and would have acted on those reasons to terminate in any event. Paragraph 96.b)iii above is repeated.

iii. The allegation that EE’s or DT’s commercial conduct was or would have been influenced by any alleged “commitments” by other undertakings is contradicted by the facts showing EE (and indirectly, DT) to have entered into arrangements with P4U in October and December 2012, and to have given real consideration to extending those arrangements in 2014. Paragraphs 87.b) and 87.c) above are repeated.

98. Paragraph 149 is noted.

As against EE: breach of the EE Agreement

99. Paragraph 150 is admitted.

100. As to paragraph 151, it is denied that two distinct obligations were created in clause 13.11 of the EE Agreement. The clause created an obligation on EE to act in good faith in not carrying out any act designed to reduce or avoid the making of Revenue Sharing Payment(s) to P4U.

101. Paragraphs 152-153 raise points of law said to support P4U’s construction of clause 13.11 of the EE Agreement. DT does not plead to those legal propositions and will set out its case on the law in advance of and/or at trial.

102. As to paragraph 154:

a) Under sub-paragraph (a), it is denied that the EE Agreement contained the implied term alleged.

b) Under sub-paragraph (b), the contention that the EE Agreement contained an implied term for the parties to provide “reasonable cooperation as was necessary to the performance of the other’s obligations” is vague and is not admitted.

103. The specific obligations alleged in paragraph 155 are denied.

104. Paragraph 156 is denied. EE acted towards P4U based on legitimate commercial considerations both in deciding not to extend the EE Agreement, and in terminating the EE Agreement, as set out above.

105. In the premises, paragraph 157 is denied.

106. As to paragraph 158, it is denied that EE was in breach of its contractual obligations. In any event, the alleged breach of contract (which is denied) would not have caused P4U any loss. In particular:

a) EE independently had good commercial reasons not to agree to an extension of the EE Agreement, as pleaded above. Paragraph 54 of this Defence above is repeated.

b) The letters sent by EE alleging contractual breaches (of which P4U complains) in all likelihood would not have made any difference to P4U’s decision to enter administration. Entry into administration became highly probable following Vodafone’s decision not to extend its contract.

As against Deutsche and FT/Orange: procuring and inducing EE’s breach of EE Agreement and/or common law conspiracy

107. As to paragraph 159:

a) The first and second sentences are denied. The decision that EE might not renew or extend the EE Agreement was based on EE’s assessment of its distribution options and EE’s identification of its preferred option, which DT accepted. Paragraph 54 above is repeated. The letter sent by EE to P4U on 12 September 2014 followed from that decision, and the process leading to that decision. In particular, the supervening event of P4U informing EE in late August 2014 that Vodafone would no longer deal with P4U was a new and material factor that called into question not only EE’s continued dealings with P4U but P4U’s own very existence.

b) Sub-paragraph 159(a) is denied and paragraphs 17 and 79 above are repeated.

c) As to sub-paragraphs 159(b)-(e), it is admitted and averred that as set out above, DT accepted EE’s assessment of its options for distribution and EE’s identification of its preferred option, and that the letter sent by EE to P4U on 12 September 2014 followed from that decision, and the process leading to that decision, as well as the supervening market developments, notably Vodafone ending its relationship with P4U. Paragraph 54 above is repeated. The decision to send the letter of 12 September 2014 was discussed at an EE business review at which DT was represented. Save as aforesaid, these sub-paragraphs are denied. d) As to sub-paragraph 159(f), it is not admitted that the sending of the letter on 12 September 2014 itself precipitated P4U being placed into administration (and it is denied that this was the foreseeable effect of the letter). Subject to further investigation and disclosure from P4U, even without the letter of 12 September 2014 being sent, P4U was under considerable pressure following Vodafone’s decision not to extend its contract with P4U, which in turn followed O2’s decision. The letter of 12 September 2014, moreover, did not terminate ongoing negotiations, as it followed from P4U’s own email of 31 July 2014 withdrawing P4U’s offer. In summary, there was a clear likelihood that P4U could be placed in administration even had the letter of 12 September 2014 not been sent. e) In the premises, sub-paragraph 159(g) is denied. EE’s decision not to extend the EE Agreement was rational on independent commercial grounds. Paragraph 54 above is repeated.

f) As to sub-paragraphs 159(h) and (i), the obligations of good faith alleged did not apply and so it is denied that DT was aware of them. It is denied that DT knew or was reckless to EE acting in breach of the EE Agreement.

g) As to sub-paragraph 159(j), it is admitted and averred that prior to the letter of 12 September 2014 being sent, it was apparent that P4U was already at significant commercial risk, which could ultimately affect its survival. That was the perception of EE when (in the broader context of P4U’s difficulties) it became aware from P4U in late August that Vodafone was not maintaining its commercial relationship with P4U. In those circumstances, it is admitted and

averred that EE had considered that contingency in the normal course of business, as any prudent operator would do so with a view to protecting its business and its market share and minimising the risks to the company. Those preparations included, but were not limited to, considering the possibility of acquiring assets from any administrator, including stores. These preparations were normal, prudent, and legitimate.

108. Paragraph 160 is denied. Paragraph 107 above is repeated.

109. Paragraph 161 is denied. Paragraph 106 above is repeated.

110. In the premises, the entirety of the claims is denied, and it is further denied that the Claimant is entitled to any of the relief set out in the Prayer for Relief. DT will also seek the costs of defending the claims, and puts the Claimant on notice that the claims against DT (including in its capacity as an EE shareholder at the time) are so unmeritorious that indemnity costs may be sought against the Claimant.

ROBERT O’DONOGHUE QC

HUGO LEITH