COMMISSION DECISION of 16 july 2003 relating to a …

COMMISSION DECISION

of 16 july 2003

relating to a proceeding under Article 82 of the EC Treaty

(COMP/38.233 – Wanadoo Interactive)

(Only the French version is authentic)

In the published version of this decision, some information has been omitted pursuant to Articles 20(2) and 21(2)
of Council Reulation (EC) No 17/62 (replaced by Articles 28(2) and 30(2) of Council Regulation (EC No
1/2003) concerning non-disclosure of business secrets and other confidential information. The omissions are
shown thus […]*. Where possible the information omitted has been replaced by ranges of figures or a general
description.

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation No 17 of 6 February 1962, the first Regulation
implementing Articles 85 and 86 of the Treaty,1 as last amended by Regulation (EC) No
1216/1999,2 and in particular Articles 3 and 15(2) thereof,

Having regard to the Commission decision of 27 July 1999 to initiate an investigation into the
telecommunications sector,

Having regard to the Commission decision of 19 December 2001 to initiate proceedings in
this case,

Having given the firms concerned the opportunity to make known their views on the
objections raised by the Commission in accordance with Article 19(1) of Council Regulation
No 17 and with Commission Regulation (EC) No 2842/98 of 22 December 1998 on the
hearing of parties in certain proceedings under Articles 81 and 82 of the EC Treaty,3

Having consulted the Advisory Committee on Restrictive Practices and Dominant Positions,

Having regard to the report of the Hearing Officer,

Whereas:

1
2
3

OJ 13, 21.2.1962, p. 204/62.
OJ L 148, 15.6.1999, p. 5.
OJ L 354, 30.12.1998, p. 18.

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A. Introduction……………………………………………………………………………………………………….. 4

B. The company……………………………………………………………………………………………………… 5

C. The services ………………………………………………………………………………………………………. 7

1. Introduction: Internet access in France ……………………………………………………………………. 7

2. The services: high-speed Internet access for residential customers ………………………………. 7

D. Wanadoo Interactive’s “General Public” ADSL products and corresponding revenue …….. 9

1. Wanadoo ADSL et eXtense…………………………………………………………………………………… 9

2. Total and unit revenue from Wanadoo ADSL and eXtense products ………………………….. 10

1. Total revenue from services (2001) ………………………………………………………………………. 10

2. Theoretical unit revenue from subscriptions …………………………………………………………… 10

3. Actual average unit revenue from subscriptions ……………………………………………………… 11

4. Content-related revenue ……………………………………………………………………………………… 12

E. Costs incurred by Wanadoo Interactive…………………………………………………………………. 13

1. Costs included in the analysis………………………………………………………………………………. 13

2. Network costs …………………………………………………………………………………………………… 14

1. Access costs……………………………………………………………………………………………………… 15

2. Routing costs ……………………………………………………………………………………………………. 15

3. The costs of international connectivity ………………………………………………………………….. 17

4. Refunds […] …………………………………………………………………………………………………….. 18

3. Customer acquisition costs ………………………………………………………………………………….. 18

1. Advertising, marketing activities and special offers…………………………………………………. 18

2. Payments to the sales network……………………………………………………………………………… 20

3. Service access costs …………………………………………………………………………………………… 20

4. Other production costs. ………………………………………………………………………………………. 20

F. The extent to which costs were covered by revenue ………………………………………………… 20

1. Recovery of full instantaneous costs……………………………………………………………………… 21

2. Recovery of adjusted costs ………………………………………………………………………………….. 22

1. Recovery of variable unit costs…………………………………………………………………………….. 23

2. Recovery of variable unit costs…………………………………………………………………………….. 24

3. Analysis by successive generations of new subscribers ……………………………………………. 25

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1. Analysis of adjusted costs for new generations of subscribers …………………………………… 25

2. A cash flow analysis would be invalid in this case…………………………………………………… 26

4. Recovery of the adjusted costs foreseeable ex ante ………………………………………………….. 27

5. Conclusion on recovery of costs…………………………………………………………………………… 30

G. Internal company papers concerning a strategy of preemption of the high-speed market.. 31

1. The intention to preempt the high-speed market was formulated ……………………………….. 31

2. Internal thinking on the price level and Wanadoo Interactive’s knowledge of the economic

and financial impact of the development of its ADSL services …………………………. 33

3. Wanadoo Interactive was aware that there were legal dangers …………………………………… 35

4. The context provides evidence of a strategy designed to contain and drive off competitors36

H. Procedure ………………………………………………………………………………………………………… 39

1. History…………………………………………………………………………………………………………….. 39

2. Access to the file ……………………………………………………………………………………………….. 40

3. Wanadoo Interactive’s objection to the letter on the facts………………………………………….. 42

A. Article 82 of the Treaty ……………………………………………………………………………………… 42

B. The relevant market …………………………………………………………………………………………… 42

1. The service market …………………………………………………………………………………………….. 42

1. Introduction ……………………………………………………………………………………………………… 42

2. Differences in use ……………………………………………………………………………………………… 44

3. Technical features and performances…………………………………………………………………….. 46

4. Price differences in respect of services and differences in revenue per subscriber …………. 49

5. Assessment of the degree of substitutability …………………………………………………………… 50

6. Conclusion on the service market …………………………………………………………………………. 53

2. The geographic market……………………………………………………………………………………….. 54

C. The dominant position ……………………………………………………………………………………….. 54

1. General ……………………………………………………………………………………………………………. 54

2. Market shares……………………………………………………………………………………………………. 55

3. The link-up with France Télécom…………………………………………………………………………. 59

1. Synergies within a large group …………………………………………………………………………….. 61

2. Technical support………………………………………………………………………………………………. 61

3. Commercial support…………………………………………………………………………………………… 63

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4. Logistical and financial support……………………………………………………………………………. 65

4. Wanadoo Interactive’s position on the directory publishing markets …………………………… 65

5. Conclusion ……………………………………………………………………………………………………….. 67

D. Abuse of a dominant position ……………………………………………………………………………… 67

1. Nature of the abuse: the non-recovery of costs as part of a plan to preempt the market ….. 67

1. The recovery of costs …………………………………………………………………………………………. 68

2. The questioning by the company of the interpretation of its pricing practice………………… 69

3. The intention to drive out competition…………………………………………………………………… 71

(a) The plan to preempt the market…………………………………………………………………………… 71

(b) The choice of a prices and volumes strategy not replicable by the competition …………… 71

(c) A contextual element: the overall policy of the France Télécom group towards competition
in the high-speed market ……………………………………………………………………………. 74

4. Objectives pursued by Wanadoo Interactive using the preemption strategy …………………. 76

5. Conclusion on the intention to preempt …………………………………………………………………. 79

2. Applicability of the predation concept to a growth sector …………………………………………. 79

3. Lack of objective justification for below-cost pricing ………………………………………………. 80

1. Economies of scale and learning effects ………………………………………………………………… 80

2. Lack of justification in the form of positive externalities ………………………………………….. 81

3. The argument as to alignment on competitors’ prices……………………………………………….. 82

4. Probability of a recoupment of losses ……………………………………………………………………. 87

1. Disincentives to mobility on the part of existing subscribers……………………………………… 89

2. The costs of entering and acquiring a critical size in a mass market……………………………. 90

3. Cost of alternatives to the retail offering proposed to service providers by France Télécom94

4. The rebuilding and increasing of Wanadoo Interactive’s margins, evidence of the likely

recoupment in the long run of the initial losses ………………………………………………. 96

5. Conclusion on the likelihood of loss recoupment…………………………………………………….. 96

5. Conclusion on the abuse……………………………………………………………………………………… 97

E. Repercussions of the abuse on competition ……………………………………………………………. 97

1. Effects on the market in 2001 and 2002 of the strategy followed by Wanadoo Interactive 97

(a) Evolution of market shares and growth rates…………………………………………………………. 97

(b) Interpretation of market trends……………………………………………………………………………. 99

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2. Effects at the end of the abuse and in the medium term ………………………………………….. 102

F. Effects on trade between Member States……………………………………………………………… 104

G. Article 3 of Regulation No 17……………………………………………………………………………. 104

G. Article 15 of Regulation No 17………………………………………………………………………….. 105

1. Gravity of the infringement ……………………………………………………………………………….. 105

1. Nature f the infringement ………………………………………………………………………………….. 105

2. Impact on the market………………………………………………………………………………………… 105

3. Extent of the relevant geographic market …………………………………………………………….. 106

4. Conclusion on the gravity of the infringement ………………………………………………………. 106

2. Duration of the infringement ……………………………………………………………………………… 106

3. Aggravating or mitigating circumstances …………………………………………………………….. 107

I. THE FACTS

A. INTRODUCTION

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High-speed Internet access is a key factor in the development of the information
society in Europe. By making the Internet quicker, easier and more convenient to use,
and by enlarging the range of applications and uses which it makes possible, high-
speed Internet access contributes to the development of e-commerce and the
emergence of new electronic forms of distribution, which lends it a crucial economic
and strategic dimension. The spread of high-speed Internet access in Europe depends
to a significant extent on digital subscriber line, or DSL, services being made available
on the local access networks run by telecom incumbents. These local access networks,
which link end-users to the general telecom network, are known as local loops.
Commercial DSL service provision really got started in Europe in 1999.

Against this background, the Commission decided, in July 1999, to launch an inquiry
into the sector pursuant to the powers conferred on it by Article 12(1) of Regulation
No 17, which focused in part on the provision of local loop access services and
residential local loop services.4 The inquiry’s main aim was to find evidence of anti-
competitive pricing for services using the local loop, of entry barriers and of predatory
pricing.

4

Decision C(99)2435 of 27 July 1999.

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