ADSL, abuse of dominant position and predatory pricing: Case T-340/03

The Court of First Instance has handed down an interesting judgment on Article 82 EC and what constitutes an abuse of a dominant position. It's particularly interesting on predatory pricing.

The judgment in Case T-340/03 France Télécom v. Commission concerns a challenge by France Telecom - Wanadoo before a merger - to a decision of the Commission finding that Wanadoo had abused its dominant position on the French market for internet access and fining it €10.35 million (US$13,419,809). France Télécom sought the annulment of the decision on the grounds that it had neither a dominant position nor had engaged in any abusive conduct.

The Court of First Instance rejected France Telecom's claims and upheld the Commission decision, including the fine.

The Court upholds the Commission's finding that Wanadoo enjoyed a dominant position on the French market for Internet access, because of its very high market share at the material time, the fact of having eight times more ADSL subscribers than its nearest competitor and its ‘link-up’ with France Télécom, the incumbent telecommunications operator in France, which conferred on it advantages over its competitors.

As for the abusive conduct, the Court also upholds the findings of the Commission. In particular, it held that Wanadoo had engaged in predatory pricing. It held in the first place that prices below average variable costs give grounds for assuming that a pricing practice is eliminatory and that, secondly, prices below average total costs but above average variable costs must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. The Court of First Instance held that the Commission was correct in its choice and application of the method of calculating the rate of recovery of costs which led it to conclude that there was predatory pricing and that the Commission furnished solid and consistent evidence as to the existence of a plan of predation. Interestingly, the Court held that it was not necessary to establish in addition proof that Wanadoo had a realistic chance of recouping its losses.

As a result, the Court considered that Wanadoo could not therefore rely on an absolute right to align its prices on those of its competitors in order to justify its conduct. Even if alignment of prices by a dominant undertaking on those of its competitors is not in itself abusive or objectionable, it might become so where it is aimed not only at protecting its interests but also at strengthening and abusing its dominant position.

It will be interesting to study in greater depth how this judgment affects the review of Article 82 EC currently benig undertaken by the Commission.

Comments

[James Kavanagh]

On the France Telecom case and Article 82 reform, see this article in the February edition of Agenda:

http://www.oxera.com/main.aspx?id=5800

The article discusses the CFI's January ruling on France Telecom as an instance of form-based interpretation of Article 82 EC. It argues that the law on predation is an exception to the increasing practice of using effects-based tests for exclusionary abuses, and contrasts France Telecom with the US Supreme Court's recent ruling in Weyerhauser. It notes that France Telecom leaves the process of Article 82 reform in greater doubt, since the court's interpretation appears to leave no room for an effects-based test in predation cases.