Brussels, 21 December 2001
High-speed Internet access: Commission suspects Wanadoo (France) of abusing its dominant position
The European Commission has sent Wanadoo Interactive, a subsidiary of France Télécom, a statement of objections concerning its charges to the general public for ADSL Internet access services. It takes the view that these services are currently being charged below cost, which could represent abuse of a dominant position under Article 82 of the Treaty. ADSL (Asymmetric Digital Subscriber Line) technology offers high-speed access to the Internet. But this technology will, before very long, be carrying an increasingly wide range of content. It is therefore essential, during this growth phase, that no single operator should be allowed to capture the market.
In September this year, in connection with its ongoing sectoral investigation into the local loop and DSL services, the Commission opened proceedings ex officio into Pack X-Tense and Wanadoo ADSL, products marketed by Wanadoo, on the basis of information supplied by France Télécom and its competitors. Wanadoo Interactive is a 99%-owned subsidiary of Wanadoo SA, which is itself a 72%-owned subsidiary of France Télécom, the incumbent telecommunications operator.
At the present stage of its investigations, the Commission believes that the retail prices charged by Wanadoo for Pack X-Tense and Wanadoo ADSL services are below cost. This is largely accounted for by the charges for intermediate services supplied to Wanadoo by France Télécom for the various components necessary for high-speed Internet access, The rate of cover of the costs of the two services did, however, improve appreciably in August 2001 as a result of reductions in France Télécom's charges for intermediate services. The adjustments required are therefore relatively minor.
Maintaining below-cost prices for these two services makes growth difficult for competitors, who also rely on France Télécom for the supply of the same intermediate services. The competitors for general-public high-speed Internet access, in particular those working with ADSL, must, if they wish to match Wanadoo's prices, accept losses or sacrifice other investments which are strategic for their development. These competitors for ADSL services, who do not have the backing of France Télécom as Wanadoo does, are unable to withstand the price and cost pressure imposed and are in practice forced out of the market. One of them (Mangoosta) did in fact fold in August 2001.
The aim of a strategy of below-cost pricing (predatory pricing) is to remove competitors or to give the dominant operator enormous market power. The dominant operator can then use that stronger market position, once the consumer's choice has been severely restricted or completely removed, to charge high prices, for instance for access to content.
In France Wanadoo is already way ahead of its rivals on the high-speed Internet access market for residential customers. At end-November 2001, Wanadoo had a near-60% share of the French market (including Internet access by cable modem), and over 90% of ADSL Internet access. This size has two consequences. First, the other Internet access suppliers play only a marginal role on the market. Second, and more indirectly, the growth of Wanadoo is enabling France Télécom to extend widely over the range of ADSL services, as the ADSL Pack is sold with France Télécom's ADSL Netissimo service. As a result alternative telecommunications operators who, with the move towards unbundling of the local loop, might wish to offer ADSL services comparable to those of France Télécom will find themselves up against an incumbent in a firmly entrenched position, something which will limit their own growth potential.
Wanadoo's pricing policy for ADSL services may therefore involve abuse of a dominant position prohibited by Article 82 of the Treaty. If this initial view were to be confirmed in the subsequent stages of the procedure, the Commission could adopt a decision against Wanadoo and impose a fine.
In its inquiry into the sector the Commission is looking into the way in which this market is developing in a number of other Member States.
There are at present just over 500 000 residential customers with high-speed Internet access in France, around 2.8 times as many as at end-2000. Connections by ADSL and by cable modem make up two thirds and one third of this total respectively. At present, the high-speed Internet access available in France allows downstream connections around 10 times faster than conventional Internet access. Wanadoo accounts for the bulk of the ADSL Internet access. The France Télécom group is also present in access by cable modem through its subsidiary France Télécom Câble. The France Télécom group overall thus has a market share of around 70%.