The French regulatory authority ART has today published its conclusions concerning two hotly debated issues:

  • Definition of an additional wholesale-level relevant broadband access market.

  • Treatment of self-supply of wholesale broadband access by France Télécom.

Visitors of the T-REGS website will recall that on 5 Oct 2004, the ART had decided to launch an additional consultation, given the very opposing views that it had received from interested parties, on its previously formulated proposal to define a separate relevant market, consisting of "xDSL-based wholesale access without bandwidth guarantees, where traffic is handed-over at national level using an IP interface" (i.e. the currently existing "Option 5 national"). The ART appeared to be hesitating, especially given that it referred to Option 5 national as an offer akin to a resale offer.

In its conclusions published today, the ART comes out in favour of, after all, defining a separate relevant market. In addition it broadens the scope of the relevant market, by including not only the product corresponding to Option 5 national, but also "xDSL-based wholesale access with bandwidth guarantees, where traffic is handed-over at national level using other interfaces", in particular ATM (corresponding to certain offers made by France Télécom integrating its Turbo-DSL retail product, which is mainly purchased by alternative operators and ISPs targeting the business market). This completes the process of re-qualifying the retail product TurboDSL into a wholesale product, both in the relevant market with regional hand-over, and in the additional relevant market with national hand-over that the ART is now defining.

The proposed final market definition is therefore as follows:

"DSL-based wholesale broadband access offers, with hand-over at national level, independently of the interface employed"

In order to reach this market definition, the ART has concluded that:

a) Wholesale broadband offers with hand-over at a single national point and wholesale broadband access with hand-over at multiple regional points cannot be considered to be part of the same market.

b) Wholesale broadband offers with hand-over at a single national point aimed at serving residential customers and aimed at serving business customers are part of the same relevant market for the purposes of market analysis.

c) There is NO substitutability of xDSL-based wholesale broadband access with offerings based upon cable-tv networks or fixed wireless access networks.

T-REGS note: The definition of an additional market is subject to a veto power of the European Commission, in application of Article 7.4 of the Framework Directive 2002/21/EC, and the European Commission has set out (in the Recommendation on Relevant Markets), three criteria which must be met for defining a relevant market susceptible to ex-ante regulation. In extreme summary, these 3 criteria are:

  • presence of high and non-transitory entry barriers;
  • absence of tendency towards effective competition
  • competition law alone would not adequately address market failure(s).

The ART has examined the three criteria, and concludes that they are met. However, the ART also recognises that alternative operators are rapidly migrating to local loop unbundling and to wholesale broadband access with regional hand-over, which justifies in its opinion, to revisit the market definition 12 months after the notification of its decision to the European Commission. The ART has previously made clear that the regulatory obligations (‘remedies’) that it will put forward for the additional market will be less stringent than those for wholesale broadband access with regional hand-over.

As regards the assessment of Significant Market Power (SMP), the ART concludes that France Télécom currently has a share of about 60% of the newly defined market, and therefore proposes to declare France Télécom has having SMP. The ART does note that this market share is declining, and is expected to be between 55% and 60% by the end of 2004, and may fall to approximately 50% by the end of 2005, which is the time horizon of this market analysis.

These market share percentages have been calculated by including self-supply by France Télécom. Visitors of the T-REGS website will recall that France Télécom had stated in its response to the consultation of 23 June 2004 that: (i) the wholesale market should be defined as excluding self-supply, and (ii) when excluding self-supply, France Télécom's market share will be significantly below 50% by the end of 2004.

The ART has now rejected France Télécom’s argumentation, and mentions the following points in support of its decision to include self-supply:

a) The existence of a vertically integrated dominant operator, present on the retail market, and making use of internally produced services, which are also sold to competitors that are active on the same retail market, justifies the inclusion of self-supply.

b) The re-integration of Wanadoo (the ISP) into France Télécom, shows that until recently there was a market with transactions (external supply). If a mere modification of the corporate structure would allow this to be converted to internal supply (and absence of transactions), and hence a change in market definition and/or market position, this would be incoherent given that the economic and competitive structure of the market is not directly affected.

c) Excluding self-supply would, according to the ART, negate the lever that the dominant operator has on the downstream market vis-à-vis competitors for whom it is an essential supplier upstream. In addition, there are economies of scale (and related volume effects) on the intermediate market.

d) The ART notes that most jurisprudence from competition authorities does NOT include self-supply in the market definition, but cites a number of precedents where self-supply was in fact included. Specific reference is made to two cases relating to SMP designation under the former regulatory framework (Avis of the Conseil de la concurrence 98-A-19 and 99-A-13), to Judgement T-310/01 of the Tribunal of First Instance of the European Communities relating to the case Schneider Electric vs European Commission, and to the recent decisions of NRAs in the UK, Ireland and Austria relating to unbundled access and wholesale broadband access which were validated by the European Commission’s eCommunications Consultation Task Force (eCCTF), and which included consideration of self-supply. T-REGS note: these recent eCCTF decisions were covered by previous news items on this website; they can be accessed by using the search box at the top centre of the website.

After taking due account of the opinion of the Conseil de la concurrence (which will be delivered within 6 weeks), the ART will notify the European Commission and all national regulatory authorities in the EU of its proposals for market definition and SMP designation on wholesale broadband markets.

The definition of regulatory obligations ('remedies') for the SMP operator (in all cases France Télécom) on the defined markets will be the subject of further consultation, and is expected to be finalised at the beginning of 2005.

The full text (in French) of the ART’s market analysis can be accessed by clicking here.

For a discussion of the issues at stake, the arguments exchanged, the precedents invoked, etc., please contact Yves Blondeel.