Assessment of significant market power in French electronic communications markets

16 February 2005

Christophe Fichet

This article considers the conduct of market analysis in the electronic communications sector in France and in particular the assessment of significant market power (“SMP”) by the relevant authorities. It will examine the ART’s approach in the identification of individual markets and of operators designated as having SMP, the opinion of the French national competition authority (“NCA”) the Conseil de la concurrence, with respect to this review, and, where appropriate, the imposition by the ART of regulatory obligations on those telecoms operators designated as having SMP.

Implementation by the ART

The law of 9 July 2004 implementing the EC electronic communications Directives of 2002 into French law provides for the procedure applicable to the analysis and the assessment of competition on the relevant electronic communications markets, the identification of possible operator(s) having significant market power, and the appropriate remedies that could be imposed on these SMP operators.

This procedure is more specifically provided for in Articles L. 37-1 to L. 37-3 and Articles L. 38, to L. 38-3 [1]and D. 301 to D. 315[2] of the French Post and Electronic Communications Code.

Pursuant to Article 14, paragraph 3, of the 2002/21/EC Directive, Article L.37-1 provides that an undertaking is deemed to have significant market power where (i) either individually or jointly with others[3], it enjoys a position equivalent to dominance and (ii) where the links between two markets are such as to allow the market power held in one market to be leveraged into the other market, thereby strengthening the market power of the undertaking.

The ART may propose any obligations it deems necessary to remedy a lack of competition on the market concerned. To that end, the ART considers the Commission’s guidance in carrying out its market review by taking into account the Recommendation on Relevant Product and Service Markets within the Electronic Communications Sector (the “EC Recommendation”, dated 11 February 2003) and guidelines for market analysis and the assessment of SMP (Guidelines on Market Analysis and the Assessment of Significant Market Power - the “EC Guidelines”, dated 11 July 2002).

The ART’s review is then submitted for comments to public consultation. After reviewing the comments received, the ART may amend its draft and transmit it to the Conseil de la concurrence, which issues an opinion on the definition of the relevant markets and the designation of the operator(s) having significant market power. The draft decisions corresponding to the definition of the relevant markets, the designation of the operators having significant market power and the determination of the specific remedies are then notified to the European Commission and to the other Members States’ National Regulatory Authorities pursuant to Article 7 of Directive 2002/21/EC.

Under Article D.301 of the French Post and Electronic Communications Code, a market is registered for a maximum period of three years after which it must be reviewed. The French regulator may, if needed, re-review a market prior to this deadline in the event of significant evolution of the structure of the market or of the technologies available.

The ART is at an advanced stage in the review process. It has followed the identification of 18 separate markets set out in the EC Recommendation. For markets 1-10 in the EC Recommendation which concern fixed telephone networks, the ART has completed its public consultation and the Conseil de la concurrence issued its opinion on February 16, 2005. In mobile telephony, the final decision has been published for market 16 (wholesale call termination on mobile networks) concerning voice call termination on individual mobile networks, while the analysis by the ART of market 15 (mobile access and call migration) is currently subject to the review of the Conseil de la concurrence, and market 17 (international roaming) is subject to a prior common preliminary review by all 25 NRAs[4] through a common questionnaire sent out to mobile network operators. With respect to the broadband markets 11 and 12, the ART’s conclusions have been submitted for review to the Conseil de la concurrence which issued its opinion on 31 January 2005. The review for broadcasting services (market 18) has not yet been published while the public consultation for the retail and wholesale leased lines markets (markets 7, 13 and 14) is expected during the first quarter of 2005.

Assessment of individual markets by the ART

Fixed telephony (retail markets)

Markets 1 to 6 in the EC Recommendation – fixed narrowband retail services markets[5]

While the Commission identified two markets of access to the public telephone network at a fixed location (residential customers one the one hand, and non-residential customers on the other hand), the ART proposes to introduce an additional segmentation by distinguishing three markets instead of one for the access to the public telephone network at a fixed location for non-residential customers: analogue access, basic-rate digital access, primary-rate digital access. The ART thus identifies four markets whereas the Commission identified two. The ART justifies its position by referring to: the presence of high and non temporary entry barriers, the absence of evolution to a situation of effective competition, and the inadequacy of competition law to rectify this.

Regarding, narrowband communications markets, the ART assesses that it is necessary to make a distinction between local and national calls and fixed-to-mobile callsand thereforeidentifies six markets[6] while the Commission only specifies four markets[7].

The Conseil de la concurrence disagreed with such sub-segmentations of the retail markets in its opinion rendered on 17 February 2005[8]. According to the French Competition authority, such divisions seem not to be relevant in the context of a whole coherent approach of these markets and are not useful.

Moreover, the Conseil de la concurrence requested the ART to reconsider its position regarding the regulation applicable to voice over broadband (“VoB”). Indeed, while the ART considers that VoB services cannot be dissociated from the provision of a broadband access and are offered on the retail broadband markets, and therefore should not be submitted to the ex ante regulation applicable on the relevant market of fixed telephony, the Conseil de la concurrence considers to the contrary that VoB services could soon constitute a substitute and compete with fix communications services. The Conseil de la concurrence refers in particular to the equivalent quality of the communications provided through a broadband access and the announcement by France Télécom to commercialise ASDL access without any subscription for fixed services (allowing the incumbent to offer “ADSL access + VoB” as an alternative to existing offer “access subscription + classical voice communications). Given that the retail broadband markets do not require any specific ex ante regulation while obligations must be imposed on operators in the retail fixed telephony markets, the Conseil de la concurrence fears that excluding VoB from the analysis of the fixed telephony markets creates in fine distortions of competition by treating similar services differently, without justification.

The Conseil de la concurrence also considers that communications services dedicated to service providers should be considered as a separate retail market subject to review.

More generally, the Conseil de la concurrence invites the ART to comply in its review of the markets and the regulation applicable, with more attention to all the criteria specified by the EC Recommendation.

With these reservations, the Conseil de la concurrence however agrees with the ART on designating France Télécom as having SMP in all of the relevant markets identified. The ART has based its conclusion on criteria such as the market shares in value and in volume held by France Télécom, the marketing and distribution of the offer, difficulties for new entrants to duplicate France Télécom’s local loop and the local commutation network, as well as sunk costs, economies of scales and of scope, or the horizontal leverage of access markets on communications markets.

Proposed remedies by the ART (for all these markets) include an obligation of non-discrimination, a prohibition against unreasonable bundling of services, excessive pricing and prices resulting in forced exit of competitors, an obligation to reflect true costs (the Conseil de la concurrence is however not in favour of imposing a cost-oriented obligation for tariffs), the prior notification of tariffs, accounting separation and cost accounting obligations. In addition, the ART proposes to ease the scope of tariff control by establishing selective ex ante control of tariff offers.

Fixed telephony (wholesale markets)

Market 8 in the EC Recommendation – call origination on public fixed networks

The ART has reviewed responses received for markets 8 to 10 (except market 9 for call termination on the networks of local loop operators other than France Télécom – see below) and transmitted its conclusions to the Conseil de la concurrence.

Market 8 concerns call origination on the public telephone network provided at a fixed location. Considering the French specificities, the ART proposes to consider this market as the national market (excluding Saint-Pierre et Miquelon island) of routing of traffic between a subscriber and the local switching to which the latter is connected.

Given the market shares held and its control of almost all the local loop infrastructures over all the French territory as well as the absence of countervailing power held by new entrants, the latter being obliged to use the service of call origination provided by France Télécom to intervene on the retail markets of the communication, as well as its dominant position on wholesales markets such as selection call per call of the carrier or the pre-selection, the ART has designated France Télécom has having a significant power on this market.

Market 9 in the EC Recommendation – call termination on fixed networks

Market 9 concerns call termination on individual public telephone networks provided at a fixed location. So far, only France Télécom has been designated as having SMP, in respect of its network.

A review of call termination on the networks of operators other than France Télécom was the subject of a separate consultation ending on 18 February 2005. The ART has proposed that fixedgeographic call terminationservices provided by each alternative local loop operator on its own network constitute a relevant market on which each operator has SMP. The proposed requirements for designated SMP operators deal with meeting reasonable requests for access and interconnection providing call termination services as well as various related services are: complying with the non-discrimination principle; publishing the main tariffs conditions provided to third operators and not fixing excessive tariffs.

Market 10 in the EC Recommendation – wholesale transit services

In order to take into account the specificity of the French territory, made of seven geographically distinct territories (Metropolitan France, four overseas departments[9], Mayotte and Saint-Pierre et Miquelon), the ART has identified an intra territorial transit market on the one hand, and an overseas transit market on the other. Regarding the overseas transit markets, the ART has proposed to gather these markets in three groups of markets having sufficiently homogeneous competitive characteristics.

Due to the structural advantages held by France Télécom on the intra territorial transit market, the ART has proposed to declare France Télécom as having SMP for the period 2005-2007 on this market. The Conseil de la concurrence however requested a deeper review of this market in order to verify if, considering the market shares calculated without taking into account self-consumption and other qualitative factors, such SMP could not also be held by other operators on this market.

Regarding the overseas transit markets, France Télécom is again designated as having SMP[10].

The proposed requirements on France Télécom for all the fixed telephony wholesale markets are an obligation covering all interconnection services, an obligation to meet reasonable requests for access and interconnection, obligations of non-discrimination and transparency, charge controls, accounting separation and cost accounting obligations and an obligation to provide a new wholesale connection service (subscription resale).

The analysis of the fixed telephony markets in France should now be sent to the EU Commission and to the 24 other NRAs.

Mobile telephony

Market 16 in the EC Recommendation – wholesale call termination on mobile networks

The review of markets for voice call termination on individual mobile networks markets (market 16) was completed by the publication of the latest ART decisions on 1 February 2005 concerning France’s overseas territories. These decisions were preceded by the adoption of decisions on mobile call termination in the French metropolitan territory on 10 December 2004. All the ART’s decisions followed the comments made by the European Commission pursuant to Article 7(3) of Directive 2002/21/CE respectively on 19 January 2005 and 1 December 2004.

Each of the three metropolitan mobile operators, i.e. Orange France, SFR and Bouygues Telecom, is treated as having SMP as each operator controls 100% market share for voice call termination on its own network. The ART has set obligations of transparency and non-discrimination between fixed and mobile operators, resulting in the end of the “bill and keep” system since 1 January 2005. Operators must also publish a reference offer, and price controls are deemed necessary. Orange France, SFR and Bouygues Telecom have been required to lower their wholesale prices since 1 January 2005: Orange France and SFR by 16.3% and Bouygues Telecom[11] by 17.3%. Prices will be reduced an additional 24% on 1 January 2006. A third decrease is planned for 1 January 2007, the amount of which will be determined in 2006.Charges for the provision of access to the mobile operators’ sites are to be cost‑oriented.

Regarding the French overseas departments, the ART declares the seven overseas-based mobile operators as having significant market power on their own networks. However, while the ART proposed obligations for all overseas SMP mobile operators in terms of access, transparency, non discrimination and tariff control, some additional remedies have been proposed for two of them. In particular, it has been proposed to impose an obligation relating to accounting separation and tariff control with price-caps on Orange Caraïbe (Orange’s subsidiary in the French West Indies) and SRR (SFR’s subsidiary in La Réunion and Mayotte islands) which respectively hold 83 % and 72 % of shares of the retail markets. Both of them would be required to lower their wholesale prices by 20% as of 1 April 2005, by a further 20% as of 1 January 2006 and again by 20% as of 1 January 2007, i.e. 49 % at the end of the triennial period concerned.

Noting that some players had previously requested a specific regulation for call termination of SMS on mobile networks, the ART collected information last summer to review the potential competition issues raised by SMS termination and to determine whether it would be appropriate to identify a specific relevant market. The ART should publish its related analysis and launch a public consultation in the second quarter of 2005. The SMS market is not included in the 18 relevant markets identified by the European Commission.

Market 15 in the EC Recommendation – mobile access and call origination

Further to its analysis of the metropolitanmarket[12] for access and call origination on public mobile telephone networks (market 15), the ART proposes to designate the three mobile operators, Orange France, SFR and Bouygues Telecom, as having, in light of the Airtours case law, joint SMP characterised by the adoption of common policy (and the possibility to support such policy) consisting in not proposing to the existing MVNOs and to MVNO applicants, conditions for access which would allow the latter to compete significantly on the retail market.

The ART proposes, in particular, to impose on each of these operators an obligation to give effect to reasonable requests for access made by virtual operators seeking to establish their service on a host network in order to offer services on the retail market. According to the ART, “a satisfactory MVNO contract could also serve as a springboard for an operator wishing to acquire the fourth UMTS authorisation”. However the ART does not consider it necessary to add obligations of non-discrimination or of any kind of tariff control[13].

Given the high asymmetry between operators inside each of the four markets identified in the French overseas territories[14], the ART has designated one SMP operator on each of these markets, excluding however any joint SMP as identified on the metropolitan wholesale market. The ART plans to impose on Orange Caraïbe (on the Antilles-Guyane market), declared as having SMP, an obligation to allow service continuity roaming, in order to allow operators present in part of the region to extend their offer to the entire region (Antilles-Guyana). This operator would also be compelled (i) not to provide discriminatory conditions for operators having the same type of licence and (ii) to provide any request of service, agreement or any modification of an agreement between parties, within 15 days after its signature. Moreover, even though no tariffs control is deemed relevant, the ART assesses that it would be expected that operators requesting continuity of services should benefit from tariff conditions equivalent to those granted to foreign operators requesting services for international roaming.

The ART sent its analysis to the Conseil de la concurrence on 21 February 2005.

Market 17 in the EC Recommendation – international roaming on mobile networks

On 10 December 2004, the European Regulators’ Group (ERG), composed of the national regulators of the 25 Member States and the European Commission, decided to launch a joint project to review the 25 international roaming mobile telephone networks markets within the European Union. The ART, however, specified that this common review will be additional but will in no event replace the analysis of the relevant market that it will make at the national level

Broadband markets

Market 12 in the EC Recommendation – wholesale broadband access

Within the wholesale broadband access market identified in market 12, the ART makes a distinction between the wholesale broadband access market, with delivery at regional level ("bitstream", previously defined by the ART as option 3 and regional option 5), and the wholesale broadband access market delivered at national level (previously defined by the ART as national option 5). The latter market is not included per se among the markets defined in the EC Recommendation.

The Conseil de la concurrence agrees with the ART’s market analysis in its opinion issued on 1 February 2005 and also considers that France Télécom has SMP on both markets. However, the Conseil de la concurrence disagrees with the ART’s intention to proceed with a fresh analysis of the wholesale broadband access market delivered at the national level just “twelve months following the notification to the European Commission”. According to the Conseil de la concurrence, such a re-review “could have a negative impact on the coherence of the regulation process which is normally fixed for a three year period”. The Conseil de la concurrence draws the ART’s attention to the fact that, pursuant to Article D. 303 of the Post and Electronic Communications Code, obligations imposed on an SMP operator can be modified without requiring new analysis of the relevant market.

For the wholesale broadband access market with delivery at regional level, the obligations for France Télécom proposed by the ART are: to grant all reasonable requests for access to the local loop and related resources; non-discrimination, transparency, and the publication of a reference offer; cost-orientated pricing for access and related unbundling resources and accounting separation. Proposed obligations put forward by the ART for broadband access to the wholesale market delivered at national level are non-discrimination, transparency and an obligation not to practice predatory pricing against competitors.

Regarding the high-speed retail market, both the ART and the Conseil de la concurrence have found that ex post control by the Conseil de la concurrence is sufficient. They consider that “ex ante regulation would be excessive given the competitive dynamics of the high-speed retail market in France”.

Market 11 in the EC Recommendation – wholesale access to local loops

Further to its analysis of market 11, the ART proposes to define the relevant market of the unbundled local loop access market (option 1 previously defined by the ART) on the national territory (except St-Pierre et Miquelon island)[15] . This market includes the full and shared access to metallic loops and sub-loops for the purpose of providing broadband and voice services.

France Télécom is considered by the ART, and by the Conseil de la concurrence in its opinion issued on 31 January 2005, as having SMP in this market.

The ART, therefore, proposes to require France Télécom to provide wholesale unbundled access on reasonable request, to charge cost-orientated prices, to publish reference offers, not to unduly discriminate and to achieve accounting separation.

Leased lines

Markets 7, 13 and 14 in the EC Recommendation

Markets 7 (retail market), 13 and 14 (wholesale markets) of the EC Recommendation include a minimum set of leased lines and wholesale trunk segments of leased lines and wholesale terminating segments of leased lines. The ART has not yet published its analysis for any of the retail or wholesale leased lines markets and the public consultation is expected in the first quarter of 2005.

Broadcasting transmission services to deliver broadcast content to end-users

Market 18 in the EC Recommendation

The ART has not yet commenced its analysis of this market. However, in July 2004, it addressed a specific questionnaire to all the parties concerned by this market.

Conclusion

Even though France was late in adopting the EU Electronic Communications Directives in its national law, it appears that the review process is on the way to being completed in the coming months. The French NRA (ART) and NCA (Conseil de la concurrence) have worked hard in pushing the process forwards and have closely co-operated throughout, acting in compliance with the Framework Directive. In addition, in all of the reviews of the relevant electronic communications markets, one may observe that, as in other EU Member States, the position held by the incumbent on various electronic markets (and especially on wholesale markets) still requires specific ex ante regulation to be imposed in order to promote the development of competition by alternative operators for the benefit of end users.







[1] Article L. 37-1 (Identification of the operators having significant market power) ; Article L. 37-2 : (Specific obligations imposed by the ART) ; Article L. 37-3 (Co-ordination with the EU Commission and the national regulatory authorities of the other 24 Member States); Article L. 38 (Obligations that may be imposed on operators having SMP); Article L. 38-1 (Additional obligations that may be imposed on operators having SMP on the retail market) ; Article L. 38-2 (Obligations imposed on operators having SMP on the leased lines market); article L. 38-3 (Actions open to operators in the event of opposition of the ART to their tariffs for universal service or for detailed services).

[2] Provisions relating to operators having SMP on a market in the electronic communications sector



[3]Article D.302 specifies that « joint market power » may be held by several operators when the market has a structure allowing co-ordinated effects, even though there is no structural link between these operators. Such a situation may occur on a market having characteristics such as: being a mature market; stagnation or moderate growth of demand; elasticity of demand; homogeneity of products; similar structure of costs; similar market shares; absence of technical innovations; efficient technology; absence of exceeding capacity; high entry barriers; absence of countervailing power of clients; absence of potential competition; various informal links between undertakings concerned; mechanisms of retaliation; absence or reduced possibility of competition on prices. The article adds that this list is not exhaustive and that the characteristics mentioned are not cumulative.

[4]According to the European Regulators Group which gathers all the EU NRAs “The questionnaire will provide the European regulators with comparable information for example on the mobile network operators’ wholesale international roaming prices, discounts and traffic direction abilities. This information will help the ERG members undertake a harmonized market analysis and will indicate the need for regulation of wholesale international roaming in Europe. The Group aims to present some preliminary results of its work in May 2005”.

[5] The delimitation is made at the national level, including the metropolitan territory and French overseas departments (DOM) excluding however Saint-Pierre et Miquelon island (North America)

[6] Publicly available local and/or national telephone services provided at a fixed location for residential customers; publicly available mobile telephone services provided at a fixed location for residential customers; publicly available local and/or national telephone services provided at a fixed location for non-residential customers; publicly available mobile telephone services provided at a fixed location for non-residential customers; Publicly available international telephone services provided at a fixed location for residential customers; Publicly available international telephone services provided at a fixed location for non-residential customers.

[7] Publicly available local and/or national telephone services provided at a fixed location for residential customers; publicly available international telephone services provided at a fixed location for residential customers; publicly available local and/or national telephone services provided at a fixed location for non-residential customers; publicly available international telephone services provided at a fixed location for non-residential customers.

[8] http://www.conseil-concurrence.fr/user/avis.php?avis=05-A-05[9] French West Indies and La Réunion


[10] According to the ART, France Télécom holds economic interest in each sub-marine cable infrastructure providing the islands. The satellite infrastructure does not constitute a real alternative with respect to needs expected by end-users and to weather conditions.

[11] Bouygues Telecom’s prices are higher due to lower economies of scale than its competitors Orange France and SFR, as a result of its late entry onto the market.

[12] Pursuant to the EC Recommendation, the ART has focused its review of market 15 only on the wholesale markets. However the ART has considered the retail markets in its review as markets associated to the wholesale markets.

[13] Regarding tariffs control, the ART assesses that MVNO are expected to reach the critical size which could give them purchaser control-power, generating pressure to decrease the wholesale tariffs.

[14] Zone Antilles-Guyane, La Réunion, Mayotte, St Pierre et Miquelon.

[15] The analysis of the unbundled local loop access market on Saint-Pierre et Miquelon territory will be subject to a further specific analysis by the ART.