The French Competition Council has laid down a new and stricter test as to whether cross-subsidy from a monopoly business to a competitive area of business will be consider unlawful under the competition laws, in a case brought against France Telecom.

Although in its decision dated October 8, 2002, the Competition Council rejected the action introduced by the Minister of the Economy against France Telecom for abusive cross-subsidies granted to a subsidiary the decision is interesting because the test developed by the French authority to decide whether the granting of subsidies to an incumbent’s subsidiary is abusive.

First, the Competition Council recalled that a legal monopolist such as France Telecom can enter a new market, provided it does not abuse its dominant position in order to distort competition by using methods other than those which fall within the scope of competition on the basis of quality. The Competition Council proceeded to explain the test it used to determine how the fact that a monopolist helps its subsidiary enter a new market may be abusive:

  • the monopolist grants a subsidy, i.e. the activity/subsidiary that benefits from the subsidy does not generate sufficient revenue to cover its actual costs;
  • the granted subsidy is of an abnormal nature.

However, the Competition Council has not found any abuse on the basis of such test in previous cases (decisions 00-D-47 of November 22, 2000; 00-D-57 of December 6, 2000). In the Citelium case, the Competition Council held that the subsidy granted by EDF to its subsidiary that was entering a competitive market would only have been problematic if the subsidy was used to offer predatory pricing or to facilitate marketing conditions which durably disturb the relevant market.

The Minister of the Economy complained that France Telecom was seconding its employees to its subsidiaries without asking for proper remuneration. The Minister also argued that the incumbent freely promoted its subsidiaries and allowed them to use its logo.

Although the Competition Council concluded that no cross-subsidies had been discovered, its decision sets the boundaries for an incumbent’s activities. This test on cross-subsidies should now be applied to determine when an incumbent has illegally granted cross-subsidies. For instance, the Authority will have to determine whether France Telecom was abusive in granting access to its agency network to its subsidiaries involved in internet services.
Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.