The Court of First Instance of the EC (CFI) handed down a judgment confirming the European Commission's decision to impose a fine of EUR10.35 million on French internet service provider Wanadoo for abusing its dominant position by predatory pricing.
In 1999, Wanadoo Interactive SA (WIN) was part of the France Télécom Group. In that same year, it launched an ADSL (assymetric digital subscriber line) service, Wanadoo ADSL, providing high-speed internet access using a telephone line. Subscribers to this service entered into two contracts, the first with France Télécom for the supply of the ADSL access service and the other with Wanadoo for the supply of the actual internet access service.
In January 2001, WIN launched a second ADSL service which it provided to customers under a single contract.
The Commission launched an investigation in September 2001 into WIN's pricing practices, following the receipt of information from France Télécom and its competitors as part of its inquiry into local loop unbundling.
The Commission found that from the end of 1999 until October 2002, WIN marketed its ADSL services at prices that were below their average costs:
- Until August 2001, the prices charged to consumers were well below average variable costs. Where the company concerned is dominant, this gives rise to an automatic presumption of predatory pricing contrary to Article 82 .
- From August 2001, the prices charged were approximately equal to variable costs but were below total costs. This will be deemed to be abusive predatory pricing by a dominant company where it forms part of a plan to eliminate competitors.
The Court considered that WIN had a dominant position on the French market for Internet access, in the light of its very high market share during the period at issue, the fact of having eight times the number of ADSL subscribers than its number one competitor and its ‘link-up’ with France Télécom, the incumbent telecommunications operator in France, which conferred on it advantages over its competitors.
As regards the existence of an abuse, the Court stated that, in relation to predatory pricing (a) prices below average variable costs give grounds for assuming that a pricing practice is eliminatory and (b) 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.
Moreover, the Court found 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. It was not necessary to establish in addition proof that WIN had a realistic chance of recouping its losses.
The Court considered that WIN cannot 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.
Wanadoo and France Télécom are also appealing a Commission decision, of 18 May 2004, requiring them to submit to an investigation under Article 20(4) of Regulation 1/2003. The Commission is investigating the suspected imposition of unfair selling prices in respect of high-speed internet access for residential customers, in breach of Article 82.