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Wanadoo
UK achieves important step in legal battle against
BT; BT contests decision
Introduction
After two and a half years of legal battles between
Wanadoo UK (formerly Freeserve.com plc), BT and
the regulator, the Office of Communications (Ofcom),
has decided to take action against BT for the abuse
of a dominant position through its pricing of broadband
to consumers, contrary to Article 82 EC as well
as the UK’s Chapter II prohibition. This is
the first time that Ofcom - or indeed any UK sectoral
regulator - has issued a 'Statement of Objections'
(SO) under competition law, and is of wide importance
given that a national regulator is applying EU,
not just UK, competition law to the pricing practices
of an incumbent in an emerging market.
The SO is a necessary step towards a formal finding
of infringement. After BT has had the chance to
respond to Ofcom’s case, Ofcom can issue a
final decision which could result in fines of up
to 10% of BT’s turnover. BT is likely to contest
the SO and will have until the end of October to
respond.
Background
The issuing of the SO to BT is the result of Wanadoo
UK’s longstanding battle regarding BT’s
pricing of broadband services. In March 2002, Wanadoo
UK complained to Ofcom that BT was abusing a dominant
position contrary to Chapter II prohibition in the
Competition Act 1998. The complaint concerned BT’s
pricing of broadband services to consumers compared
to the high wholesale price of broadband capacity
that BT charged to ISPs. Wanadoo UK alleged a margin
squeeze as well as predatory pricing by BT. In short,
Wanadoo UK was concerned that, due to the high wholesale
price charged by BT, other ISPs were not able to
offer broadband services to consumers at similar
prices as those offered by BT without losing money.
In May 2002 Ofcom rejected Wanadoo UK’s complaint.
Wanadoo UK appealed to the Competition Appeal Tribunal
(CAT) on the basis that Oftel, as it then was, had
not adequately explained its reasoning. The CAT
agreed with Wanadoo UK and in April 2003, set aside
key parts of Oftel’s decision on grounds of
lack of reasoning. The CAT also took the opportunity
to affirm the importance of ensuring that complainants
satisfied a substantial evidential burden when raising
allegations of abuse. As a consequence of the CAT
decision, Oftel was asked to look at the matter
afresh.
As part of the reinvestigation, Wanadoo UK argued
that BT was still abusing a dominant position through
the pricing of its broadband services. In November
2003, Oftel issued a new decision finding that BT
had not abused a dominant position. However, Oftel’s
decision only dealt with BT’s pricing during
the 3-month period from March 2002 to May 2002 and
was largely focussed on a margin squeeze analysis
based on predictions in BT’s forward-looking
business plan as to what would happen to prices
and costs in the future, ignoring months of actual
historical data.
Wanadoo UK appealed the November decision to the
CAT on a number of grounds including that it was
inconsistent with, and had failed to take proper
account of, the approach of the European Commission
in its case law; was flawed in only looking at 3
months, did not adequately deal with the allegation
of predatory pricing and ignored historic data in
favour of a forward-looking business plan which
at the time the November 2003 decision was made,
was in Wanadoo UK’s view clearly incorrect.
In the meantime, Oftel were looking at the period
post-May 2002 in a separate but related investigation.
During the second appeal, the CAT became so concerned
as to the regulator’s approach (Ofcom now
having taken over Oftel’s powers) that in
June 2004, the CAT formally requested Ofcom to reach
a conclusion - whether non-infringement decision
or an SO - in the ongoing investigation at the latest
by the end of August 2004. This led to the SO.
Importance of the SO for the telecoms sector
in the EU
The UK competition authorities have been surprisingly
cautious in their approach to the enforcement of
competition law during the four years since the
coming into force of the UK’s Competition
Act (equivalent to Articles 81 and 82). This has
been particularly true in the telecoms sector where
the regulator has taken numerous non-infringement
decisions but not a single infringement decision.
The SO may mark a turning point in the use of competition
law against the incumbent as it could result in
the first infringement decision against BT, allaying
fears of “regulatory capture” by BT
of the regulator. Both Wanadoo UK’s use of
the appeal mechanism and the Commission’s
decisions in similar cases may have exerted pressure
on Ofcom to apply competition law in a consistent
and rigorous manner – a fundamental objective
of the new regulatory framework.
For further information, please contact keith.jones@bakernet.com
or simon.persoff@uk.wanadoo.com. |
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