Europe: Brussels to scrutinise Wanadoo accounts

Wanadoo, the Internet service provider controlled by France Telecom, has had its accounts placed under European Commission surveillance until the end of 2006, according to documents seen by Les Echos, the Financial Times' French sister newspaper.

Details of the Commission's unpublished findings relate to Wanadoo's aggressive pricing in high-speed ADSL (asymmetric digital subscriber line) Internet connections, for which it has more than 50% of the French market.

Last July the commission fined Wanadoo €10.3m for predatory pricing--a punishment that the company is to appeal against.

The ruling came after repeated complaints from rival groups, including Noos, Club Internet and Mangoosta, a company that the Commission says was forced out of the market by Wanadoo's aggressive pricing.

Wanadoo, which also owns Freeserve in the UK, had argued that its cut-price policy was helping to expand the French market, to the benefit of consumers and competitors. But the Commission concluded that if France Telecom, the dominant French telecoms operator, had really wished to expand the market, it could have given greater stimulus by selling capacity more cheaply to rivals. France Telecom owns 70.1% of Wanadoo.

To prevent future abuse, the Commission has ordered Wanadoo, which has a market value of €11.4bn, to provide copies of the accounts of its ADSL services for the next three years.

Experts said the move would force Wanadoo to ensure that its prices were not anti-competitive, and might rule out further price cuts. The most recent price cut by Wanadoo for ADSL services was in December.

The Commission's unpublished findings explain that its officials have seized internal Wanadoo documents, which revealed "a deliberate strategy of market pre-emption that was aimed at preventing competition".

Five documents obtained from Wanadoo executives showed that Wanadoo sought "not just to be market leader, but to acquire and retain a large share of the [ADSL] market." Three documents "evoking the objective of market pre-emption came from formal management meetings".

Wanadoo's strategy, the Commission found, had taxed the financial capacity of its rivals to compete. "Its effect was to inhibit the progress of all competitors, even to keep them out of the market, until October 2002." In effect, rivals were unable to offer comparable prices without clocking up heavy losses.

Wanadoo claimed it had simply matched the prices of its rivals but the Commission said none of the competitors could have offered a serious threat.

Even if Wanadoo believed it faced tough competition, "that did not justify predatory pricing," the Commission said.

The Commission found Wanadoo was planning in 2001 to have more than 50% of the ADSL market by 2004.

Source: Financial Times.