ART sets the conditions under which France Telecom can sign contracts with supermarkets and hypermarkets

1st March 1999

The chairman of Autorité de régulation des télécommunications (ART) has just informed the president of France Telecom of its position on the operator's plan to market its long distance telephone service to the public via supermarkets and hypermarkets.

While receiving an agreement in principle, for the project to be approved and therefore implemented, a certain number of essential conditions must be respected.

Certain conditions concern all operators which might wish to indirectly distribute their services and which have already been informed of these conditions.

Other conditions apply to France Telecom specifically. ART set these conditions after consulting the Commission supérieure du service public des postes et télécommunications and the Conseil de la concurrence.

1. Conditions applicable to all operators

Authorisations under articles L.33-1 and L.34-1 of the Post and Telecommunications Code allow the marketing of long distance service by third parties.

These provisions affect the following more specifically:

  • confidentiality and neutrality conditions with respect to the messages sent and the information related to calls
  • obligations allowing ART to inspect the specifications
  • equal treatment and information of users on the contractual conditions of service provision, especially with respect to compensation should quality requirements not be met

The means of marketing services provided has no impact on operators' requirement to respect their obligations. Thus, they remain responsible for providing the telephone service to the end customer who must be clearly informed. This is why the name of the operator must be linked to the service being marketed and must appear in a balanced manner next to the name of the distributer in contractual documents.

ART will soon send document describing more specifically the elements which must be covered in the relationship between the operator and the distributor as well as between the distributor and the end customer, following discussions with all concerned operators.

2. Conditions specific to France Telecom

These conditions depend on three major factors which distinguish France Telecom from its competitors: France Telecom occupies a dominant position on the telecommunications market, it is responsible for universal service, and it is the only operator having, in 1999, two access prefixes for its long distance services: 0 and 8.

2.1. Pricing controls

ART, in agreement with Conseil de la concurrence, considers that the market on which France Telecom's actions must be evaluated is the intermediate market of sale of long distance telephone service by operators to distributors.

France Telecom's offer has such characteristics that this intermediate market cannot currently be considered as having effective competition. Indeed, other operators depend on France Telecom's interconnection conditions (in terms of capacity and time) for their offers to supermarkets and hypermarkets, and cannot easily guarantee to distributors that they will be able to immediately adapt to changes in demand. Unlike other operators, France Telecom will not have to specifically increase its available capacity to meet the needs of the intermediate market, since its offer is primarily a substitution offer.

Moreover, as long as pre-selection is not applied, the possibility of accessing France Telecom's long distance services via the 0 puts FT in a special situation, because of the fact that the vast majority of customers are used to dialling numbers beginning with the digit 0.

Therefore, ART considers that France Telecom's offer to distributors must be subject, at least in this initial market creation phase, to price approvals, under the conditions defined in the Post and Telecommunications Code.

On the other hand, the Secretary of State to Industry notes that: "analyses seem to show that the long distance telephone service marketed by supermarkets and hypermarkets should not be considered as part of universal service", so that the activity of retail distributors, and therefore their prices, are free of controls.

2.2. Conditions resulting from France Telecom dominant market position

According to the opinion of the Conseil de la concurrence, "France Telecom's position on the fixed telephony market and especially on the local loop, on the one hand, and as the operator responsible for universal service, expose competing long-distance telephony operators to certain risks of distorted competition. Therefore, measures should be taken to prevent the risks inherent to the incumbent operator providing, in the same entity, universal service and a competitive activity".

Therefore, two series of obligations must be met, prior to service provision, in order to ensure all conditions are met guaranteeing the absence of competitive distortions, especially during the preliminary examination of intermediate tariffs.

2.2.1. Submission of separate cost accounting

This is an accounting provision required by the Conseil de la concurrence:

  • First, France Telecom must apply a separate cost account for its direct marketing activity for long distance telephone service (extra-ZLT). This account must show the costs incurred by France Telecom in its direct distribution activities and, within those costs, those costs which are avoided via indirect distribution.
  • Second, France Telecom must apply a separate cost account its indirect marketing activity for long distance telephone service (extra-ZLT). This account must also show the costs specifically incurred for indirect sales, in particular transaction costs of the indirect distribution activity with other France Telecom operational activities.
  • Finally, this measure must be consistent with separate cost accounting, which is covered in a general way in France Telecom's charge specifications.

In any case, the detailed specifications for the first two accounts mentioned above must be drafted by France Telecom and approved by ART prior to the signature of any contract with distributors.

The two provisional accounts drafted in accordance with these specifications must be submitted to ART prior to offering services and audited under the conditions stipulated in France Telecom's charge specifications.

Following the closing of the annual accounts, these accounts will be audited under the same conditions.

2.2.2. Communication of internal protocols and contracts with distributors

France Telecom will submit to ART, prior to signature, on the one hand, the protocols defining the relations between France Telecom and its internal entity responsible for indirect distribution and, on the other, the contracts between this entity and distributors. These documents will ensure consistency between costs and prices, in accordance with the principles mentioned by the Conseil de la concurrence.

As regards tariffs, the Conseil de la concurrence states that jurisprudence relative to discriminatory pricing, eviction prices and loyalty reductions used by a company in a dominant market position will apply to the tariffs France Telecom may offer distributors. In its opinion on the complaint lodged by ART, regarding the conditions of France Telecom's custom offers, the Conseil de la concurrence defined its understanding of eviction prices and loyalty reductions, according to which "price reductions which do not reflect a decrease in costs or which would be greater than said decreases, if it is shown that their purpose is to eliminate a competitor from the market, may be considered to an abuse of a dominant market position, even in the absence of predator prices".

Thus, while the intervention of supermarkets and hypermarkets in marketing telephone services is in the interest of consumers, potentially resulting price decreases may only affect the distribution activity and must reflect cost differences revealing differences in the efficiency of the two methods of distribution, direct and indirect.

2.3. Conditions resulting from France Telecom's status as universal service operator

While the Commission supérieure du service public des postes et télécommunications dismisses the hypothesis that the telephone service marketed by third parties belongs to universal service, it does consider it necessary to protect the neutrality of this type of marketing with respect to the cost of universal service. The Conseil de la concurrence also expresses this opinion.

To do this, in works regarding the calculation of the cost of universal service, ART will include France Telecom subscribers having received services distributed by third parties in the perimeter of subscribers served by the operator as part of universal service.

The principle according to which the difference between the retail price and the price charged to the distributor must not exceed the marketing costs avoided by France Telecom if it were to market its long distance telephone service indirectly, guarantees in itself that this method of distribution will be neutral with respect to the cost of universal service.

2.4. Access prefix to long distance telephone service distributed by third parties

To date, France Telecom is the only operator having two prefixes granting access to its long distance service: 0 and 8.

As for access to France Telecom's long distance telephone service, the digit 8 for transporter selection cannot be used to distinguish between direct and indirect marketing methods for this service. Indeed, the transporter selection digits are intended, as their name indicates, to allow users to choose an operator's transport network to route a long distance call. Thus, the digit 8 allows:

  • subscribers connected to an alternate local loop, to select France Telecom's network for their long distance calls, if this possibility is offered by their local operator
  • after 1st January 2000, France Telecom subscribers having pre-selected another long distance operator to change pre-selection on a call-by-call basis

Contracts which will be signed with distributors for indirect marketing of long distance telephone service must not, in law or in practice, prevent these two uses of the transporter selection digit, and in particular, impose on customers of third party distributors the use of one of these prefixes.

Therefore, the digit 8 cannot be used, for long distance calls routed on France Telecom's network, to distinguish between those from subscribers having signed a contract with a third party distributor responsible for collecting the amount of their calls and those from subscribers remaining direct customers of France Telecom.

France Telecom customers who choose to be billed by a third party distributor will dial the necessary prefix to access the service from their subscriber line: 0 or 8 if they are on a France Telecom local loop and have not selected another long distance transporter, or 8 if they are on an alternate local loop (if this possibility is offered by the local operator) or if they have pre-selected another long distance transported and still want to use a service from France Telecom billed by third party distributor.

Thus, France Telecom will find itself in a situation equal to that of its competitors who will be able to distribute their services directly or indirectly, either using the 0 or their own prefix, depending on whether their customers have chosen pre-selection by subscribing to their network or for call-by-call selection. This situation is comparable to that of mobile service distribution, either directly by operators, or indirectly by distributers, without numbering questions coming into play.

Therefore, it is not acceptable that communication made by the distributors chosen by France Telecom suggest that , either the use of the digit 8 is exclusively reserved for them, or that this use is necessary to benefit from their offer. Contracts submitted to ART, prior to signature, will have to include clauses avoiding such disinformation.


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