French Operators Protest Fine

The French mobile market was thrown into a spin this morning, as the Conseil de la Concurrence (Competition Council) handed down a record €534 million ($631.08 million) fine for market collusion to the country's three largest operators.

According to a statement on the competition authority's Website, Orange France (Paris: OGE) has been fined €256 million ($302.54 million), SFR €220 million ($260 million), and Bouygues Telecom €58 million ($68.54 million). It says the companies are guilty of illegally exchanging confidential information about subscription and cancellation numbers between 1997 and 2003 and plotting to freeze market share during the 2000-2002 period to ease competitive pricing pressure.

The long-awaited decision follows a four-year investigation into price collusion by the Competition Council and a complaint lodged in 2002 by French consumer group UFC-Que Choisir, although it's worth noting the Council found no specific agreement between the carriers on pricing.

Orange fired off a statement this morning disputing the "unfounded and excessive penalty" and claiming it follows "months of actions of all kinds seeking to discredit the telecommunications sector in France." (See Orange Appeals Against Fine.) SFR announced it is "deeply shocked" by the decision, which it says "does not correspond to the facts." Bouygues has not yet commented.

In an analyst note, Ovum Ltd. senior consultant Vincent Poulbere expressed surprise at the Council's findings. He writes: "This is really bad news for the French operators, for two reasons: first, because of the record amount of the fine (from 14.6-18.3% of the operators' net profit in 2004); second, because of the bad press resulting from this decision and the damage it will do to the operators' brands and credibility."

That second point was also noted by Orange, which said "it is important to note that the Council allowed no claim of price-fixing, contrary to the statements made by certain parties to the dispute, which are intended to discredit the operators in the industry and the employees throughout the sector and which throw customers into confusion."

Orange blames the public authorities for establishing a watch system in 1995 that asked the operators to publish sales information on a monthly basis so they could monitor the growth of this new market. "Orange France is disputing the notion that this information exchange was anti-competitive, that it hurt consumers or the economy in any way, or that it led to a freeze in operator market share," its statement says.

"The idea that it would be possible to control a market of roughly 40 million customers sourcing their products from 20,000 points of sale, is totally unrealistic."

Analysts have been watching closely for the size of the fine, which turned out to be equivalent to around one percent of revenues. It could've been as much as 5 percent, notes Lehman Brothers, adding that since "FT and SFR have consistently argued they will vigorously contest any fine, it will be interesting to see if they book a Q4 provision (an indication as to whether they think they will have to pay)."

As Ovum's Poulbere notes: "This isn't the end of the story. The decision will be appealed by the operators; and the customer association UFC Que Choisir -- which lodged the original complaint -- plans to launch a U.S.-style class action suit against the operators." That could cost the operators between €50 ($59) and €80 ($95) in damages per subscriber, not to mention all the legal costs involved.

This episode is the latest example of the increasingly thorny relationship between European regulators and mobile operators. SFR's parent Vodafone Group plc (NYSE: VOD) said in its recent first-half results that it's feeling the pinch from call termination rate cuts in several of its markets, a trend that's set to continue as regulators tackle what are considered to be artifically high call charges. (See Vodafone Reports H1.)

— Nicole Willing, Reporter, Light Reading

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