1999/573/EC: Commission Decision of 20 May 1999 relating to a proceeding under Article 81 of the EC Treaty (Case IV/36.592 - Cégétel + 4) (notified under document number C(1999) 1194) (Text with EEA relevance) (Only the English, French and German texts are authentic)
Date: 1999-05-20
Institutions: European Commission
Subjects: France, economic concentration, industrial restructuring, restriction on competition, shareholder, telecommunications industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 May 1999

relating to a proceeding under Article 81 of the EC Treaty

(Case IV/36.592 — Cégétel + 4)

(notified under document number C(1999) 1194)

(Only the English, French and German texts are authentic)

(Text with EEA relevance)

(1999/573/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area,

Having regard to Council Regulation No 17 of 6 February
1962, First Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by the Act of Accession of Australia,
Finland and Sweden, and in particular Articles 2, 6 and 8
thereof,

(2)

Having regard to the application for negative clearance and the
notification for exemption submitted pursuant to Articles 2
and 4 of Regulation No 17 on 18 July 1997,

Having regard to the summary of the application and noti-
fication published pursuant to Article 19(3) of Regulation No
17 (2),

After consultation with the Advisory Committee for Restrictive
Practices and Dominant Positions,

Whereas:

I. THE FACTS

A. INTRODUCTION

(1)

On 18 July 1997 the Commission received a notification
pursuant to Article 4 of Regulation No 17 concerning a
set of agreements, by which Compagnie générale des

eaux SA ‘(CGE)’, British Telecommunications plc (‘BT’),
(‘SBCI’)
Mannesmann AG and SBC International
Inc.
agreed on their respective contributions,
interests and
commercial relationships in connection with Cégétel
(Compagnie générale de télécommunications).

This notification concerns the restructuring of Cégétel, a
company which was created at the end of 1995 by CGE
and has since been active on previously liberalised
segments of the telecommunications market particularly
in mobile telephony (Société française de radiotélé-
phonie — SFR) and in paging (Société française de trans-
mission de données par radio — TDR).

(‘TD’)

(see notice pursuant

is related to the notification of

It
the agreements
between the SNCF (Société nationale des chemins de fer
français) and Cégétel concerning Télécom Développe-
ment
to Article 19(3) of
Regulation No 17 — Case IV/36.581 (3)), a jointly
controlled subsidiary to which SNCF has contributed its
existing telecommunications network (9 000 km of
optical fibre cables), now being developed into an altern-
ative long-distance infrastructure network, by the addi-
tional roll-out of 6 000 km of optical fibre cables.

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ C 238, 29.7.1998, p. 3.

(3) OJ C 293, 22.9.1998, p. 4.

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(3)

(4)

(5)

(6)

the

second full-service

The purpose of the restructuring is to enable Cégétel to
become
telecommunications
operator in France, by offering a full range of telecom-
munications srevices,
including fixed voice telephony.
Cégétel has acquired the existing corporate telecommu-
nications business of BT's affiliate in France (‘BT France’).
In partnership with SNCF, Cégétel is now constructing,
through TD, a national, fixed, long-distance network. TD
produces fixed long-distance, voice-telephony services
and transmission capacities, which are commercialised
to residential customers by Cégétel Le 7, and to business
customers by Cégétel Enterprises. These two companies
will in fact address all the telecommunications needs of
their respective customer segments.

TD, Cégétel Le 7 and Cégétel Enterprises were granted
the necessary licences in December 1997 and March
1998 (pursuant to Articles L 33-1 and L 34-1 of the
French Posts and Telecommunications Code. Cégétel has
been one of the first alternative operators to be granted
a short ‘E-prefix’ for carrier selection and to start its
long-distance services for residential customers. Cégétel
launched its fixed,
telecommunications
long-distance,
services in February 1998.

(7)

(8)

(9)

telephony market in several of these countries. BT was
previously active, through its subsidiary BT France, on
the French market for liberalised corporate telecommu-
nications services, with a very low market share (less
than [...] (*).

group, with a worldwide

Mannesmann AG is the ultimate parent of a diversified
industrial
turnover of
DEM 34 683 (ECU 18 163 million). Mannesmann AG
intends to become the second telecommunications oper-
ator in Germany, through its joint venture with Deut-
sche Bahn. Mannesmann AG operates the second GSM
mobile network in Germany. Mannesmann was not
previously active on the French telecommunications
market, except through an interest in TDR.

SBCI is a wholly owned subsidiary of SBC Communica-
tions Inc. SBC is one of the seven regional telecommuni-
cations operators in the United States. It is one of the
world's leading diversified telecommunications compa-
nies, with nearly 114 000 employees. SBCI was not
previously active on the French telecommunications
market, except through a 10 % interest in SFR.

C. THE NOTIFIED OPERATION

The notification contains a set of agreements concerning
this operation, all dated 14 May 1997. The main agree-
ments are:
the master
the shareholders' agreement,
agreement, the framework cooperation agreement for
international traffic operations, the Concert distribution
agreement and the framework network supply and
customer service agreement for Concert services.

B. THE PARTIES

Shareholding

CGE, now named Vivendi,
is a diversified company,
providing a full range of services: water supply, waste
management, building and public works, real estate and
communication (multimedia, cable television, telecom-
munications). CGE's worldwide turnover in financial
year 1996 was ECU 25 552 million (FRF 165 914
million), 3,6 % of which was in the telecommunications
sector (mainly through SFR and TDR). It was not previ-
ously active in the fixed telecommunications market in
France.

BT is the historical telecommunications operator in the
United Kingdom and is now active worldwide. BT's
worldwide turnover for the year ending 31 March 1997
was GBP 14 935 million (ECU 18 352 million). BT is
the majority owner of Concert Communications
(Concert) which provides value added and enhanced
services to multinational companies. Prior to the 1998
full liberalisation, BT was already present in many other
European countries, through joint ventures, in liberalised
segments, like mobile communications and/or corporate
telecommunications services. Through joint ventures
the fixed voice-
it now enters
similar

to Cégétel

(10)

CGE (currently named Vivendi) initially beld 100 % of
Cégétel. As a result of the agreements, the parties hold,
directly or indirectly,
the following participations in
Cégétel: Vivendi (44 %), BT (26 %), Mannesmann (15 %),
SBCI (15 %).

Management

(11)

(12)

Cégétel
is managed by a board of directors, which
comprises nine directors (five from Vivendi, two from
BT, one from Mannesmann, one from SBCI),
from
whom a chairman is appointed.

The board of directors is assisted by several committees,
in particular an executive committee, which is designed
to play a key role in determining the common position
of the shareholders regarding major strategic decisions,
notably [...] (*). The executive committee comprises the
‘directeur général’ of Cégétel, the ‘directeurs généraux
adjoints’ of Cégétel, and one representative of each
shareholder. It is chaired by either Cégétel's ‘directeur
général’ or by the Vivendi representative at the executive
committee.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

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(13)

The executive committee is designed to operate by unan-
imous consent, but a dispute resolution mechanism is
provided for. In the event that no agreement is reached
on a matter, this matter is finally decided by the board
of directors (at a ‘final board meeting’) by simple
to veto right and specific consent
majority, subject
rights.

All parties hold veto rights concerning in particular
[...] (*). BT has a specific veto right to [...] (*).

The parties hold specifies consent rights, pursuant to
which a limited number of matters (notably [...] (*) must
be agreed upon by at least one representative of each
party in the final board.

national telecommunications activities are excluded from
this non-compete clause (for example, [...] (*), etc.).

Preferred-supplier principle

(18) Article 6 of the shareholders' agreement provides that
commercial contracts between Cégétel and any of the
four shareholders or between Cégétel and its subsidiaries
will be concluded on a preferred supplier basis. This
means that when Cégétel is the purchasing party, it will
select one of the shareholders as the supplier in priority
to third parties, where the terms offered by this share-
holder match or are more favourable than any agree-
ment that could reasonably be reached with a third
party, considering all relevant factors (price, volume,
quality of service, etc.). Conversely, a shareholder will
select Cégétel as its supplier where the terms offered by
Cégétel are at least as favourable as any offer that could
be made by a third party.

(14)

(15)

Scope of business activities

is active in France only,

including overseas
Cégétel
departments and territories. Under Article 2(1) (1) of the
shareholders' agreement, it is prohibited from investing
in infrastructure outside France.

(19)

Cégétel and the companies controlled by it offer a full
range of domestic and international telecommunications
products and services,
in particular newly liberalised
voice telephony services, as well as various voice and
data services to end-users both residential and corporate,
the distribution of Concert services, delivery of these
services through the construction and operation of a
domestic network and/or interconnection with other
operators, international services, infrastructure services,
outsourcing and facilities management, Internet access
provision. Cégétel
intends to have a market share in
long-distance and international fixed voice telephony of
approximately [...] (*) in 2006.

Cégétel will further develop its mobile telecommunica-
tions activities in France, which are currently carried out
by its subsidiary SFR.

(16)

Telephony over cable-TV networks is not included in
Cégétel's scope of business at
this stage, unless the
parties unanimously agree otherwise.

(20)

Non-compete clause

(17) All parties agree,

in Article 2(4), that Cégétel and its
subsidiaries shall be the sole entities through which they
will set up and carry out any telecommunications
activity in France, subject to any applicable competition
rules relating to passive sales. Some very specific inter-

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

Preferred-supplier and preferred-customer princi-
ples for the international traffic between Cégétel
and BT

Cégétel and BT will cooperate for the development of
Cégétel's international traffic, on a ‘preferred-supplier’
basis, a was explained in recital 18 and on a ‘preferred-
customers’ basis. BT will be the preferred supplier of
Cégétel for termination of outgoing internatinal traffic
products and services (1). Cégétel will be the preferred
supplier of BT for termination of incoming international
wholesale voice traffic (2) in France.

Cégétel will be BT's favoured customer for outgoing
international wholesale voice traffic: BT will offer to
Cégétel terms and conditions that are at least as favour-
able to Cégétel as those conditions that BT offers to
other licensed operators in France. BT will be Cégétel's
favoured customer for termination of incoming inter-
national voice traffic in France: Cégétel will offer to BT
terms and conditions that are at least as favourable to
BT as those conditions that Cégétel offers to any other
operator in the United Kingdom. The other shareholders
have the option of entering into similar arrangements.

The Concert distribution agreement

Cégétel is appointed as exclusive distributor of Concert's
value added and enhanced international services (‘global
products’) within France and agrees to obtain from BT
all its requirements for global products. In the event that
Cégétel is expressly required by a customer in France to
provide a global product other than a Concert service,
the case would be reported to the executive committee.
The framework network supply and customer services
agreement for Concert services contains provisions, to
ensure that BT and Cégétel's networks interoperate to
provide a seamless, managed, end-to-end service for
Concert customers. Cégétel is resricted from providing
support services related to non-Concert global services.

(1) In this recital, outgoing international

traffic refers to traffic from
France to any other country and incoming international traffic refers
to traffic from any other country to France.

(2) International wholesale voice traffic means international basic voice
services provided by an operator to another operator, but not on
the basis of proprotionate return nor of proportionate accounting
rates.

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D. THE RELEVANT MARKET

Mobile telecommunications services

(21)

(22)

(23)

Product market

Cégétel will address all segments of the French telecom-
munications market, both for fixed services and mobile
services.

and

data

voice

For fixed telecommunications services, it is the Commis-
sion's established practice to consider
the relevant
product markets as being the markets for domestic and
international
telecommunications
services, with a segmentation between the voice market
(in which both private households
and business
customers participate) and the data market (primarily
segmentation into
used by business), and further
domestic and international markets. However,
the
precise product-market delimitation in this case can be
left open since even on the narrowest possible definition
the proposed transaction does not give
to
competition problems.

rise

that

the parties
For mobile telecommunications services,
includes all mobile voice
this market
submit
use
the
services
standard
notwithstanding
(analogue, GSM, DCS 1800). However,
the precise
product-market delimitation in this case can be left open
since even in the narrowest possible definition the
to any
proposed transaction does not give
competition problem.

they

rise

Geographical market

(24)

The scope of the geographic market in telecommunica-
tions is determined: (i) by the extent and the coverage of
the network and the customers that can economically be
reached and whose demand may be met; and (ii) by the
legal and regulatory system and the right to provide a
service.

Fixed telecommunications services

(25)

having regard to the licensing and regulatory framework
for the provision of basic fixed telecommunications
services, the geographic market for these services must
be regarded as being national

in scope.

(26) On the other hand, the demand for customised packages
of corporate telecommunications services like Concert
three distinct geographic markets,
exists in at
namely at global, cross-border regional and national
levels (see Decision 96/546/EC in Case IV/35.337 —
Atlas, at recital 12 (1)).

least

(1) OJ L 239, 19.9.1996, p. 23.

that

that,

in view of

(27) As regards he market for GSM service provision, the
Commission has held in the past
there is an
increasing trend towards a European market, due to a
certain degree of substitutability throughout Europe
between the various subscriptions allowed by ‘roaming’
agreements. The parties submit
the
licensing and regulatory framework within which these
services are provided, the relevant geographic market is
France. they also submit that iti s very unlikely that a
French customer could consider taking a subscription in
another Member State, notably because of
the high
international roaming charges. However, the definition
of the relevant geographic market for mobile telecom-
munications may be left open since, given the amend-
ments to the non-competition provisions mentioned in
recital 31, the notified transaction does not give rise to
competitions problems.

Market shares of the parties

(28)

concerning the mobile
telecommunications
Except
services,
the parties' market shares on the described
segments are currently negligible (below [...] (*) in 1997).
SFR, a subsidiary of Cégétel, holds a market share of
approximately 38 % in mobile telephony in France.

The main competitors on these markets

(29)

In France, as well as in most European countries, the
incumbent telecommunications operator (in this case
France Télécom), holds a dominant position in nearly all
segments of the fixed telecommunications market, due
to its former legal monopoly on infrastructure and
services. On the mobile telecommunications market,
France Télécom holds a market share of approximately
51 %,

in terms of number of subscribers.

(30) Many companies haven entered or intend to enter the
French telecommunications market, either globally (9
Telecom) or on specific segments:
resale of voice
telephony services (Axis, Kertel, etc.), telecommunica-
tions networks or
clients
services
local acces
(WorldCom, Siris, Colt, Omnicom, etc.),
(Lyonnaise des Eaux), and so on. By July 1998, 37
licences had already been delivered for telecommunica-
tions network and/or services provision, 18 applications
for a licence were being analysed by the national tele-
communications regulator. Seven operators had been
granted a ‘short prefix’ for carrier selection.

corporate

for

Three operators are providing mobile telecommunica-
tions services in France: France Télécom, SFR and
Bouygues Telecom.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

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E. CHANGES MADE

FOLLOWING THE COMMISSION'S
INTERVENTION

Applicability of Article 81(1) to the restructuring of
Cégétel

(31)

The Commission informed the parties that, given the
potential substitutability throughout Europe between the
various GSM subscriptions allowed by roaming agree-
ments, the application of the non-compete clause to the
marketing and sales of GSM services by the shareholders
(sale of SIM cards) appeared to be incompatible with
Community competition rules. Consequently the parties
have agreed to amend the original agreements to exclude
from the non-compete clause the provision by Cégétel's
shareholders other than Vivendi of SIM cards to end-
users located in France, and to allow Cégétel and the
companies controlled by it to sell GSM services (SIM
cards) outside France.

F. NO COMMENTS FROM THIRD PARTIES

(32)

Following the publication of a notice pursuant to Article
19(3) of Regulation No 17, the Commission did not
receive any comments from third parties.

II. LEGAL ASSESSMENT

A. ARTICLE 81(1)

(33)

(34)

Cégétel combines the activities of its parent companies
on the telecommunications market in France and will
develop and provide new services on this market. This
venture entails changes in the structures of the parent
companies: Vivendi contributes to Cégétel its subsidia-
ries which were already active on the market, primarily
in mobile and paging; Cégétel takes over the majority of
business activities of BT France.

Indeed, Cégétel

Cégétel is established on a lasting basis evidenced by,
among other things, a substantial financial committment
by its parents.
is incorporated under
Franch law as a ‘société anonyme’. After the restruc-
turing, the shareholders' equity in Cégétel is estimated at
[...] (*) and Cégétel's net liquid assets are [...] (*), and
Cégétel controls 80 % of SFR, 100 % of TDR and Cégétel
Enterprises.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

(35)

(36)

(37)

The context

This operation has to be assessed in the context of full
liberalisation of the French telecommunications sector.
France Télécom had until 1 January 1998 a monopoly
over public voice telephony, by far the most important
segment of the market. Before this date, competing voice
services were allowed only within closed user groups
and over private corporate networks. In this context, the
operation appears to be pro-competitive. Cégétel
is a
new entrant on the French telecommunications market
as a full service telecommunications operator. Before the
it was only active in the provision of
restructuring,
mobile
through SFR.
services
Neither Vivendi had previously entered the fixed voice
telephony market, nor BT, SBCI or Mannesmann had
been active as a full service telecommunications operator
outside their national markets;
their presence in the
French telecommunications market was confined to
limited activities in previously liberalised segments.

telecommunications

The French telecommunications services market is one
of Europe's largest. As other newly liberalised telecom-
munication markets, it is characeristed by a number of
including the substantial amount of
barriers to entry,
investment required (in six years, Cégétel will
invest
[...] (*) in fixed activity, mainly for network rollout, the
fast evolving technology and commercial landscape that
makes rapidity a key factor in a successful entry in such
market, the long established dominance of the incum-
bent operator, France Télécom, which has scheduled
progressive decrease of its tariffs, the necessity to estab-
lish a strong brand image to overcome the customers'
loyalty to France Télécom and the substantial amount of
universal service financing.

No actual competitors in the relevant market

BT and SBCI are incumbent telecommunications opera-
tors on other national markets and have telecommuncia-
tions activities, on liberalised segments of the markets,
or interests in telecommunications operators in many
countries, although they had not entered markets, other
than their own national markets, as full service operators
prior to the 1998 full liberalisation. Mannesmann is a
new entrant in this sector in Germany and has already
started to expand into telecommunications markets in
other European countries through alliances, but had not
entered fixed voice telephony markets prior to the 1998
liberalisation. BT and Mannesmann actually compete,
through joint ventures, with each other on some
in Germany and Italy for example.
markets,

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(38) However, before the notified operation, the parties did
not compete to a significant extent with each other in
the French telecommunications market. Their activities
on this market were extremely limited (except in mobile
telephony). The only segment on which some parties
could be considered as currently competing with each
other is the provision of corporate telecommunications
services — essentially data services, virtual private
networks (VPN). However, such competition was very
limited, given their very low market shares and the
dominance of France Télécom: Cégétel was only active
on this market to a very limited extent (through its
previous participation in Siris) and BT France's share of
the market for corporate telecommunciations services
was below [...] (*) in 1996. At the end of 1996, Cégétel
withdrew from Siris, a venture set up in 1995 with
Unisource and which remains active in the corporate
telecommunications market in France. Mannesmann and
SBCI had no direct activities in the telecommunications
sector in France.

(39)

the provision of mobile

For
telecommunications
services, the parties can be regarded as actual or poten-
tial competitors, only if the relevant market is consid-
ered to be European-wide. BT and Mannesmann have
indeed participations in various mobile-telephony opera-
tors across Europe. However, potential competition
between the parent companies and SFR on this market is
not altered by the Cégétel agreements: these agreements
only concern the French market, and the sale of SIM
cards (GSM subscription) has been excluded from the
non-compete clause.

(42)

(43)

No reduction of potential competition

(40)

It must also be analysed whether this operation restricts
potential competition on the relevant markets. Formally,
it could be considered that the parent companies had
and still retain the necessary financial and technical
resources to enter separately these markets. probably,
the parties could individually have entered ‘niche’
segments of the telecommunications market in France
but, given notably the amunt of investment required,
they would not have been able to engage in the same
global telecommunications activities as Cégétel and to
provide a full range of telecommunications services with
the same efficiency.

(41)

Even if BT or SBCI are incumbent operators on their
home market, they have to be considered as a new
entrant in France and in any other national telecommu-
the newly liberalised
regards
nications markets, as

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

segment of fixed voice telephony, which represent by far
the most important part of the market.

The strategies in the telecommunications sector of BT,
SBCI and Mannesmann are European-wide or worldwide
BT and Mannesmann are currently developing activities
in several newly liberalised telecommunications markets
in Europe. They enter these markets through alliances
with local or international partners in order to combine
financial resources and complementary strengths. For
example, partners with a mobile-telephony licence
and/or with a privileged access to an infrastructure
represent an important advantage. They could obviously
not follow such global strategies if they entered each
market alone: this would require enormous financial
in Cégétel business plan, the
resources. For instance,
cumulated capital expenditure for the fixed services is
estimated at [...] (*) in six years, most of it being spent in
the first three years, primarily on the network roll-out.

The restructuring of Cégétel, which has the same aim
and effect as a genuine company formation, allows a
fusion of the parties' strengths in order to enter a market
strongly dominated by France Télécom. The combina-
tion of their significant financial committments, their
telecommunications markets
extensive knowledge of
and their experience in building up and managing new
telecommunications activities will allow Cégétel to offer
new services more quickly, cheaply and of a more
advanced nature than the parties would have been
capable of separately. Their respective strengths indeed
appear to be complementary and will allow significant
synergies: Vivendi has contributed to Cégétel the highest
financial investment, together with its subsidiaries which
were already active in mobile telecommunications. BT
has contributed its existing activities on the French
market
its technological and
marketing expertise and the highly sophisticated Concert
services. SBCI has an extensive marketing and commer-
ical experience gained in one of the most competitive
markets in the world. Mannesmann has the experience
of building up and operating a large terrestrial network,
especially in the case of backbone networks based on
railway infrastructure.

for corporate services,

(44)

The fact that Cégétel will address all segments of the
market will allow cost savings resulting from economies
level. For
of scale at a technological and operational
example, Cégétel's network activities,
carried out
through its joint venture with SNCF, will benefit from
the traffic genrated by SFR, by the local
fibre-optic
networks built for business customers and possibly from
the international traffic generated by the networks of its
parents in the United Kingdom, Germany and the United
States.

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Official Journal of the European Communities

18. 8. 1999

(45)

(46)

Even on specific segments on which the parties could in
theory have entered alone (like data services or VPN for
corporate users), potential competition is not reduced.
Cégétel will compete strongly with France Télécom on
these segments, and probably more effectively than the
parties would have been able to do separately, because
of the efficiencies underlined in the previous points.
Furthermore, as was indicated in recital 30, Cégétel will
face many competitors on every segments of the rele-
vant markets. BT is the only European incumbent oper-
involved in the Cégétel alliance and potential
ator
competition exists from many other telecommunications
operators.

Conclusion

creates

a more

In conclusion, Cégétel
effective
competition to the incumbent operator than the parent
ocmpanies would have been capable to create separately.
Cégétel's restructuring does not restrict actual or poten-
tial competition on the French fixed voice telephony
market (since the parties oculd not enter this market
alone), for on any other relevant segments of the tele-
communications market (since Cégétel will be able to
comepte strongly on these segments and since there are
numerous other competitors), nor on the potential Euro-
pean market for mobile telecommunications services.
Therefore, Cégétel's restructuring falls outside the scope
of Article 81(1) of the Treaty.

long as the parties keep their current influence over
Cégétel's operation, as it is described in recitals 11, 12
and 13, this clause can be regarded as ancillary to the
creation and successful operation of a new full service
telecommunciations operator
in the French market
through Cégétel's restructuration and will therefore not
be subject of an assessment under Article 81 of the
Treaty separate from that of Cégétel's restructuring itself.

(b) Exclusive distribution of Concert services

(49)

(50)

Prior to this operation, BT France was the exclusive
distributor of Concert services in France. The general
exclusive distribution scheme for Concert services was
exempted by Commission Decision 94/579/EC — Case
IV/34.857 (‘BT/MCI’) (1).

In that Decision, the Commission concluded that the
exclusive arrangements for the distribution of Concert
services fell within the provisions of Article 81(1) of the
Treaty. The same conclusion is reached for the exclusive
arrangements for the distribution of Concert services in
France: the appointment of Cégétel as exclusive distrib-
utor of Concert services in France falls under Article
the Treaty because it has as its object or
81(1) of
produces as its effect the isolation of France against
imports of these services from other Member States,
which may affect competition within the Community. In
it cannot be considered as ancillary to the
addition,
restructuring of the joint venture.

Applicability of Article 81(1) of the Treaty to other
contractual provisions

Effect on trade between Member States

(47)

It must be examined whether the following provisions
further restrict competition:

— the general restriction on competition in Article 2(4),

— the appointment of Cégétel as the exclusive distrib-
utor of Concert services in France, the obligation in
Cégétel to obtain all its requirements in global prod-
ucts from Concert and the restriction on Cégétel to
provide support services for non-Concert services,

— the preferred supplier and preferred customer provi-

sions as described in recitals 18 and 19.

(a) Restriction on competition

(48)

The general restriction of competition on the parent
companies in the expression of the firm committment of
the shareholders towards Cégétel and is necessary to
guarantee Cégétel's shareholders that each one will focus
its efforts on the French market in the joint venture. As

(51)

In view of the international nature of Concert services
and since Cégétel aims at becoming the second full-
service telecommunications operator in France,
these
exclusive distribution arrangements will substantially
affect trade between France and other Member States.

(c) Preferred-supplier and preferred-customer provi-

sions

(52)

The preferred-supplier mechanism in the framework
cooperation agreement for international traffic guaran-
tees a regular and steady supply of the international
traffic between BT and Cégétel. This preference given by
BT to Cégétel for incoming traffic in France represents
one of the contributions to the joint venture expected
from BT. On the other hand, BT was prepared to invest
in Cégétel and transfer its existing activities in France to
it only if it could maintain all the synergies between its
operation in France and its operations in other coun-
tries, notably for international traffic.

(1) OJ L 223, 27.8.1994, p. 36.

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Official Journal of the European Communities

L 218/21

(53)

(54)

(55)

This mechanism does not give the ‘preferred supplier’
the option of reviewing any offers which are submitted
by any other supplier and does not automatically result
in a situation where the preferred supplier is obliged to
match any better offer. Thus, it does not result in any
price transparency, which would be to the prejudice of
third-party suppliers. It does not limit price competition,
since Cégétel remains free to choose other suppliers if
they offer better conditions than BT.

The preferred-customer principles ensure that Cégétel
will get access to BT's services for termination in the
United Kingdom of international calls from France at the
best conditions available and that BT will have access
Cégétel's services for termination in France of
inter-
national calls from the UK at the best conditions avail-
able.

The clauses allow for cooperation between Cégétel and
its parent companies for the future development of
Cégétel's business at
lower costs. The Commission
concludes that, as far as restricting competition is
concerned, the provisions are ancillary to the restruc-
turing of Cégétel and will not be subject to a separate
assessment under Article 81 of the Treaty.

stimulate

competition between the

different
will
providers of global services and can be considered as the
most effective way to compete effectively with France
Télécom in the market for global services.

(59) Moreover,

the appointment of Cégétel as exclusive
distributor of Concert services, which is one of
the
important contributions of BT to the joint venture
underlined above, by completing the array of services
being offered by it to customers, will allow Cégétel to
better position itself as a fully-fledged competitor of
France Télécom (the exclusive distributor in France of
GlobalOne services).

(60)

Finally,
the economies of scale allowed by Cégétel,
mentioned in recital 44, will improve the competitive-
ness of Concert services in France. Cégétel has more
resources and advantages to distribute Concert services
effectively than BT France had before the operation.

Benefits to the consumers

(56)

The same conclusions can be reached in regard to the
general preferred-supplier principle between Cégétel, its
subsidiaries and its parent companies, as provided by
Article 6 of the shareholders' agreement.

(61)

B. APPLICATION OF ARTICLE 81(3) OF THE TREATY TO THE
EXCLUSIVE DISTRIBUTION OF CONCERT SERVICES IN
FRANCE

Technical and economic progress

(57)

By appointing a single distributor in France, BT will not
need to maintain numerous business relations with a
large number of distributors there, and hence will be in
a position to reduce its transaction costs, allowing for
the realisation of efficiencies in distribution. BT will also
be able to overcome more easily distribution difficulties
in the provision of Concert services and to protect better
its intellectual property rights. The ability to provide
customers with a single contact point
for anything
relating to the services provided is a competitive advan-
tage in this kind of service.

Through the notified arrangements BT will assist Cégétel
in launching and improving a wide range of sophisti-
cated Concert services quickly and effectively. Customers
from the efficiencies in the distribution
will benefit
from
underlined above,
Cégétel, and from the rapid availability of Concert
services in France. Telecommunications users will also
from an intensified promotion of Concert
benefit
services, which will
competition on this
increase
segment of the French telecommunications market.

from appropriate

support

(62)

In addition, the exclusivity offered to Cégétel
is not
absolute: neither BT nor any other member of
the
alliance will be prohibited from having
Concert
customers in France when a customer requests such
services from them. As pointed out
in the BT/MCI
decision, potential users of Concert services are usually
sophisticated telecommunications purchasers
highly
requiring cross-border services, and have a considerable
bargaining power, which gives rise to pressure on
margins and an expected high level of competition
among suppliers. Parallel imports of Concert services are
thus a real possibility.

Indispensability

(58) Moreover, the exclusivity given to Cégétel will facilitate
the promotion of Concert services and lead to intensive
marketing while at the same time nationalising distribu-
tion. Exclusivity will ensure an adequate level of quality
in the provisions of additional support services by
Cégétel as a distributor. On the contrary, the appoint-
ment of numerous distributors could lead to under-
investment in those activities. This intensified promotion

(63)

itself

The exclusive nature of the Concert distribution agree-
is indispensable for achieving the pro-
ment
competitive efficiencies described above.
this
Indeed,
exclusivity is indispensable in order
to concentrate
Cégétel marketing and sales efforts on Concert services,
allowing it to compete vigorously with other providers
of global telecommunications services.

(64)

(65)

(66)

(67)

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Official Journal of the European Communities

18. 8. 1999

for,

services

Furthermore, the prohibition imposed on Cégétel from
selling, or providing support
services
competing with Concert services is also indispensable to
assure BT that Cégétel will concentrate its efforts on the
distribution of Concert
services. These clauses also
enable BT and Concert to plan sales of the services with
greater precision and for a longer period, and ensure
that the distributor's requirements will be met on a
regular basis. The ‘framework network’ agreement,
designed to ensure that BT and Cégétel's networks inter-
operate to enable a seamless managed end-to-end service
to Concert customer, is necessary to enable the distribu-
tion of Concert services in France.

distributors of Concert services in other countries will
also be possible.

Conclusion

(68)

The Commission concludes that all conditions for an
individual exempltion pursuant to Article 81(3) of the
Treaty are met in respect of the exclusive arrangements
for the distribution of Concert services in France.

In addition, as
recognised by the Commission in
previous decisions concerning joint ventures active on
the market for global telecommunications services (see
Atlas Decision, at recital 58, and Decision 97/780/EC —
Unisource — at recital 93) (1), exclusive distribution
protects the intellectual property rights of Concert's
parent companies better than other arrangements.

(69)

In any event, the exclusivity given to Cégétel will not be
absolute. Neither BT nor any other member of
the
Concert alliance is prohibited from having customers in
France when a customer requests such services from
them. Conversely, the Concert distribution agreement
allows passive sales by Cégétel into territories where BT
or a third party is the appointed Concert distributor.

C. DURATION OF THE EXEMPTION

to Article 8 of

the Regulation No 17, a
Pursuant
decision in application of Article 81(3) of the Treaty
must be issued for a specified period. Pursuant to Article
6 of the Regulation No 17, the date from which such a
decision takes effect cannot be earlier than the date of
notification. In the present case, given the time necessary
for Cégétel to capture a significant market share for
corporate telecommunications services in France and to
be paid back from its investments for fixed telecommu-
nications services a long exemption period can be
granted. In so far as the decision grants exemption, it
should take effect for 10 years from the date of noti-
fication,

No elimination of competition

services

telecommunications

Concert services will be in competition with other lines
of global products, notably GlobalOne services distrib-
uted by France Télécom, the dominant provider of tele-
communications services and networks in France. As
was said in recital 30, many firms will provide corporate
international
in France
(Siris, WorldCom, Colt, etc.). These services will, at least
partially, compete with Concert services. Several of these
operators will develop their own networks. The parties
also expect competition, at
for components of
value-added telecommunications services, coming from
players including computer and data-processing compa-
nies (like IBM), and information service companies (like
GEIS). Moreover, multinational or other big companies
often have the ability to manage their own private
from
network solutions.

In addition, passive sales

least

(1) OJ L 318, 20.11.1997, p. 1.

HAS ADOPTED THIS DECISION:

Article 1

On the basis of the facts in its possession, the Commission has
no grounds for action under Article 81(1) of the EC Treaty or
Article 53(1) of the EEA Agreement in respect of the notified
agreements relating to the restructuring of Cégétel, including
the ancillary provisions regarding: (i) the general restriction on
competition contained in the shareholder's agreement and
binding on each party, as long as the respective influence of
such party over Cegetel's operation remains unchanged relative
to the situation described in recitals 11, 12 and 13 of this
Decision;
the preferred-supplier and preferred-customer
provisions.

(ii)

Article 2

Pursuant to Article 81(3) of the EC Treaty and Article 53(3) of
the EEA Agreement, the provisions of Article 81(1) of the EC
Treaty and Article 53(1) of the EEA Agreement are hereby
declared inapplicable, for a period of 10 years from 18 July
1997, to the arrangements for the exclusive distribution of
Concert services by Cégétel

in France.

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Article 3

This Decision is addressed to:

Vivendi SA
52, rue d'Anjou
F-75008 Paris

British Telecommunications plc
81 Newgate Street
London EC1A 7AJ
United Kingdom

Mannesmann AG
Mannesmannufer 2
D-40213 Düsseldorf

SBCI Inc
2 Read's Way, Suite 117, Corporate Commons
Newcastle
Delaware 19720
USA.

Done at Brussels, 20 May 1999.

For the Commission

Karel VAN MIERT

Member of the Commission