1. Case A285 Infostrada/Telecom Italia- Tecnologia ADSL

2. Abusive behaviour of Telecom Italia In april 2001, after a long investigation started in 1999, the Italian Competition Authority condamned the former TLC monopolist, Telecom Italia, for violation of art. 3 (abuse of dominant position under the Italian competition law). THE ABUSE: In 1998, Telecom Italia had begun offering high-speed local connectivity (x-DSL) services to business and residential customers, without providing equivalent wholesale services to OLO. It was considerered an abusive discriminatatory behaviour of the dominant operator.

3. The relevant markets Upstream market: - National market for local connectivity services Downstream markets: -National market for data transmission and value added services -National market for Internet access services

4. The local connectivity market Internet connectivity can be provided to the final consumer through different technologies: A) copper wire pairs: low-speed and small capacity (dial-up) connection; typically for residential customers; B) leased lines: typically for business customers; C) others: fiber-optic cables, wireless transmission (satellite, cellular radio, PCS). The market for local connectivity services is national; in fact Telecom Italia’s telecommunication network covers the whole country and prices are uniform. The market is one of the less competitive in the telecommunications sector; in fact, it is not viable for new entrants to reply the PSTN local infrastructure

5. The local connectivity market: the dominant position of Telecom Italia Telecom Italia has a de facto monopoly over the PSTN, especially at the local level and in the leased lines market is the only operator with a fiber-optic infrastructure which covers the whole country (SOCRATE project) in 1999 and until March 2000, there was no legal obligations requiring Telecom Italia to provide disaggregated access of its local network to OLO (i.e. unbundling regulation was still no effective in Italy) Telecom Italia had a dominant position in the local connectivity market

6. Markets for TD and Internet Access Services: the dominant position of Telecom Italia In the data transmission market: in 1999, TI had a market share equal to 65%; the first competitor was Albacom with a market share equal to 15%; overall the market was populated by more than 20 operators In the Internet access market: in 1999, the TI market share was around 47%, while all other operators had less than 10% of the market each. In spite of the so called free internet phenomenon, the position of TI (actually of its business unit TIN.it) had remained basically unchanged over the years

7. Markets for TD and Internet Access Services: the dominant position of Telecom Italia Telecom Italia has a significant market share; has well known brands; is the only fully (vertically) integrated operator, that sells local connectivity to its competitors has a dominant position in the upstream market of local connectivity TI has a dominant position in the TD and Internet Access markets

8. Telecom Italia anticompetitive behaviours At the end of 1998, TI started offering broadband data transmission and Internet access services by applying compression techniques (i.e. x-DSL technology) More specifically: In 1998, TI launched TD and Internet services with ADSL connections In 1999, TI launched TD and Internet services with x- DSL and SHD (fiber) connections TI refused to offer equivalent wholesale services to its competitors such as analogue leased lines

9. Refusal to offer analogue leased lines Note that analogue leased lines, by applying x-DSL modems, can be used by OLOs for offering broadband services to final costumers Investigation showed that: TI refused to offer analogue leased lines to competitors without any technical justification; there are evidences of the existence of a strategy aimed at excluding actual and potential competition from local connectivity services; in some cases, TI had offered its x-DSL services to the customers of its competitors to whom it denied the provision of leased lines

10. The ADSL services: pre-emption strategy in november 1998, TI started offering to business customers TD and Internet access services based on ADSL technology; the marketing policy was particularly aggressive, especially with respect to customers of other operators that cannot provide the same services; as a result TI got 43 large business clients and 6 ISPs in less than 1 year; after a period of experimentation which started in september 1999, in january 2000 TI launched its ADSL offer for residential customers, getting 4.200 subscribers in 6 months; there is plenty of evidence, found out in inspection activity, showing a specific pre-emption strategy of TI, which leveraged its its monopolistic position on the local loop in order to monopolise the new, fast growing market of broadband access Internet services

11. ADSL services: the late and discriminatory wholesale offer TI made its first ADSL wholesale offer for OLOs only in november 1999, after the opening of the investigation of the National Competition Authority (NCA) in april 2000, the NRA declared TI’s ADSLWholesale Offer discriminatory, on the basis of the following reasons: TI bundled ADSL access and ATM components, without allowing OLO’s infrastructure optimization and thus reducing incentives to build-up new alternative infrastructure TI’s prices discriminated in favour of larger operators, and in particular its business unit Tin.it, without any evidence that such large quantity discounts were due to scale economies

12. x-DSL and SHD services in spring 1999, TI launched its broadband TD and Internet access service based on x-DSL technology and SDH connections for business customer; in june 2000, 2,000 new contracts were signed there is large internal evidence, found out in inspection activity by NCA, which shows that: this offer was specifically aimed at contrasting OLO’s offers in metropolitan areas; there was a clear strategy of TI for marketing services that were not regulated, instead of providing digital leased lines; offers were also intended to retain customers which had chosed OLOs for vocal services; this by applying special discounts linked to the presence of a competitor’s offer.

13. x-DSL and SHD services: the late and discriminatory wholesale offer TI did not provide any wholesale x-DSL offer for more than 1 year since the launch of its final services In May 2000, TI finally presented a Private Virtual Channel offer for OLOs, according to the NRA’s unbundling regulation, which requires a retail minus offer for competitors for each broadband x-DSL retail service (Del. n.2/00/CIR) 16/8/2000: the Appel Court sospended the provision of an ADSL service (RING), due to its discriminatory nature; autumn 2000: the NRA found out that the PVC offer was not a fair wholesale offer for x-DSL services, since it created price squeeze between wholesale and final prices; the NRA imposed a 30% reduction in wholesale prices.

14. TI’s special responsibility and the violation of national competition law The described behaviour of TI was considered by the NCA a violation of the national competition law because it was adopted by an undertaking which dominant position in the upstream and downstream markets, and therefore has a special responsibility for mantaining a sufficient degree of competition in these markets.

15. The non-discrimination principle In particular, TI violated the non-discrimination principle: given the absence of unbundling obligations, it exploited its dominant position in the upstrem market by distributing final services based on the application of x- DSL tecnologies, refusing to offer wholesale services to OLOs and thus not allowing competitors to operate under the same conditions in the new market for broadband Internet access.

16. The need for a wholesale offer TI claimed it had no obligation to supply, on wholesale bases, services to OLOs for broadband Internet access. The NCA stated that: “the respect of the competitive principles of equal opportunities for different operators requires that the dominant operator, where it is the exclusive owner of an essential facility needed to provide services in downstrem markets, has to make such resources available to competitors at differentiated economic conditions in order to guarantee effective competition in the market”

17. The need for a wholesale offer Although the obligation for the provision of a service on wholesale bases can be stated by the national regulatory legislation, it also derives, independently of any sector-specific prevision, from the rules and principles of competition law. Being a dominant operator, TI has an obligation to supply the same services to its competitors on non-discriminatory basis whenever it decides to offer to final users services based on the local loop of the PSTN, upon which it enjoys an exclusive control.

18. The NCA’s decision and the first degree appeal jugdement In april 2001, the National Competition Authority considered that the TI’s behaviour, insofar it was intended to prevent its competitors from entering and operating in the markets of local connettivity, data transmission and Internet access services, constitued a serious violation of Italian competition law, and thus imposed on TI a fine of 60 million euro. In november 2001, the TAR (first degree administrative appeal court), although it reduced the fine on TI, confirmed the existence of a general obligation for the dominant operator to provide wholesale services to OLOs.