II-2.21: On 4 July 2012, the Conseil d’Etat (French council of State) ruled that the ARCEP’s enforcement power is not the right way to obtain repayment of alleged overcharges levied in breach of pricing obligations

Context and Summary

In conformity with European and French electronic communication regulatory framework, ARCEP imposed on France Telecom, since 2005, several regulatory obligations in many wholesale fixed markets (call termination, local loop unbundling hereafter LLU, leased lines, etc.). Amongst many remedies, ARCEP retained price control obligations (in particular cost orientation) and accounting obligations (accounting separation and costs accounting).

By 2008, accounting separation key figures for year 2006 showed positive and significant balances on most of these regulated markets.

In September 2008, France Telecom’s challengers and clients, grouped in an association called AFORST, initiated ARCEP’s enforcement procedure. In its demand, the complainant asked ARCEP’s director general[4] to disclose France Telecom’s costs, require the incumbent to respect its commitments and adapt its tariffs. Last but not least, AFORST asked ARCEP to make France Telecom repay the alleged overcharges levied in breach of its obligations.

In June 2009, the director general decided, after investigation, to close the procedure with a dismissal to prosecute, considering that France Telecom had previously lowered, in May 2009, three of its main tariffs (total LLU, call origination, wholesale line rental), retroactively to January 2009. Thus, AFORST brought an administrative appeal which was rejected in September 2009.

AFORST referred the case to the Conseil d’Etat, asking for annulment of these two decisions. The operator SFR intervened in support.

In its ruling dated July 4^th, 2012, the Conseil d’Etat stated, first, that regarding the provisions about enforcement power[5], ARCEP can punish an operator for breaching its obligations « que s’ils ne se sont pas conformés à la mise en demeure qui leur a été adressée, au préalable, par l’Autorité ; qu’il s’ensuit que dans le cas où, au cours de l’instruction d’une procédure ouverte par l’Autorité, les manquements de l’exploitant ou du fournisseur à ses obligations cessent, que ce soit avant qu’une mise en demeure ait été adressée ou à la suite d’une telle mise en demeure, l’Autorité ne peut que mettre un terme à la procédure de sanction. »[6].

For the Court, neither European directives regarding telecom markets regulation, nor the “principle of effectiveness of competitive regulation”, invoked by the plaintiffs, could change the interpretation of law.

In sum, the court pointed out that since the consequences of breaching the obligations were corrected by France Telecom during the investigation phase of the procedure, “the director general of ARCEP did not err in law” by choosing to dismiss.

Second, the complainant argued assessment errors: the decision had not to focus on three markets only, and the contested tariffs were not compliant with the applicable obligations.

The Court considered that the Authority has, in enforcement proceedings, “a wide discretionary power, as it may consider the seriousness of the alleged breaches under the legislation or regulation of its responsibility, the seriousness of the indices for these facts, the date on which they were committed, the context in which they were committed, and, more generally, the general interests the Authority is responsible for”. The Court also stated “that the decision it takes, when refusing to respond to the complaint, has the nature of an administrative decision, the judge can cancel on the ground of abuse of power in case of error of fact or of law, manifest error of assessment, or misuse of power”.

This reminded, the ruling validated ARCEP’s focus: the regulator correctly put aside those markets whose tariffs were not only subject to a cost-orientation obligation, and not based on accounting data only. As AFORST’s complaint aimed cost-orientation, markets combining a number of pricing remedies (for instance cost orientation plus non-eviction), or subject to cost orientation in the form of price-caps, could be adequately excluded.

Judge reexamined ARCEP’s dismissal decision on most of the markets in cause, and retained that the complainant failed to demonstrate any error in law or manifest error of assessment. ARCEP defended the accounting separation obligations (and its published key figures on which AFORST based its complaint) aims to prevent cross-subsidization and undue discriminations, not to assess costs for pricing purposes (what is the aim of cost accounting obligations). The Conseil d’Etat validated this approach.

Finally, the Conseil d’Etat rejected AFORST’s request.

Brief commentary

The decision is interesting on the following topics:

1. The purposes of the enforcement procedures of the regulatory authorities, and the extent of the Judge’s control of the related decisions;
2. The appropriate and efficient actions for pecuniary compensation of breached obligations.

First, in line with rapporteur’s conclusions, Damien Botteghi, the Conseil d’Etat reminded the principle of regulator’s discretionary prosecution, and Judge’s limited control on enforcement decisions. The ruling also recalls (7) the various aspects that a regulator may take into account during enforcement proceedings. As most of the regulatory bodies of the network industries are granted with enforcement powers in similar terms and spirit, the aforementioned recital is of a great interest to other regulators.

The ruling precises previous case law (8) by stating clearly the enforcement procedure aims to correct actual breaches. Indeed, the regulator has to dismiss the sanction procedure when the defendant complies with the imposed obligations. Therefore, the ruling illustrates, from our view, a rather corrective than punitive dimension of the “sanction procedure”(9).

Second, the decisive issue was to know if ARCEP was entitled to order an operator, in breach of its pricing obligations, to repair the financial consequences of this breach. It was clear from the case that France Telecom had overpriced some services between 2006 and 2009. The plaintiffs asked for reimbursements in order to ensure effectiveness of market regulation, even invoking the principle of the effectiveness of EU law as guarantying cost-orientation of prices. The enforcement procedure should then allow reparation of past breaches.
To address this argument, the rapporteur considers first that the enforcement provisions and their rationale (10), then takes a broad look to the other actions available to the incumbent’s clients to obtain reimbursements. He recalled that the commercial judge remains competent in matters of contractual relationship and compensation of commercial damages. But he mainly focuses on ARCEP’s dispute resolution powers and on some recent Cour de cassation’s (France’s Court of Cassation) case law.
In dispute resolution procedures, ARCEP used to allow some retroactive application of revised tariffs. Such retroaction was strictly limited to the date when the dispute had appeared (in practice, regarding the answer of the operator to a claim of its client, to characterize the dispute and its date of raising). ARCEP’s appeal body in dispute resolution procedure, the Cour d’appel de Paris (Court of Appeals of Paris), validated this approach (11). But the Cour de cassation (Court of cassation) contested this approach (12), and extended the time limit « à l’ensemble de la période couverte par le différend dont elle se trouve saisie, peu important la date de son émergence entre les parties » (extended to “the entire period covered by the dispute brought before ARCEP, irrespective of the date of its raising between the parties”). Therefore, the Authority can challenge the application of tariffs during the whole period of the agreement (13). The key rationale of this case law has to be found precisely in a principle of effectiveness of the EU law (14). Some commentators applauded this doctrinal change (15), but some criticized it on the ground of legal certainty (16).
The present ruling does not develop this argument extensively: it sets it aside as unable to change the interpretation of law. Rapporteur suggests that even if the principle of the effectiveness of EU law is tempting, pecuniary compensation may be granted by the other actions: commercial litigation and regulator‘s dispute resolution procedure. He recommended to preserve the very nature of the enforcement procedure, and was followed by the Court.
However, rapporteur showed great interest in the Court of cassation’s approach, and recommended to use dispute settlement to obtain financial compensation.
Will ARCEP, an ex ante and forward-looking regulatory Authority, endorse such enlarged task implying to look back on tariffs and costs and calculate pecuniary compensation? The French electronic communications regulator may remain reluctant to settle this type of cases. ARCEP is entitled by law to settle a dispute “en équité” (17), and did it recently in order to reject a retroactive demand of revised tariffs (18). More recently (19), ARCEP maintained the need of a claim against the tariff, as a milestone for admissibility and retroaction (20).
Moreover, ARCEP keeps strong leeway through its ex ante regulation, in defining and precising its remedies. For instance, gaps between costs and tariffs can, in some cases, be considered as efficiency gains and legitimately kept by the incumbent. The type of remedy set up can also be decisive: for instance price cap obligations can spare many debates and appeals on the alleged overcharges and their a posteriori adjustments.