This excerpt taken from the FTE 20-F filed May 17, 2005. LEGISLATION GOVERNING COMPETITION


European Community competition law has three main components. The first component consists of Articles 81 and 82 of the EC treaty (formerly Articles 85 and 86).


They prohibit all unfair trade practices intended to, or having the effect of, restraint of trade within the European Union or effecting trade among Member States. Articles 81 and 82 apply to all companies, both public and private. Article 81 prohibits agreements among companies in restraint of trade within the European Union, and Article 82 prohibits the abusive use of a dominant position held by any company in a substantial part of the common market.


As an example, under Articles 81 and 82, the European Commission Competition Office opened an inquiry on July 27, 1999 into the telecommunications industry, notably concerned with roaming services, the supply and pricing of leased lines and the supply and use of local loop access.


On December 11, 2002, the Commission decided to close the industry inquiry on leased lines, given that, over the course of three years, the price of international leased lines had dropped considerably throughout the European Union. The investigation into the supplying of local loop access, as applied to France, ended in a decision by the European Commission (on July 16, 2003) condemning Wanadoo Interactive for abuse of dominant position in the form of predatory pricing on the high-speed Internet access market. Wanadoo Interactive filed an appeal with the European Communities Court of First Instance on October 2, 2003, the outcome of which is not yet known. As regards roaming services, the European Commission is still analyzing the documents it collected in July 2002 during an on-site audit at the Orange registered office.


A reform in the enforcement of Articles 81 and 82 came into effect on May 1, 2004 (the European Union expansion date). Since that date, the national competition authorities and the national courts directly enforce Articles 81 and 82, if any unfair trade practices affect trade among Member States. Furthermore, the voluntary notification system of corporate agreements to the



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Commission has disappeared. A system of legal exception will apply to the agreements. It is now therefore up to the companies themselves to evaluate the extent to which their proposed agreements constitute a restraint of trade in order to ensure the compliance ex ante of such proposed agreements with competition regulations.


Since May 2004, the European Commission refocused on the most serious violations, particularly with regard to cartels. In addition, it formalized its cooperation with national authorities and courts dealing with matters of competition (the “European competition network”), and it also has more extensive investigative powers.


The second component of European Community competition law is the control of mergers, subject to the mandatory notification system under regulation 4064/89. Following public hearings which commenced in late 2001, a new set of European regulations came into force on May 1, 2004. It introduced a change in the assessment test for merger operations (the merger is now reviewed from the standpoint of “significant infringement of competition” and no longer from the standpoint of “the creation or strengthening of a dominant position”) and further strengthens the powers of the Commission. Conditions with regard to timing are also more flexible.


The third component of European Community competition law concerns the rules on assistance granted by European Union Member States, described in Articles 87 and 88 of the EC treaty (formerly Articles 92 and 93). Article 87 of the EC treaty prohibits (subject to certain exceptions) assistance granted by European Union Member States on using their resources in a way that affects trade among Member States or that distorts or threatens to distort competition. Article 88 of the EC treaty calls for the European Commission to enforce Article 87 of the EC treaty, and grants authority to the European Commission to investigate and rule on the compatibility with Article 87 of the EC treaty of the measures constituting State assistance.


On January 30, 2003, the European Commission notified the French State that an investigation was being opened in relation to possible assistance from the French State to France Telecom. The Commission gave certain decisions following this investigation in July 2004. (See Note 29 “Litigation and claims” of the Notes to the Consolidated Financial Statements with regard to both of these points).


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