Predatory pricing and antitrust issues

In January 2007 , the court of first instance, EU's second highest court ruled that Franc telecom's broadband arm, wanadoo, kept competitors out of high-speed internet market illegally by charging artificially low prices, prices that are below their cost,[1]

This is an obvious predatory pricing case! basically; predatory pricing means selling the product at a price below the cost to drive the competitor(s) out of the market or at least discipline that competitor(s)[2][3], the definition looks very straightforward, but a deeper look in the issue shows the complications and ambiguities surrounded by predatory pricing.
first of all price-cost leadership is the major goal for any firm in any market, almost all competition is price-based, but where would the line be drown? what constitutes antitrust predatory pricing and what constitutes legal competition. especially in the telecom market?

The telecom markets are characterized by many particularities[2]:on most fixed-line telephony markets there is one-former monopolist with an established customer base and almost 100% share of the market in the beginning of the liberalization "in this case France telecom" naturally, new entrants will convince customers to switch,
In addition to that , the telecom market is characterized by high fixed costs "infrastructure" and low variable costs, so many new entrants might need to use the existing incumbent infrastructure, the prices for using the incumbent's infrastructure are usually regulated.

checking the above points reveals that there is a risk of predation in telecom markets[2]: the established operators can work form the customer base they have to achieve market power,that's for incumbent operators , from the other side there a large incentive for the new entrants to cut prices in order to encourage the customers to switch to their service.

there are many rules and used to identify predatory pricing,[2] talks about the best known one used called areeda-turner rule, where the price is considered predatory if it's below average variable costs, this rule however has it's limitations.

It is up to the regulator to define predatory pricing, it's difficult to establish certain rules to realize it! basically: a price is predatory if it's meant to drive competitors out of the market and there is no business behaviour can explain the price cut.[2]

the regulator can use two approaches to prevent predatory pricing, the ex-post approach is where the regulatory supervise the competition process, it's it up to the regulator and the courts to decide whether a certain behaviour is predatory, this process can be slow and not very effective and might fail to protect the competitors since any action may take place after the competitor is drown out of business.[2]

in contrast, the ex-ante approach requires the firms are required to get approval for all price changes before they happen, this approach is more drastic and is the current practice for most of the regulatory authorities.[2]

Predatory pricing is a serious issue in liberalized markets, the fine line between illegal pricing and normal pricing makes it more difficult to be decisive about it so many times normal pricing actions were considered predatory therefore stifling true competition , many other times predatory actions passed the supervision resulting in an unfair competition between firms.


References:
[1] Reuters.com "EU court rules france telecom broke antitrust rules" jan 2007 http://www.reuters.com/article/technologyNews/idUSBRU00535220070130

[2] "Predatory pricing on liberalized telecommunications markets" by Justus Haucap and Jorn Kruse, August 2002

[3] wikipedia.org