Content is king in war of telecoms succession

Date: 06/11/03

What lies in store for the EU'sembattled telecoms market? Business editor Peter Chapman canvasses the views ofBT chief executive Ben Verwaayen, European Information Society Commissioner Erkki Liikanen and MEP Nick Clegg

FROM Spain to Germany, the corpulent kings who rule Europe's telecoms empires are still on their thrones, despite three years of unrest.

But they are growing thinner - and the kingdoms they reign over are changing. Young pretenders are to be found wherever paranoid chief executives look.

The war of succession is being fought on many fronts. The bloodiest is likely to be the battle for control of the markets for fast internet services broadband.

Through fair means or foul, the ex-monopolies are trying to make broadband their own.

All across the EU, these companies are capturing a huge market share for their main offering, digital subscriber loop or DSL for short, which essentially turbo-boosts the old copper networks between local telephone exchanges and customers' premises.

Competitors have struggled to make inroads against the incumbents, despite the introduction of a law in December 2000 that forced them to open up their local networks to new entrants who could not afford to build their own.

Local loop unbundling was a flop, mainly because the newcomers could not afford the rental charges. And even if they had the money, the network owners kept one step ahead by targeting the same customers.

A more cost-effective alternative known as "bit-stream access" was hailed as the best way for competition to take hold.

Under this scenario, the old monopolies are currently obliged to carry their rivals' internet traffic at a cost-based price to a connection point.

From there, the rival company connects directly to the internet, either via their own networks or those belonging to a partner.

Ben Verwaayen, chief executive of British Telecommunications plc (BT) feels the system is completely flawed.

He sees no reason why new entrants should get a free ride on infrastructure that someone else has built. Reliance on an access-based competition model ignores the risks that companies take when they invest in new technology, he argues.

If this risk cannot be factored in to the prices they charge rivals, then big operators like BT are loath to spend as much as they otherwise would.

In turn, he points to a BT-funded study that, he claims, shows that rivals which get used to "piggybacking" on others' networks seldom graduate to building their own.

"Are companies such as BT going to invest capital when we know that other people will take our risk and our investment to compete with us and take zero of their own?" he asks.

The answer, he believes, is clearly "no".

"In the old days that was not a question because the network already was there, it was just a question of opening up the local loop and the rest of the stuff. But in this particular case it is about new investments going in - and what are the criteria there?"

Verwaayen's comments are the opening salvo in a bid to convince the European Commission to rethink the way it regulates the sector.

The old guard wants broadband to be a free-for-all, so that companies can compete for customers regardless of the technology, from 3G mobile services to satellite and cable or even electricity networks - in the jargon, "facilities- or infrastructure-based competition".

The BT chief says: "I am a strong believer that if you want to make broadband available everywhere then a competitive model is the way to go forward. But it should be one that is based on the realities of the economy.

"If you bring your own money and you bring your own risk there are tonnes of ways in the technology today to go and compete. That's terrific. Let's go. But it is quite empty in some of the areas because no one else is coming."

The ex-monopolies would especially like to see bit-stream access struck from the Commission's list of "relevant markets" which the EU executive believes need regulating because of lack of competition.

The list, drawn up as part of the new telecoms regime approved two years ago, will be reviewed next year.

Speaking exclusively to European Voice, Erkki Liikanen, the commissioner for enterprise and the information society, insists that he does not have any plans, as yet, to modify the rules.

"As long as the consumer does not have a choice, we need ex-ante measures," he says, referring to the specific regulations, above and beyond standard EU competition law, reserved for sectors covered by the relevant markets list.

"I am sure in the broadband area we will still have work to do in the next couple of years," he adds.

Nevertheless, Nick Clegg, the MEP who was in charge of steering the local loop unbundling law through Parliament, warns the Finnish commissioner not to succumb to the old monopolies.

He accepts that they have a point when they raise the dangers of relying entirely on the access-based model. But, Clegg claims, the big operators are using scaremongering tactics about lack of investment to get the regulators off their backs.

"I think the latter worry is a non-concern. It is a red herring, it is a scare story propagated by the likes of BT, Deutsche Telekom and Telefonica . . . the degree of domination is so great that the argument that the poor little kittens are prevented from making their investments is not viable."

Competition is starting to emerge in some member states - for example, in Belgium, where cable firms have a nationwide network - and other technologies such as wireless (see Page 18) are also promising.

But, will that be enough to overthrow the telecoms' big boys?

Not if the newcomers don't have decent content with which to entice consumers to part with their money.

They may compete with the big boys at delivering content. But with cheaper technology driving down costs, profit margins for companies merely providing other people's content are likely to be forced down.

Governments are under pressure to make everything from voting to getting a driving licence easier by encouraging use of the internet. But the real winners will be the companies who can, ultimately, offer easy access to movies, music and, most of all, sport.

"Content is critical," agrees Liikanen, a keen supporter of so-called e-government.

In the 1990s there was belief that if you get the technology in place, the content will come. "That is not right," he insists.

For most firms in the broadband business that probably means doing deals with other service providers who have negotiated the rights to top-drawer content to lure customers.

Critics fear the big boys have already started trying to sew up the best deals, and that, by the time real competition for broadband infrastructure takes off, all the the most viable content will be taken.

"Nonsense," says Verwaayen. "There is so much we haven't tapped anything yet, it is very early days. It is like the early days of TV, you could still see the curtain and we called it the theatre at home."

Nevertheless, suspicious competition watchdogs, such as Mario Monti, are keeping a close eye on new deals, such as the recent sale of TV and media rights by the UK's Premier League to Rupert Murdoch's BSkyB. Content is king.

The author canvasses the views of British Telecom Chief Executive, Ben Verwaayen, and Erkki Liikanen, European Commissioner for the Information Society, on what lies in store for the European Union's embattled telecoms market.