Phoney war over as telecoms battle starts

Date: 02/07/1998

By Peter Chapman

1 January 1998 was one of those deadlines which the EU set itself and then talked about endlessly, so that when it finally arrived, many felt a little bit cheated when nothing really seemed to happen.

This was the day Europe was meant to have liberalised its telecoms markets. But it was perhaps unrealistic to expect hordes of new firms to hit the ground running from day one.

It obviously made commercial sense for new operators to make sure member states had implemented the EU rule book first.

After all, this liberalisation package included complex 'open network provision' (ONP) rules designed to ensure new entrants could get a licence to provide services and that the old monopolies would interconnect their networks with these new competitors.

These rules imposed obligations on operators to calculate fair rates for interconnection using transparent accounting methods, and laid down basic guidelines for the provision of a universal service.

At the same time, truly independent national regulators had to police the market to ensure fair play, with the EU's competition rules on standby to force errant operators into line.

Six months on, industry experts are focusing on how this EU rule book is working and what still needs to be done to ensure that one of the linchpins of the information society - a cheap and capacious telecoms infrastructure - is in place.

Alex Schaub, head of the European Commission's Directorate-General for competition (DGIV), insists the evidence of what has already been achieved is there for all to see.

"Only a few years ago, all telecommunications services in Europe were, with one or two notable exceptions, available only from the monopoly national provider," he says. "Now we have over 500 local loop operators and nearly 100 mobile telephone companies in Europe, with more joining the market every day."

Schaub admits that there is no room for complacency in three key areas: cable TV networks, multimedia ventures such as telecom firms' forays into digital television, and interconnection pricing.

The institution has launched a directive aimed at separating cable networks from the monopoly telecom companies which used to own them. This is intended to boost telecoms investment and competition at the local network level.

At the same time, Schaub's boss, Competition Commissioner Karel van Miert, has been keen to prevent the formation of dominant positions by telecoms operators in partnerships with television operators in the fledgling digital and interactive satellite TV markets.

"Multimedia cases raise difficult issues about the bringing together of strong, if not dominant operators in both telecoms and television," says Schaub. "However, it is clear that we must ensure that such operations do not lead to the control of set-top boxes or to a bottleneck situation restricting competition and denying consumers the benefits of choice of new digital services."

It was this which lay behind Van Miert's decision to block Deutsche Telekom's digital TV venture with Kirch Group and Bertelsmann.

But Schaub warns operators that abusive interconnection pricing is "the most important area in which competition rules will be applied over the coming months. When the monopoly structures of telecoms in Europe were demolished, each operator had to agree interconnection rates with other operators," he says.

"Not all of these discussions have been successful, and some firms have complained to the Commission or to the national regulatory authority."

The institution has launched a series of bench-mark guidelines for operators and regulators on fair interconnection prices, and on the way they should be calculated.

"We believe that all interconnection rates should converge towards the lowest which have been applied or announced across Europe," says Schaub, who delivered a stark warning to firms which continue to overcharge rivals for access to parts of their network during voice or data calls. "We cannot allow the incumbents to charge unjustifiably high prices for access to their networks, and we will examine very carefully any interconnection prices which exceed 100% above the best practice."

Away from the Commission, the UK's former monopoly British Telecom is one of the firms best placed to judge the shape of liberalisation in other EU countries.

BT itself is often the target of complaints from British competitors in the market it still dominates. But outside its home market, BT is one of the firms pushing for a level playing-field from Germany to Greece.

The company's EU regulatory affairs manager Mike Corkery supports the Commission's interconnection drive.

"Licensing is no longer a problem. We have six licences to offer voice services in the markets we are operating," he says. "The problems are more to do with practicalities such as interconnection and one-off offers set by incumbents to try to get you out of the market."

Corkery complains that many regulators are still willing to allow former monopolies to make special offers to their customers without deciding if they are fair or not.

"Every single tariff we publish is scrutinised by the regulator OFTEL.

"This is just not happening in Europe. All of these 'one-off offers' are being rubber-stamped," he insists.

Corkery argues that incumbents will be able to get away with charging below-cost prices which competitors are unable to match until they are forced to account fully for the true costs of calls. "The problem is that there is still no transparency of costs. Many operators themselves do not really know the true cost of a call," he says.

Meanwhile, BT is keeping a watchful eye on those member states which were granted extra time to open up their markets to competition.

While Greece has a derogation until 2001, both Ireland and Spain are expected to liberalise the sector later this year. Spain has yet to convince BT that it will implement the vital EU rules by December, although Ireland is "quite well-placed".

Looking forward, the Commission is planning its first overhaul of the liberalisation package, scheduled to be completed before the end of 1999.

The institution will award study contracts to telecoms consultants later this year to examine the scope for updating the rules.

This exercise will be followed by discussions early next year with the industry, member states and consumer groups before fresh legislation is considered.

"This discussion could take the form of a Green Paper. It is too early to say exactly what the final result is going to be, but we will be looking at everything," says one telecoms official.

He admits that the current debate on the 'convergence' of the information technology, telecoms and media industries is likely to influence the shape of any future directives.

Despite Commission promises that nothing has yet been decided, Corkery warns that rival operators are set to launch a lobbying campaign to try to persuade the Commission to drop the ONP rulebook now that markets are, in theory at least, open. They favour the EU relying on its competition powers to oversee the market instead.

"People voicing this are companies like France Télécom, Deutsche Telekom and Dutch operator KPN. This is very worrying," he says. "We feel we are going to need sector-specific telecoms regulations for some years to come."

Major feature on how EU telecoms liberalisation is working on the ground.