Approval for merger hinges on liberalisation of telecoms

Date: 08/02/1996

By Fiona McHugh

UNISOURCE, an alliance of major telecommunications companies, may be blocked by the European Commission's competition authorities unless certain tough conditions are met.

The alliance, which was created in 1992 by the Swedish and Swiss national phone companies and the Dutch communications firm PTT Nederland, has recently been joined by the Spanish state-owned phone carrier, Telefonica de Espana, forcing it to seek clearance from the Commission.

According to EU sources, Competition Commissioner Karel Van Miert, who is in charge of vetting Unisource, is likely to make approval of the alliance conditional on the opening of phone infrastructures in the countries involved.

Spain in particular, where Telefonica dominates the market, is expected to be told that it must allow alternative infrastructures - such as those run by railways and utilities companies - to carry phone services.

With full liberalisation of the EU's phone sector due in just under two years, the industry's giants are already jostling for advantage, desperately seeking partners with whom they can form organisations big enough to compete with powerful rivals from the United States.

But the fear in Brussels is that such global alliances will be used to defend existing monopoly positions in domestic markets, rather than to conquer new markets.

Private companies such as British Telecom have already written to the Commission voicing concerns about the recent spate of phone mergers. They fear that, if not properly regulated, alliances such as Unisource could sew up the EU's phone market long before it is opened up to competition in 1998, making a mockery of the Union's planned liberalisation.

“The concern is that Uniworld (AT&T and Unisource) partners will not enter one another's market ... this will reinforce the position of the parent companies in their relative markets,” explained Nicholas Kay, BT's legal adviser.

BT argues that before the Commission approves such mergers, it should ensure that independent regulators are set up to police them and that alternative phone infrastructures are allowed to open for phone business.

At the moment, state companies still run most phone networks, which means that even when rival firms are allowed to provide phone services, they are obliged to rent lines from the state companies - often at prohibitive prices.

If they are allowed to maintain a grip over networks for the next two years, the Commission fears that state companies will build up impregnable fortresses from where they will ward off competition from new entrants.

Van Miert's plan is to use his power to vet merger deals as a lever to force member states to accelerate the pace of phone liberalisation in their domestic markets - notably in the infrastructure sector.

As with the Atlas deal between Deutsche Telekom and France Télécom, he is likely to take advantage of Madrid's eagerness to see Unisource cleared to press for liberalisation of Spain's infrastructure ahead of the 1998 deadline.

Atlas was provisionally cleared by the Commission after Germany and France agreed, albeit reluctantly, to comply with Van Miert's wishes.

But the Unisource case has been further complicated by the fact that one of the partners, Switzerland, is from a non-EU country.

It is not, however, unheard of for countries from beyond the EU to submit to the Commission's wishes. Last summer, the Swiss government agreed to a number of conditions in order to win approval for a partnership agreement between the Belgian air carrier Sabena and Swissair.

Problems with Unisource are likely to cast a shadow on the planned joint venture, known confusingly as Uniworld, between that group and the US phone giant, AT&T, which is also being screened by Van Miert's team at the moment. Final decisions on the two alliances are not due before June of this year.