‘Bad weather’ slows pace of liberalisation

Date: 14/11/1996

By Tim Jones

THERE is no such thing as good or bad weather.

While tourists who spend their hard-earned cash on a short and deserved break in the south of France may weep when the heavens open, a downpour has fruit farmers dancing in their fields.

Exposing protected utility companies to competition evokes the same mixed emotions.

Competition Commissioner Karel van Miert used his speech at a conference organised by European Voice on the future of industrial liberalisation last week to lament the arrival of “bad weather” for advocates of free markets for the communications, energy and transport sectors.

He conceded that the “sunny period” which began with the signing of the Single European Act in 1987 and continued until the mid-Nineties, when the European Commission was able to win the backing of member states for far-reaching reforms of telecommunications and civil aviation, was over.

“With the objective of achieving a single market on one hand and optimism about the future of European integration on the other, we created a positive environment in which the Commission could go ahead,” said Van Miert.

Pushing through the three packages of aviation reform, which will finally allow EU airlines to offer domestic services in other member states from April next year, took many years.

“Today, if we now had to start the development again, I would question whether we would be able to achieve that over the same time-scale,” he said. “The environment was good and we were able to persuade reluctant governments.”

Times are different now. The single market may not be working properly, but at least it is up and running.

The European policy of most EU governments is now dominated by a single overriding objective: to be among the first group of countries to qualify for economic and monetary union on the first day of January 1999.

Budget deficits have to be cut and governments whose popularity has already sunk to extraordinarily low levels are not willing to countenance liberalisation crusades that could threaten the jobs of highly unionised public-sector workers.

At the same time, privatisation and liberalisation do not always go hand in hand.

In Germany, the government is launching its largest-ever equity sale to the public with the partial privatisation of the mammoth Deutsche Telekom. The last thing Bonn wants is further demands from the Commission that could undermine this delicate operation, threaten the success of the sale and reduce the receipts it can expect.

But this does not worry Van Miert.

When Telekom and its French counterpart, France Télécom, sought clearance for their Global One alliance with US company Sprint, the Commissioner set tough conditions to prevent foreclosure of their markets. Only last week, he extracted further concessions from Telekom in return for allowing it to offer special discounts for big business.

However, as a former party leader, Van Miert is not blind to political realities.

While the Commissioner insisted that the liberalisers' objectives should not be “put aside” because of the growing storm clouds, he nevertheless conceded that “we may have to slow down”.

Private-sector operators trying to burrow their way into restricted markets will, however, have been pleased to hear Van Miert insist once again that the Commission had no intention of abandoning its commitment to full liberalisation - although they find it hard to hide their frustrations at the snail's pace of reform.

Anton van der Lande, whose company UPS sponsored the conference, expressed his irritation that the liberalisation of the postal delivery market had taken so long.

Express delivery companies such as UPS compete with the post offices in parcel services, but want to have the ability to take on some of the currently-protected letter mail market.

The proposal now on the table would allow post offices to keep their monopoly on basic letter services, along with incoming cross-border mail and direct mail, until 2001, but they would have to publish separate accounts.

Van Der Lande is optimistic that EU communications ministers will decide at the end of this month to open up a fifth of the market to competition. If they do not, however, he insists Van Miert should apply normal competition rules to the sector from the end of the year.

In support of his case for free-market reform, Van Der Lande presented research carried out for UPS by the NERA think-tank, which suggested that job losses in the sectors undergoing liberalisation would be offset by the arrival of newcomers and the knock-on effects of market opening on economic growth.

The work was carried out, he said, to take some of the “emotion” out of the debate over industrial liberalisation.

This was not enough to convince the workers' organisations. David Foden from the European Trade Union Institute felt that the 'invisible hand' of the market, advocated two centuries ago by Adam Smith, was not enough to guarantee high-quality public services in the modern world.

“On the primacy of market forces, we do not accept the received wisdom. We insist that the invisible hand must be backed up by social and civic action,” he said.

At the European level, Foden argued, Article 3 of the EU's founding treaty should be altered to include a commitment to “high-quality public services” and universal services should be guaranteed to all people regardless of where they live.

In practice, this means that political reality should take precedence even if logic dictates otherwise.

For example, both Foden and Jim Murray from the BEUC consumers' association threw their weight behind common rates for postal stamps even though they accepted different tariffs depending on the distance of a phone call. “It is quite simple,” said Foden. “That is what people demand.”

Gérard Moine, speaking for the European Centre of Enterprises with Public Participation, tried to put some meat on to the bones of the idea of universal service.

It is a principle that most policy-makers accept, but putting it into practice in a liberalised environment is much more difficult. “Profit is not the only objective,” said Moine. “Efficiency cannot be measured solely in financial and accounting terms.”

In highly complex sectors, such as telecoms or energy, where the scope for alternative infrastructures is limited, Moine said that the most efficient way of ensuring universal service would be to share the burden between all competitors.

A fund could be set up, for instance, to meet the quantifiable costs of supplying services to remote regions and this would be financed by all suppliers. Thus new entrants to markets would be able to compete fairly with incumbents rather than 'cherry-pick' the most lucrative clients and leave the rest to the former monopoly, he said.

The problems facing a new entrant in the EU's most developed single market - that of civil aviation - were highlighted by Jim Swigart of Virgin Express.

Still smarting from the news that the head of Brussels Zaventem Airport had described the company (its second largest customer) as “cowboys”, the American chief financial officer donned a cowboy hat and told the airport company that it had better get used to Virgin.

Swigart catalogued the obstacles put in the company's way as it sought to compete in the same market as Sabena. While formal hurdles have been cleared away by EU liberalisation, many petty restrictions remain for new entrants. The latest is the refusal of the airport to allow Virgin to run a telephone cable from its back-room office to its check-in desk so it can run its own computer reservation system (CRS). Instead, the airport wants the company to use the CRS its provides at rental cost.

Infuriated by this, Swigart has even suggested that Virgin Express would “consider moving to other airports”.

Although Van Miert recognises that little more can be done to initiate new liberalisation crusades in the current climate, he is determined that regulators should not allow incumbent companies to erect new informal barriers in areas where the formal ones have fallen.

In his role as 'gate-keeper' for the newly emerging markets, the Commissioner said he would use all his powers - including the crowbar of Article 90 of the Treaty of Rome - to make sure actions were not taken to foreclose markets.

These guerilla battles, rather than big sector-opening campaigns, are likely to dominate the agenda in the coming three years until EMU is off the starting blocks.