Burden lies with regulators to ensure open telecoms market

Date: 25/04/1996

By Fiona McHugh

DETERMINED to expose Europe's telecoms sector to the chill winds of competition, EU lawmakers wheeled out their big guns for the first time in the mid-1980s.

Almost a decade later, they are emerging victorious from the battle which ensued between the bloc's pro- and anti-liberalisation forces.

The bulk of legislation needed to open the 100-billion-ecu business to competition has now been adopted, and the remainder should be in place by the end of this year.

“We have done what we had to do,” says Competition Commissioner Karel Van Miert, with more than a hint of satisfaction.

But his team's victory may yet prove pyrrhic if national regulators fail to police phone markets adequately once they are fully liberalised in 1998. “Competition will not flourish just because it is legal. You have to enforce the laws as well as pass them,” says US telecoms lawyer Thomas Ramsay, of Squire, Sanders and Dempsey.

For phone companies waiting to enter hitherto closed markets, the greatest worry is that state monopolies, which own the phone lines needed to provide services, will use their grip on public networks to block competition.

Several EU laws exist to ensure monopoly operators do not charge their rivals prohibitive fees to use their infrastructure. But new market entrants fear that, with sell-offs of several EU public phone companies on the horizon, supposedly “independent” regulators will turn a blind eye to anti-competitive behaviour.

“Why on earth would governments undermine the value of something which they own and which they plan to sell?” asks Richard Woollam, of the Association of Private European Cable Operators.

He argues that the threat of political unrest caused by lay-offs in the public sector will make it even more difficult for national regulators to come down heavily on state companies.

If the state fails to police the sector vigilantly, there is little doubt that phone giants will use their hold over vital infrastructure to squeeze out competitors.

“Of course the PTOs (public telecoms operators) will try to use their position to their advantage. People do not do competition because they like it, but because they are forced to accept it,” explains Herbert Ungerer, the mastermind behind much of the European Commission's liberalisation strategy.

In the mobile phone sector, which has already been opened to competition, examples of anti-competitive behaviour are legion. Omnitel Pronto Italia, Italy's second cellular phone operator, had to engage in a David and Goliath-style struggle with state mobile firm TIM before entering the Italian market.

It was granted a licence late last year, but only after paying 750 billion lire into government coffers. Not until the Commission stepped in waving its competition stick did Rome agree to level the playing-field by forcing Telecom Italia to grant Omnitel a compensatory 25&percent; reduction in interconnection fees for two years. Comparable problems were encountered in Spain, where the government-owned firm Telefonica de España delivered a line to private reseller Esprit Telecom only after being hauled before a Commission arbitration panel. In France and Ireland, new entrants complain that state firms are using similar illegal tactics to capture the market.

Such abuses spark complaints that national regulators cannot be trusted to do the job, and that the Commission is to a large extent adopting a hands-off policy.

While the former is undoubtedly true in many member states, the latter is totally unjustified. Aware that the speedy arrival of the information society (and hence Europe's competitive future) is at stake, Van Miert has gone after state phone companies with the determination of a bull chasing a red rag.

“There is little point in lifting the monopolies if they are going to be replaced by anti-competitive market structures,” says Ungerer. “Clearly, state-owned companies are going to control the local bottleneck for some time. We must be extremely careful not to allow them to use that control to establish a dominant position during the transition stage.”

In the run-up to full competition, incumbents have been desperately seeking partners with whom to bolster and extend their already entrenched positions. Van Miert has used his power to vet those planned mergers to force the pace of liberalisation.

He refused to give the all-clear to the proposed Atlas venture, linking Deutsche Telekom and France Télécom, until the French and German governments agreed to open the market to alternative infrastructure from the middle of this year.

His complaint about the deal hinged not on its size, but on the fact that the two companies had the run of their respective markets. Although railways and electricity companies would have been free to lease their lines from 1 January 1998, Van Miert felt that two years on a skewed playing-field would have given Atlas more than enough time to establish a dominant position.

The planned merger between AT&T and Unisource is also running into difficulties and is unlikely to win approval without a strong commitment from Spain to open its market to alternative operators.

Thus far then, the Commission has shown itself determined to safeguard competition.

But what will happen when the number of complaints filed with Brussels multiplies, as it inevitably will after 1998?

“Companies will have to wait months, even years for a response. In the meantime, their competitors will continue to dominate the market,” answers Ramsay. “Count the number of people in DGIV's corridors.”

To avoid such delays, some are calling for a pan-European regulator to draw up detailed rules and enforce them.

The UK experience demonstrates how a supposedly open market can remain dominated by one company ten years after the introduction of competition. In spite of the regulatory body Oftel's efforts to promote competition in infrastructure, British Telecom's continuing strength is striking.

Those in favour of an independent Euro-Oftel say that to prevent a repeat of the UK scenario, Europe needs an even more intrusive regulatory body.

But for countries such as Finland and Sweden, where competition is well established and phone firms jostle happily for market position, such an idea is preposterous. “It would set us back years,” says Jukka Alho, a director of the Helsinki Telephone Company.