Market spots loopholes in telecoms plan

Date: 14/09/00

By Peter Chapman

ON 1 January 1998, former Telecoms Commissioner Martin Bangemann pressed the start button on a regulatory package which opened huge swathes of the EU's telecoms market to the rigours of competition for the first time.

Since then, the communications sector has come alive - thanks both to the huge technical strides made by the industry and liberalisation, enabling newcomers to offer previously-undreamt-of capabilities, from high-speed fibre-optic services to the banks of Frankfurt and London to smart new mobile services and broadband Internet over household cable television lines.

In July 2000, Bangemann's successor Erkki Liikanen unleashed plans to put a new, leaner regime in place for 2002. Greater competition, claimed the Finnish Commissioner, had rendered many of the old-style controls on firms' market behaviour redundant. However, he added, bottlenecks in certain markets meant there was still a need for a minimum level of market surveillance by national regulators acting in concert across the Union.

Liikanen is now watching anxiously as MEPs and member states prepare to pore over his blueprint with a magnifying glass.

Although far simpler than the complex system they would replace, the measures proposed by Liikanen are nevertheless, at first glance, enough to give even the most seasoned EU watcher a bad case of information indigestion. However, experts claim there are actually very few controversial points in a package of eight new regulatory measures.

The upshot is that most small firms would face little interference from the regulators beyond monitoring to ensure that they comply with consumer protection rules and do not misuse their customers' personal data.

Big operators would also, in theory, face less red tape and more legal certainty. "Generally the changes are going in the right direction," said Adrian Whitchurch of British Telecom. "The key thing is to keep the position that the Commission has established."

One crucial element of Liikanen's blueprint is his proposal to borrow from Union competition law by reserving the most stringent rules and regulations for traditional fixed operators, mobile firms or cable TV companies which enjoy 'dominance or collective dominance' in their markets.

Officials hope this will lead to more coherence between EU regulatory and competition law. It should also allow the Commission to be more flexible, permitting it to, for example, impose regulations on firms with shares below 50% of concentrated markets - such as the mobile sector - where companies are not dominant individually but may enjoy an 'oligopoly' with only a handful of rivals.

Another proposal welcomed by firms would scrap any requirement for companies to seek licences to offer services, except where there is a compelling reason such as lack of space on the radio waves.

Despite the relatively smooth ride it has enjoyed so far, Liikanen's package has nevertheless attracted some criticism.

Privately, many firms operating in more than one member state (or planning to do so) are concerned about the relatively large degree of autonomy which national regulators would be given to control domestic markets. The Commission intends to lay down rules defining when national regulators can intervene and under what circumstances the executive can overturn their decisions. But there are worries that member states could try to water down this system, leading to wide differences in approach.

"On paper you cannot criticise what the Commission has done, but it remains to be seen how member states apply it - and that is the reason the Commission has to have strong oversight powers," said Ian Osborne, director of regulatory policy with pan-EU operator Global Telesystems.

Controversy has also been sparked by proposals to update existing data protection rules, with many market players - particularly the direct-marketing industry - furious that they would have to seek customers' permission before sending them commercial e-mails.

Plans to leave unchanged the definition of what comprises 'universal service' - the minimum which every Union customer from Helsinki to Rhodes can expect - are also politically charged. The move has disappointed France, in particular, which had hoped to extend the list to other areas such as access to fast Internet services.

Commission officials insist it would make little sense to stipulate that every EU citizen should have access to fast Internet services when, in reality, only a tiny minority currently benefit from this. They also say there is an in-built mechanism for updating the scope of universal service as the technology develops. Commission experts nevertheless admit that this could be one of the key battlegrounds in the months to come.

Liikanen's package will get its first formal airing at next month's meeting of telecoms ministers in Luxembourg, although it could take months for national officials and MEPs to complete their deliberations. But even before the 3 October ministerial meeting, intense efforts are under way to get swift agreement on proposed regulations which would open up the local networks - or 'loops' - from telecoms exchanges direct to customers' homes or offices.

Despite liberalisation and new technology, rivals have baulked at the huge cost of building their own local networks. 'Local loop unbundling' is therefore seen as vital by experts, because it would open up one of the last bastions of the former monopoly operators. It would also allow firms to add services such as ADSL which turbo-charge the old copper wires to allow lightning fast Internet access.

Liikanen claims the proposed regulation - the toughest form of EU legal instrument - is necessary because original plans to include local loop unbundling in a directive would have taken too long to implement.

The new timeframe means the European Parliament's rapporteur on the proposals, Nick Clegg, faces the unenviable task of steering the proposals through the assembly in record time using a relatively untried and tested 'fast-track' procedure agreed at the Amsterdam summit three years ago.

In practice, this means that Clegg must broker a deal between MEPs during the first round of discussions which will be immediately acceptable to member states. Getting round the usual requirement for a second reading would mean the proposal being adopted in late October or early November.

Clegg claims, however, that his efforts to make progress have been hindered by the poor quality of the Commission's proposals. He says Liikanen's intentions are good but the wording of the draft text is too imprecise, meaning that MEPs and diplomats will have to fill in the gaps to ensure the regulation is workable. "We should not have to do the Commission's job for it," says the British Liberal, who is currently flitting between French presidency officials and fellow MEPs in a bid to achieve a consensus.

Worse still, he fears his fast-track proposal could be sunk by opposition from the German government, telecoms regulator and powerful state operator Deutsche Telekom to the way local loop unbundling would be implemented. They claim the measure would interfere with the country's existing efforts to open up networks.

Telekom sources say local rules have forced the company to offer rival operators fully unbundled access to their networks since 1998. The Germans warn that Liikanen's proposals would also force operators to offer two other forms of unbundling not currently required in the country, adding to bureaucracy and costs in the telecoms sector instead of delivering on his promise to cut red tape.

Most troublesome is 'shared access', where rival operators can rent the high-frequency parts of a local network, allowing them to offer high-speed data services while the owner of the network continues to provide basic phone services. "We feel this is more regulation and not less," said a Deutsche Telekom executive, insisting that member states should be able to choose the system which suits them best.

Major feature. Analysis of reaction to the Commission's proposals of July 2000 for a new, leaner, telecoms regime.