New market growing at the speed of light

Date: 25/04/1996

JUST a decade ago, the average northern European home had a telephone and that was that. The fax machine was just beginning to make an appearance, and analogue 'mobile' phones were so large and heavy that they were arguably responsible for the emergence of the baggy Italian jacket.

Now, changes are coming at a speed which threatens to leave some of the European monoliths panting in the wake of US and UK tigers with more than ten years of liberalisation under their belts.

These days, a telephone at home is considered a human right, while complex answering machines, call-diversion services and switches to fax are becoming more and more common, at least among the professional classes.

The price of fax machines and mobile phones has tumbled. In France, Italy, the UK and Finland, pocket telephones have become part of the popular culture. Teenagers holding loud conversations on their Cellnet, Vodafone, One-to-One or Orange handset on top of a London bus have become a common sight, while Parisians feel naked without their Bebops.

The advent of the cheap microchip has started to put all forms of communication on an equal footing. Long-distance telephone calls, satellite and cable television images, e-mail, fax and Internet messaging are converging into one form of communication, instead of being fenced off from each other. Life is becoming highly mobile. In the same way that convenience food emerged to meet the demands of Europe's growing army of working women, so modern communications systems are fitting in with the mobility of modern life.

As big employers shed jobs across Europe and larger numbers of people move into self-employment or even the 'black economy', they need to be contactable at anytime, anywhere.

The advent of the single market is encouraging business travel, with executives reluctant to lose contact with base. Laptop computers that can access online services via a mobile phone in a speeding car could soon be old hat. Nokia is developing a 'mobile office' - a phone which attaches easily to a mini-computer, allowing the user to send and receive fax messages and link up to main computers.

It does not stop there. By the end of the century, three-dimensional video-conferencing could be a reality. Forget a poor flat-screen version of the boss sitting in his New York office. Researchers are now working on creating a hologram of the person at the other end of the line. Your boss would effectively be in the room with you - progress indeed, even if it might not always be a welcome prospect.

The arrival of this new market is having its effect. Business sectors that have been sealed off from each other for decades are joining hands. What were, only a few years ago, simply telephone or television or film companies are transforming themselves into integrated information super-carriers.

Former post and telecom operators (PTTs), Hollywood studios, cable-television operators and publishers all want a piece of the action, and realise that they cannot do it alone. Walt Disney and Capital Cities/ABC, Bertelsmann and CLT, AT&T and McCaw Cellular Communications, and US West and Continental Cablevision are just a handful of the major link-ups designed to reposition companies in the integrated market.

Even in old-fashioned telecommunications, it's not all over. The investment bill for communications in the developing world is expected to top 400 billion ecu. Cable & Wireless' (C&W) control of Hong Kong Telecom is a key element of British Telecom's (BT) interest in its rival. Winning control of the company would give BT a foothold in what could turn out to be a Chinese gold-mine as 1997 approaches.

It was against the backdrop of these developments that EU politicians decided to open the European market to true competition. Long-protected PTTs are to be abandoned to ferocious market forces in basic telephony from January 1998, while mobile monopolies have already been lost.

Some companies are reacting more quickly than others. The first of the big European countries to introduce market forces was the UK. Its experience holds many lessons for the old monopolies.

Between 1984 and 1993, BT was progressively privatised. Mercury, a subsidiary of C&W, is its main competitor - accounting for 50&percent; of market share in London's key financial district, and 15&percent; of all long-distance and international calls - but there are another 140 licenced telecoms operators.

Cable firms have won close to a million customers over to their telephone operations, and electricity and rail companies are offering phone services to nearly three million business clients.

All this is viewed with fear by some of the national operators facing the same future 12 years after BT set the ball rolling. But it's not all gloom. BT still bestrides the UK market like a colossus with 26 million customers on fixed lines. In the global market, it has emerged as a player, quoted in the same breath as AT&T and only challenged by the emerging alliances - Global One and Unisource.

The bigger players in Europe have realised that they need not live through their worst nightmare - the loss of 40&percent; of their markets and two-thirds of their profits. If they get into the profitable markets now and do it in such a way as to frighten off rivals, they could just succeed.

In the run-up to full liberalisation, they are making do with providing communications services to big business. Multinationals with huge internal communications requirements are welcoming the chance to go to a 'one-stop shop' provided by Unisource, Global One or BT/MCI rather than deal with a pot-pourri of national operators. Once liberalisation is under way, these alliances can be expected to compete for the most profitable parts of the newly opened national markets.

Deutsche Telekom (DT), due to float shares worth 8 billion ecu in the summer, provides the best example of this new aggression on the part of formerly sleepy telecoms and post giants. Already poised to take part in a major service from American Online and Bertelsmann, on top of its T-Online service and Europe Online, Deutsche Telekom wants to make sure it is in at the beginning of this potentially vast nascent market. On the multimedia side, DT failed to get a stake in Media Services, together with Bertelsmann and Kirch, after the Commission blocked the venture. With DT sitting on 90&percent; of the cable infrastructure, Competition Commissioner Karel Van Miert did not want these innovative markets foreclosed to smaller competitors.

The Commissioner has shown himself equally determined to prevent giant phone operators from sewing up the market in the run up to 1998 to such an extent that they effectively prevent competition from taking off.

Given the stranglehold which existing state monopolies have on telephone networks, they could squeeze out new market entrants by charging them excessively high fees to hook up to public networks. Hence Van Miert's decision to hold back on giving his blessing to the Atlas deal, between Deutsche Telekom and France Télécom, until both countries agreed to open their markets to alternative networks. Similarly, he is using his power to vet the planned deal between Unisource and AT&T to lever concessions out of the European governments and the American phone company.

While such a vigilant approach has been much admired in many quarters, it has provoked intense criticism in others. Some of the big national operators complain that they will be unable to compete effectively with US super-rivals with all the obstacles the Commission puts in their way every time they want to clinch a deal.

The debate can be expected to heat up in the coming two years as this already giant market expands to previously unimagined limits.

Pressure is certain to grow on the regulators to turn a blind eye to European companies determined to defend their positions by any means necessary. This is not just about national pride, but about jobs - the central preoccupation of every European politician.