Reding takes on telecom monopolists

Viviane Reding, the commissioner for information society and media, looks set to press ahead next week (13 November) with controversial telecoms reforms that could force major players to split their network and service activities.

Draft proposals released last week still feature the so-called functional separation remedy, but with extra provisions aimed at ensuring measures are justified.

The monopoly-busting remedy would be aimed at forcing ‘vertically integrated’ firms owning infrastructure and operating services to open their networks to new entrants on fair terms. An industry source said that the new provisions are aimed at assuaging the concerns of companies that fear measures could be applied indiscriminately by national regulators.

According to the proposals, seen by European Voice, national regulators would have to ensure that there are "important and persisting competition problems/market failures identified in several... product markets" before applying the remedy, which requires the consent of the European Commission.

Regulators would also have to undertake an analysis of the expected effects of ‘functional separation’ on network investment and "other stakeholders, including in particular the expected impact on infrastructure competition and any potential entailing negative effects on consumers".

Dominant players in markets strongly oppose the remedy, arguing that it would actually entrench monopoly positions by increasing the dependency of new entrants on incumbents’ networks. Furthermore, they claim, the measure would discourage major investments in next generation networks.

A study unveiled by incumbents’ lobby ETNO this week (5 November) argues that "vertical integration of access and services is a key driver behind the decision to invest in next-generation networks". Mandatory separation of networks and services, it continues, "may lead to losses in efficiency and the ability to co-ordinate complex investment decisions".

The study claims that the Commission has failed to produce any analyses "establishing that the costs of vertical integration outweigh the long term benefits".

In a bid to counter the need for ‘functional separation’, incumbent France Telecom has proposed to boost competition by allowing competitors access to its engineering structures. Competitors would then be able to run cables along existing pipes, thus creating rival networks at a lower cost. The group’s ideas, which have been accepted by French regulator ARCEP, have not been recognised in Reding’s proposals.

In the UK, ‘functional separation’ has already been applied with no significant damage to the market. Reding reported in a speech earlier this year that the share price of incumbent operator British Telecom increased after the separation of its networks and services, and that network investment was "substantially intensified". A spokesman for national regulator Ofcom said: "Britain did it in 2005. In the UK’s market conditions, it’s been a huge success."

Ofcom has significant reservations, however, on plans to set up the European Electronic Communications Market Authority, a body overseeing the ‘federalisation’ of EU telecoms markets. The authority, which would be set up in 2010, is expected to swallow the existing European Regulators Group (ERG). National regulators would be represented on the board of the new body.

"The network of regulators [the ERG] is becoming more and more effective," said Ofcom’s spokesman. "The right thing is to build on what we’ve got rather than relying on a complex legal manoeuvre that can’t possibly have new machinery in place before 2011."

Jacques Champeaux, France Telecom’s senior vice-president for regulatory affairs, also raised doubts about the new authority, saying that it sent a "bad message". "They don’t believe that in a few years we will achieve full competition and that this regulation will be transitory," he said. "Creating an agency in 2010 does not create the message that sectoral legislation will end."

Viviane Reding, the commissioner for information society and media, looks set to press ahead next week (13 November) with controversial telecoms reforms that could force major players to split their network and service activities.