Starting gun fires for telecoms

Date: 27/06/1996

By Tim Jones

A COMMUNICATIONS revolution will kick-off in the EU next week, but very few people will notice.

From 1 July, national telecommunications operators will lose their monopoly over the provision of infrastructure - the fibre-optic cables and other hardware that transmit voices and data from one place to another.

From then on, the 'alternative infrastructure' of railways, energy and water companies, which has until now been used simply for 'in-house' purposes, will be open for business.

Literally for business.

Companies will not be allowed to offer commercial voice telephony services to the general public until 1998 when the Union's entire telecoms market will be liberalised.

For now, member states will only be obliged to open the market to so-called 'closed user groups' - large multinational companies with huge internal communications needs.

For this reason, the revolution will come relatively slowly.

“The legal barriers will have gone but, in practice, the various different regulations necessary for competing services to begin are not sufficiently far advanced to make it work straight away,” says John Clarke, telecoms analyst at the London-based Daiwa Institute of Research.

“It will be more like the start of the London marathon; the gun will go off and 30,000 people will start moving, but it will take time for many of them just to get across the starting line.”

The most ambitious proposal so far comes from a consortium of 11 European railway companies - Hermes Railtel. These firms, which have long-standing communications networks throughout the EU, will be combining them at an estimated cost of 400 million ecu.

The 22,000-kilometre cross-border network aims to provide services complementary to, rather than in competition with, other operators. High-capacity fibre-optic cable will be laid along railway lines to provide transmission capacity which can then be sold to public network operators, service providers and operators of cellular phones.

The UK and Sweden, where telecoms services have been liberalised under national rules, are already a long way down this road. Only 25&percent; of the EU's phone market is currently open to competition - but 20&percent; of that is in these two member states alone.

British Telecom is already up against Mercury, cable-television companies and an offshoot of the national railway in the provision of services while, in Sweden, Telia is competing with Tele2 - a firm owned by Kinnevik and Cable & Wireless. Denmark, for its part, has promised to open up the market to alternative networks even for the provision of voice telephony services.

Services are less advanced in other member states. In Germany, the bill removing Deutsche Telekom's (DT) monopoly on the provision of infrastructure has been delayed in the upper house, although this block could well be lifted in the coming fortnight. Bonn is in a difficult position because it is privatising the national operator. If its monopolies are eroded, this will hit the share price at issue and reduce income for the state at a time when it is fighting to bring down its budget deficit and public debt to meet the Maastricht single currency targets.

The European Commission, determined to ensure that incumbent operators do not stitch up the market in the run-up to full liberalisation, is keeping an eye on the German operator.

The attempts by DT to introduce new corporate client rebates, offering business users discounts of up to 40&percent; on telecoms services, ran into problems with the Commission earlier in the year.

It insisted that the rebates be extended to lines leased by Telekom's private sector competitors - Mannesmann, Viag and Thyssen - who had claimed that the discounts could put them out business. Telekom, they said, was using the last days of its monopoly to hold on to key areas of the market - so-called 'foreclosure'.

The Commission holds a vital key to the success of Telekom, and one which it has often threatened to use to lock rather than unlock the door to global expansion by the German operator.

Last year, it threatened to block Deutsche Telekom's 'Atlas' venture with France Télécom as well as its world-wide alliance with Sprint 'Global One' unless Germany opened its market to alternative operators from the beginning of July.

The companies and governments agreed to allow some telecoms services on alternative networks. Failure to carry this out could lead to a fierce response from Competition Commissioner Karel Van Miert.

“State-owned companies are going to control the local bottleneck for some time,” says a Commission official. “We must be extremely careful not to allow them to use that control to establish a dominant position during the transition stage.”

The prospect of having an alternative provision of services on a different network has had the effect of driving down the cost of leasing lines by operators.

“National operators had pushed them way above costs to force as many as possible to use their own public network rather than the alternative,” says a Commission official. “They only want the very intensive traffic users such as banks to have leased lines and pay for the privilege. It has been a major trigger for bringing down leased line costs.”

Van Miert has also threatened to use his merger-vetting powers to prise open the market in Spain.

Telefonica de España only delivered a line to private reseller Esprit Telecom after being brought before a Commission arbitration panel in 1993.

Now Telefonica is seeking the approval of the Commission for its full membership of the 'Unisource' alliance - which groups together the Swiss, Swedish, Dutch and Spanish operators with US carrier AT&T.

But Van Miert will continue to block the approval until Spain opens up to alternative operators - a prospect that has so far been greeted with hostility by Madrid.

“The further south you go, the more determined the governments are by hook or by crook to keep the national mono-poly,” says Clarke.

What may worry the Commission is the speed of the creation of the new market and what this could hold for 1998, when full liberalisation of the market for voice telephony is supposed to kick in.