Telecoms giants face two-pronged attack on over-charging

Date: 23/09/1999

By Peter Chapman

EUROPEAN Commission regulators are preparing to launch a two-pronged attack on telecoms operators who charge rivals and big businesses hugely inflated prices for leasing space on their networks.

Enterprise Commissioner Erkki Liikanen is planning to set strict new limits on how much former monopoly operators can charge for lines direct to homes and businesses, and his competition counterpart Mario Monti is launching an investigation into pricing policies in the sector.

The move follows surveys suggesting that companies are being massively overcharged by some long-established operators for leasing lines.

Monti's officials said this week that they planned to quiz operators on their pricing policies early next month, and set a two-month deadline for replies. They will also ask customers if they think they are getting a fair deal.

"We are still in the process of writing the questionnaires which will be sent to the incumbents, new entrants, large users and regulators regarding tariffs and discounts applied," said one, who added that the Commission's investigation would focus on a number of "representative" routes - with and without competition."

New entrants into the telecoms market often lease lines from old monopolies rather than build their own to cut costs. Large firms also use leased lines as a cheaper and more efficient way of handling large volumes of telephone calls.

Telecoms users predict that the Commission investigation will find that the charges levied by operators for cross-border lines cause the most problems.

However, Liikanen's telecoms officials are already drawing up recommendations for tough new ceilings on the prices which former monopoly operators can charge for leasing local lines in built-up areas, to be enforced by national regulators across the EU.

Both initiatives come in the wake of research showing that operators are failing to relate the prices they charge for access to their networks to the actual cost - "in clear contradiction" of Union legislation on leased lines.

In a report drawn up as part of the Commission's ongoing review of telecoms legislation, officials warn that this is "detrimental to the competitiveness of European industry and services" and that, without further action, it "will hold back the growth of electronic commerce".

The expansion of the Internet, they add, means that the problem is reaching "critical proportions" because many Internet service providers rely on leased lines.

Liikanen's planned price ceilings will focus on the short-distance lines which run from local telephone exchanges direct to offices and homes. While long-distance lines are relatively cheap to build, these local networks cost so much that many new entrants to the telecoms market and corporate clients rely on renting lines from the former monopolies.

Commission officials say lowering the cost of leasing these lines would be the best way to ensure competitors could offer 'door-to-door' alternatives to the services provided by the old monopolies at reasonable prices. "This will increase competitive pressures and is, in the long term, the most effective way of achieving reductions in leased line prices," states their report.

Allan Fischer-Madsen, chairman of the International Telecom Users' Group (INTUG), welcomed the Commission's decision to get tough on overpricing. "We applaud this action and hope that it will quickly take effect so that prices can come down," he said.

European Commission regulators are preparing to launch a two-pronged attack on telecoms operators who charge rivals and big businesses hugely inflated prices for leasing space on their networks.