Watchdogs tackle final frontier

Date: 26/09/1996

By Chris Johnstone

EUROPE'S competition watchdogs are looking to space as the final frontier in their bid to complete the liberalisation of the telecommunications sector.

With most of the rules for opening up land-based and mobile links already decided upon, satellite links and the Internet are now moving to the centre of the Commission's tripartite telecoms programme.

Satellite data and phone links using low orbit satellites are likely to be the next phone fashion, following GSM and mobile, with millions of users expected within the next five years and revenues estimated at between 10 to 20 billion ecu by the year 2006.

The use of satellites offers global coverage of places which current systems cannot hope to reach.

Big consortiums with major players, such as the US' Motorola and Loral, are already lining up to carve out their place in the sky.

The European Commission is also gingerly positioning itself to make sure this new market is not cornered and shut down by a few giants, in spite of national attempts to curb its powers.

EU telecoms ministers are expected to brush off Commission attempts to have the main say in vetting and licensing these new companies' European operations at a meeting in Brussels tomorrow (27 September).

Most member states believe the Commission should be kept in the background unless the European Conference for Postal and Telecommunications Administrations (CEPT) fails as the first choice for the licensing task. They argue that this pan-European specialist body has the technical know-how which the Commission lacks in this field.

However, competition rules are offering the Commission an easy way back into a debate in which it is anxious not to be sidelined.

Although the satellite systems will offer global coverage and, in theory, widen choice, the Commission wants to ensure competition in downstream markets such as equipment supply and local services is not smothered.

The transformation of several international bodies - Intelsat, Inmarsat and Eutelsat - is being closely tracked by Commission competition officials.

These organisations, in which national phone companies are often the most active members, already have satellites in the sky to provide existing services.

Hitherto, Inmarsat's main mission has been to provide telecommunications links to the world's shipping industry. Now it and the others are trying to position themselves as commercial phone companies before private consortia enter the market.

Inmarsat has already gone down this path by setting up a commercial subsidiary, Inmarsat P, with new satellites. This has been cleared by the Commission.

Intelsat appears to be taking a more problematic route, however, by attempting to combine its new and future operations. This has given rise to fears that the new unit could be given preferential treatment or that other newcomers could be discriminated against on such issues as tariffs and access. Commission insiders say developments are now reaching a critical stage.

Eutelsat, which is mainly involved in television satellite broadcasts, has yet to take the commercial step, but is rumoured to be preparing to take the plunge soon.

Private consortia will also be investigated. Iridium - a joint venture in which Motorola has the biggest 20.1&percent; stake, with 16 other investors taking part including Germany's Vebacom and Italy's Stet - has been told by the Commission that it intends to take a favourable decision on clearance. A formal announcement is expected soon.

Globalstar, in which US defence and electronics company Loral is the main promoter, has still to be notified. The consortium also involves France's Alcatel, Aerospatiale, and France Télécom. Italy's Alenia, and Germany's Deutsche Aerospace are the main partners and subcontractors.

Teledesic, the brainchild of Bill Gates (founder of software giant Microsoft) has also yet to be put before the Commission. But the Directorate-General for competition (DGIV) is adamant it will be involved, although most of the deals have a heavy US flavour.

Nearer the ground, the Commission is pushing at a door which is already ajar in the run-up to the January 1998 deadline for full competition on Europe's public phone networks.

Governments must apply to the Commission by the end of this year for clearance of the licensing and regulatory frameworks they intend to apply to new entrants.

The Commission has already given way on the question of policing access to, and

the licensing of, new entrants on public telephone networks, by agreeing that national regulators will have the main role.

DGIV is, however, still insisting that it has a wider role and will emphasise this in an October notice on the application of EU rules on interconnection in telecoms and related fields, such as the multimedia.

The notice is also aimed at giving some assurance and certainty to market newcomers that they will not face new and unwelcome markets alone.

“In this way, and with a few precedent-setting decisions, we hope to discourage anti-competitive practices from the outset,” said Herbert Ungerer, head of DGIV's telecoms division, at a recent conference.

Further down the line, competition officials are trying to work out how soon dominant phone companies will be able to enter the market to provide cable television services.

While big phone companies have been barred from the market, the EU's cable directive (which is due to come into force on 1 October) will give cable companies the right to offer phone services from January 1998 - a right which already exists in the UK.

DGIV is also considering what rules should be laid down on the regulatory treatment of the Internet. The introduction of direct telephony on the Internet, with some service providers offering international links, throws up sensitive questions about how it is treated by regulators and what prices are imposed by local phone companies.

In the US, local phone lines have become congested because of cheap flat-rate tariffs for Internet use. On the other hand, higher prices could strangle the service.

Commission officials expect the Internet to focus its attention on tariffs and whether telephone operators can use prices to discriminate for and against different services, and anticipate complaints about alleged unfair competition soon.

The Commission has so far only touched on such issues with one ruling: that Deutsche Telecom was wrong to try to cut tariffs to large business customers in an attempt to corner an important market and prevent full competition from new entrants.

Telephone numbers are also set to surface as a Europe-wide issue this autumn, with the Commission due to publish a Green Paper on whether telephone users can hang on to their existing phone numbers if they switch companies and, if so, how so-called number 'portability' can be ensured.

Number portability is often described as a prerequisite for competition, since customers will be reluctant to switch firms if they cannot take their number with them and are thus more likely to stay with their existing operator.

British Telecom demonstrated the importance of the numbers game this year when it fought - and lost - a battle with the UK regulator to block portability and safeguard its number one position.