European telecomms deregulation - once touted as the bringer of low tariffs, improved and modernised services, and more choice - has ended up as a battleground of bitter resentment, frustration and delaying tactics.
Every member state in the European Union is supposed to be open for free and easy competition on the stroke of midnight New Year?s Eve 1997. In reality, only a handful can claim to be truly ready, and the EC is threatening legal action against eight countries lagging behind (see Newswire 6 November 1997). Meanwhile, markets in Greece, Ireland, Luxembourg and Portugal will not be fully open until next century.
An EC spokesperson claimed that ?most countries are advancing well into liberalisation?. What he means is that most countries and their national operators are ready to ?welcome? competition from the rest of Europe and beyond, but this does not mean it is particularly easy for outsiders to establish a presence there.
For example, new entrants need to apply for licences to operate - but some countries have too many on offer and these come with ambiguous terms, causing confusion and frustration for those applying.
Among the issues that still need to be ironed out before competitors can truly operate are the setting up of independent regulatory authorities, and agreement on interconnection rates and licensing. The latter is the requirement of telcos, especially incumbents, to ensure basic telecomms services are available to most of the population, even if they can barely afford it.
Interconnection rates cover the fee a competitor pays to connect to the incumbent?s network. These charges constitute the biggest cost item faced by new entrants, and could amount to 40 per cent of their operating costs.
The EC has allowed interconnection agreements to be negotiated between the parties involved within the benchmarks it has provided. These benchmarks are based on the lowest prices suggested by some member states, which are up to three times lower than those originally proposed by some operators. Unsurprisingly, this has led to squabbling between incumbents and new entrants, which is delaying further full liberalisation.
The only interconnection related regulatory requirements are that national regulators must resolve disputes within six months, and that incumbents have to publish reference interconnection offers by 1 July 1997. Luxembourg, Germany and Finland failed to meet the deadline while rates for Italy, Belgium and Austria have yet to be approved by the national regulators. In cases where rates have been published, some countries will charge different prices depending on the buyer?s infrastucture.
New entrants complain this lack of clear and consistent pricing policy makes it incredibly difficult for them to build business plans and to help improve the targeted country?s infrastructure. Said Bert de Ruiter, a vice president at European telco alliance, Unisource: ?This lack of clarity is most inconvenient, to put it mildly. As long as the conditions are unclear the risks carried when making decisions regarding infrastructure improvements can be enormous.?
On the issue of licences, some countries are further delaying deregulation by failing to publish licensing regulations. And even if they do, they can be complex and frustrating for new incumbents to apply.
Said Ruiter: ?Different member states attach different rights and obligations to their licences. Sometimes it is not clear who to address to start the procedure. Sometimes the national regulatory authority can also easily cause mistakes in the procedure that in their turn lead to time loss and frustration.?
It could be easy to blame EU officials for the delay in liberalisation but, considering that it involves different countries with diverse cultures and bureacracies, it is not surprising that the deadline of 1 January has become a false one. An EC spokesperson said the member states have only themselves to blame: they were the ones that identified and agreed the date in the first place.
The road to liberalisation began when the threat of competition from US telcos became real when AT&T was broken up and new operators were established. Although competition from US and Canadian telcos became large clouds hanging over European countries, many local governments and their utilities have been slow to grab at the opportunities of deregulation.
?Some countries have taken an ostrich approach - sticking their heads in the sand and hoping that the problem will go away. But at the end of the day they are only hurting their own interests. Their infrustructure will suffer [because there will be no new money investing in it] and the biggest loser will be the national PTT and the customer,? warned David Neil, telecomms analyst at market researchers Gartner Group.
Three of the biggest European monoliths to go through the change are Deutsche Telekom which operates in Germany, Europe?s largest telecomms market; France Telecom and BT.
Every operator worth its salt will be targeting the German market, which is forecast to be worth DM100 billion by the turn of the century. The German government has said it would like to sell all or some of its 74 per cent stake in Deutsche Telekom, which has so far spent DM120 billion digitising its network.
However, entering the market is no easy task. Deutsche Telekom is contesting what it considers to be low interconnect rates in Germany, so prices may increase.
Disputes will be resolved by the independent watchdog, which will be officially launched on 1 January. The regulatory authority?s independence will be closely monitored by the new entrants: Klaus-Dieter Scheurle, the regulator's, most recent role was a senior executive at Deutsche Telekom?s mobile subsidiary.
France is another hot European telecomms market. The dominant player, France Telecom, is allied with Deutsche Telekom and together they control 40 per cent of the total EU market. The country is meeting its obligations for liberalisation but there are still some aspects of its 1990 Law on Telecommunications Regulation which according to BT, make it difficult for new players to compete.
One example is is the leasing of components by competitors from France Telecom. BT says the components? high prices make it hard to compete with the incumbent?s retail tariffs. Also, France Telecom is not subject to cost transparency and that new players will have to pay high charges to contribute to both access deficit and universal service, the obligation of national telcos to offer telecomms services for all. On ownership, there is still a big question mark over whether the country?s new socialist government will privatise France Telecom.
Despite this, France does have an independent regulator in place called ART and it has concentrated on resolving interconnection rates.
The Gartner Group?s Neil believes regulators in countries where the government intends to retain significant shares in the national telcos should prove they are independent. ?The regulatory body should be at an arm?s length away from the government. You don?t want a watchdog to set up a 10-year roadmap and then have to change tack when there is a new government,? he said.
There is also a danger that incumbent telcos that still have close relationships with their governments could lobby them if they don?t agree with dictates from the regulator.
One country that has been through most of the initial heartache is the UK, which began deregulating in 1984. Although the UK should not be held as a role model, because its methods may not be suitable for all countries, other nations could learn by the failure of the duopoly of BT and Mercury. Mercury failed to penetrate the market in a significant way but it was not for lack of trying: BT was so dominant and Mercury found that most of its revenues were channelled back to BT in fees for using its network. Mercury managed to win less than 10 per cent of the market.
Said Neil: ?With a dominant player and a smaller second carrier there is not reason for either to get serious about the market. The incumbent is happy to give up five per cent market share and the second carrier has no impetus [to fight for more]. Everything was against Mercury. In a more open environment there is more impetus to make things happen.?
Gartner Group believes the market will go through three phases after deregulation. Initially there will be an explosion of new vendors: some that will last the term, and some that will fall by the way side. Soon after that there would be a shake-up which will result in around 10 telcos, four of which would operate nationally. Then follows a restructuring phase when telcos will start re-investing in the infrastructure.
Although the road to deregulation may be one big minefield initially, incumbents that willingly go through this will emerge fitter and leaner, while competitors will win custom from enlightened customers. But nations that are taking their first steps towards liberalisation they must be careful not to alienate the most important element of all: the customer.
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