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Identifying how National Authorities and The European Union will Regulate Liberalised Telecom
Address by Dr Herbert UNGERER


The European telecommunications market is being shaped by three main features :

QThe date of 1st January 1998 set by the EU Telecommunications Ministers Decision for the full liberalisation of both the remaining voice telephony monopolies, as well as network infrastructure. For the first time a regulatory schedule for the liberalisation of the core areas of telecommunications has been set for the whole of the European Union.

QThe rapid progress of competitive provision of digital mobile - and now also personal - communications across the Union. At the same time, Europe is preparing its regulatory framework for the multi-media and information highway age.

and, of course, the very topic of this conference :

QA wave of privatisation across Europe which will reach a climax in 1996 with the placement of the first tranche of the German DBP TELEKOM on the market. These privatisations will fundamentally change the supply structure of telecommunications networks and services in Europe.

Underpinning these major trends, as Europe moves away from monopolistic and sector oriented telecommunications policy towards an open market environment, competition policy is becoming a central instrument of regulation.

The current privatisations should be seen as a gigantic re-allocation of capital resources in Europe towards the new growth sectors of the information society. Optimal allocation of resources is at the very heart of any market economy and the benefit which it may bring : innovation, growth, and, ultimately, new jobs and more well-being for the citizen.

In June a group of leading European industrialists presented the so-called Bangemann report to the European Heads of State confirming the Commission's regulatory agenda for such reform. This report might also be seen as the European response to the NII initiative in the United States which has now evolved into a world-wide debate on global information highways.

On 19th July the Commission adopted a comprehensive plan for moving towards a multi-media and information highway environment, entitled "Europe's way to the information society, an action plan". In the action plan, first priority is given to fully implementing the principle of competition in the telecommunications sector and the drawing up of a timetable for full facilities based competition.

The plan also sets the agenda for moving towards a multi-media environment, addressing issues such as protection of intellectual property rights, privacy, encryption and security of information, and competition issues concerned with media concentration, and cross-media ownership. These relate to the need, more generally, to distinguish and coordinate concerns relevant to carriage of services and those relevant to content.

The action plan also proposes a number of application projects in fields such as : teleworking ; distance learning ; university networks ; enterprise telematic services ; road traffic management ; air traffic control ; healthcare networks ; electronic tendering access ; public administration networks ; and city information highways.


The current EU liberalisation programme in the telecommunications sector sets the framework for the liberalisation in Member States. It is now based on the EU Council of Ministers Resolution of July 1993 setting 1st January 1998 as date for the completion of the liberalisation of the telecommunications services market, i.e. the abolition of the remaining voice monopolies. This on-going programme has been substantially accelerated during 1994 through the political support given by the Bangemann Report and the subsequent EU-Action Plan for the information society :

Q In April 1994 the Green Paper on mobile communications was published. Mobile communications is seen in this Green Paper in the framework of the evolution towards personal communications. The future regulation of both fixed networks and mobile networks converges into a common framework. Mobile communications are essentially seen as the wireless component of the future global infrastructure for mobile communications. Accordingly, one of the main positions in the mobile Green Paper is the requirement to allow unrestricted combined service offerings via both fixed and mobile networks.

In Autumn, the broad public hearings were concluded. In its final report on the consultations of 23rd November, the Commission fixes 1st January 1996 as the definite date for full Europe-wide liberalisation of mobile communications.

Q On 13th October 1994 the Commission adopted, after consultation with the Council of Ministers and the European Parliament , within the framework of EU competition law (Art. 90 of EU-Treaty), the Liberalisation Directive for Satellite Communications. The Directive requires notification and issuing of implementation provisions in all EU Member States before August 1995.

Q On 21st December, the Commission adopted a draft Art. 90 Directive for consultation concerning the liberalisation of telecommunications use of cable-TV networks. The Directive aims at the liberalisation of such use of cable-TV networks across the European Union from 1st January 1996 onwards.

I will come back to this.

Q Finally, the overall future liberalisation schedule was set forth in detail with the issuing of the Green Paper on the liberalisation of telecommunications infrastructure and cable-TV networks (Part I) in October, fixing the date of 1st January 1998 as the date for liberalisation of network infrastructure as confirmed by Council Resolution of 17th November. The European Council of Essen confirmed in December the general orientations for the Community progressing towards the information society.


On 25th October 1994, the first part of the Green Paper on infrastructure liberalisation was submitted. This first part aimed at the basic decision for infrastructure network liberalisation and the establishment of a firm time schedule for such liberalisation.

The Green Paper proposed a two-phased approach :

Phase I :

Immediate liberalisation, within the framework of EU competition law, of all existing or licensed networks - cable-TV, utility networks, railways - for carriage of already liberalised services, also for third parties. This includes all telecoms services except public voice. In particular, it includes so-called corporate networks, closed user groups, mobile communications and all data services.

Phase II :

Full infrastructure competition, i.e. general liberalisation of network infrastructure, in line with the liberalisation of public voice telephony by 1st January 1998.

On the basis of the Green Paper, the EU Council of Ministers adopted, at its meeting of 17th November 1994, a Resolution which establishes 1st January 1998 (date for the lifting of the public voice monopoly) also as the date for the abolition of all public network monopolies, with additional transition periods for Spain, Portugal, Greece, and Ireland. Spain and Ireland have already announced that they are unlikely to use these additional transitional periods.

At the same time, the United Kingdom and the Netherlands were joined by France and Germany, as the well as the new EU members as Sweden and Finland, in urging the Commission, by way of a clear declaration, to undertake earlier additional steps for a rapid implementation of phase I.

The Cable-TV Directive is the first major step in answering this call.


Future telecom services will be provided via a web of wired and wireless networks. This is why our short term actions focus on the main movers of these developments : mobile communications which we see as the opening towards personal communications ; satellite communications which are essential for regional and global systems ; and cable-TV networks which we see as entry into the multi-media world.

Mobile communications

As mentioned, in April of last year, our vision of the sector was published and distributed in the form of the Green Paper on Mobile and Personal Communications. It should be understood as constituting a major element in transforming the EC regulatory framework in preparation for a liberalised environment. It proposes market structures which should transform the role of wireless-based services by the end of the decade from today's premium services to mass market deployment alongside the fixed network.

This project and the proposals contained have built on advances in digital mobile technologies, represented by the world-wide deployment of GSM : the launch of DCS 1800 services in the UK and Germany, and soon in France (and, we hope, in the United States); the arrival of new digital systems such as DECT, the future digital cordless telephone, and TFTS, the digital flight telephone system.

A central issue is removal of restrictions on facilities for mobile networks. This implies, of course, allowing facilities-based competition ; allowing direct interconnection between mobile networks ; and promoting PCS provision via mobile and - from 1998 onwards - via fixed networks.

We are also guiding and monitoring the current licence award procedures for the competitive GSM licences to be granted throughout the European Union this year : We have already seen the allocation of a second Italian GSM licence, the allocation of the French DCS1800 licence last year, and recently the choice of the second Spanish operator. Competitive licensing is under way or in preparation in Belgium, the Netherlands, and Ireland. With the granting of these licences, there will be true competition in the (mobile) telecommunications market throughout the EU. For the first time, nearly every EU Member State will experience the challenge of real competition in a telecommunications mass market.

The opening of the mobile sector in Europe marks the massive entry of competition into the European telecommunications sector before 1998 and also pre-shapes, and, to a certain extent pre-empts, the new European regulatory environment for fixed networks. The convergence and hybridisation of mobile and fixed networks and the ultimate development of full scale PCS via wireless and wired means will be without doubt the most important transformation of the European telecommunications scene up to 1998 - and, of course, we are observing carefully the PCS developments in the United States.

Satellite communications

With the emergence of satellite based personal communications and Low Earth Orbit satellite systems, these developments are taking on a new global dimension.

For the European Union, the most immediate issue is the full implementation of the Satellite Liberalisation Directive, adopted under competition rules by the Commission on 13th October of last year. The Directive gives Member States up to August to announce licensing systems for satellite services and networks. This will create for the first time a true Europe-wide satellite communications market.

More generally, we will proceed according to a global approach, mainly along three lines : full effective liberalisation of satellite systems both fixed and mobile ; direct access to space segment ; and, reform of the International Satellite Organisations. European competition law will be one of the main instruments to achieve these goals.

Cable-TV networks

The Cable Directive, as adopted by the Commission on 21st December in draft form, is now available for public consultation. This can be seen as the first major step of the liberalisation package in the context of the current infrastructure debate. The objective is to implement, by full use of EU competition rules, the liberalisation of the use, for telecommunications purposes, of already existing or licensed Cable-TV networks across the European Union.

The Cable Liberalisation Directive has been drafted as an amendment to the existing EU Services Directive. This is the central EU Directive in the telecommunications area which has, inter alia, also led to the liberalisation of corporate networks.

The Cable Directive thus requires :

Q unlimited use of all network licences for cable-TV for all liberalised telecommunications services from 1st January 1996 onwards.

This also implies transmission of public voice telephony via those networks at the latest by 1st January 1998 onwards (the liberalisation date of public voice telephony) across the whole Union - establishing a situation across Europe similar to that already enjoyed in the United Kingdom.

The liberalisation of such use is expected to lead, on the one hand, to rapid upgrading and development of existing Cable-TV networks, in order to make the transmission of voice service technically possible in time for 1998. As is well known, such use is currently still largely limited to this country.

At the same time, this liberalisation required by the Directive will allow beginnings of true multi-media use of Cable-TV networks ;

Q ensuring the interconnection of Cable-TV networks with the public fixed telecommunications networks, in particular with leased lines, in order to allow the building up of fully operational alternative network infrastructures. The Directive also requires that the direct interconnection of Cable-TV should be permitted ;

Q the Cable-TV Directive proposes clear accounting separation of telecommunications and cable-TV networks where the same operator offers both networks.

In any case, the market impact of such cross ownership will be examined, according to the Directive, at the latest by 1st January 1998. This is of particular importance in some EU-Member States, where the public telecommunications operators are the major owners of cable-TV networks, such as in the Federal Republic of Germany.

The current Directive does not directly address the issue of licensing of new cable-TV networks but leaves this under the authority of the national regulator - in so far as as EU competition rules are not concerned or complaints in this context have not been submitted. Licensing of networks will be discussed in the framework of the current discussion on the Infrastructure Green Paper / Part II.


Let me now turn to a topic which tends to fascinate both current operators and investors : global alliances.

Clearly the European Commission's efforts to liberalize the telecommunications sector would serve no purpose if cartels were allowed to develop eliminating competition on liberalized markets or if Telecommunication Organisations were left free to engage in abusive behaviour aimed at preserving their positions which for the foreseeable future will continue to be dominant.

As we all know, strategic alliances are the "flavour of the year". There are several factors which explain and to a certain extent justify why operators in this area are grouping together. We might bracket these into two categories: globalisation and convergence

Globalisation may be seen as a reaction to, amongst other things, the rapid development of new, highly-advanced technologies and the pressure on telecom operators from powerful buyers to provide advanced, reliable and world-wide services. Indeed, the alliances between telecom operators can be seen to be a defensive positioning aimed at ensuring a place in the global market which has become so important for them, now that the traditional monopolies at home are being broken down.

From the point of view of EU competition policy, it would be impossibly simplistic to say, a priori, whether such alliances are good or bad. Naturally they must pass the test of scrutiny under our competition laws, in particular concerning restrictive agreements between market participants and abusive behaviour on the part of dominant players. However, the important advantages which they may bring to consumers must also be taken into account.

EC competition rules in principle prohibit restrictive agreements between actual or potential competitors. Given their strong position in the market, albeit the domestic one, and their technical skills, the incumbent Telecommunications Organisations of the EU can generally speaking be considered to be at least potential competitors, if not actual competitors. In general then, these alliances will therefore be caught by EU competition rules. However, our analysis will also test the objective economic and technical benefits which may justify the alliance when weighed against the impact on existing or future competition. This balance allows us to consider if the green light can be given.

There has been a clear evolution in the case work relating to joint ventures and alliances in the telecommunications area, which has also had repercussions for our analysis. In the past, joint ventures between Telecom Operators or between Telecom Operators and other, usually strong, companies, involved very specific and limited activities, such as paging or data transmission; the clients targeted for these services were not necessarily large multinationals, and the geographic coverage thus normally not world-wide, but limited to one country or region.

From our point of view, the more recent phenomenon of strategic, global alliances has a number of characteristics which distinguish them from their predecessors: the services involved are often not clearly delineated, but can expand from cooperation regarding relatively few services to an unlimited package, also depending on technological developments. The geographic coverage may likewise expand from an initially limited area to the genuine world-wide coverage which appears to be so essential to the operators and their targeted customers, the Fortune 500 companies.

Both product -wise and from the point of view of geographic markets, we are thus often dealing with a moving target, whereby any approvals given by the relevant competition authorities must necessarily be limited to the state of play at the moment the approval is given. Thus the European Commission is very aware of the need to ensure that periodic re-assessments or reviews are part and parcel of any decisions we take.

To illustrate these general principles I would like to say a few words about the first of such strategic alliances which the European Commission has dealt with, namely the BT-MCI alliance.

I think one can genuinely characterize this alliance as being "strategic": BT, being quite legitimately interested in being a strong global player, felt that an association with one of the largest U.S. telecom operators was indispensable: 40% of the multinationals who are so vigorously pursued, as potential customers, by all the alliances, are actually located in the United States. MCI on the other hand, benefits from BT's sizable contribution to its capital which will enable it to strengthen its position on the U.S. market; at the same time, the joint venture with BT will allow it to add a global dimension to its offerings without having to establish companies outside its home territory by itself.

Taking into account the evolving nature of the market and of the alliance itself, the exemption granted under EU competition rules last July must be understood as specifically limited to the activities actually notified. The exemption is of a relatively short duration, in order to enable a reassessment in the medium term. Important elements in our positive attitude to this alliance were the genuinely global nature of the services concerned and - of particular importance - the fact that the markets of both parent companies are already open to competition.

As I mentioned before, each alliance will be judged on its own merits, but the position taken in the BT-MCI case gives a certain amount of guidance. To the extent that future alliances offer domestic as well as international services, the risk of, non-existence of, or elimination of, competition at the national level will be significant in any analysis.

The second type of alliance is concerned with market "convergence". It includes partnerships and joint ventures between traditionally separate market sectors such as broadcasting, electronics, software and, of course, telecommunications

The issue I want to focus on here is our perception of the need to keep two considerations in mind from a competition policy point of view: that is, the promotion of such mergers and alliances in the interest of the information superhighway and coordinated offerings on the one hand, and the caution, which ensuring a competitive environment here makes necessary. It is clearly not a simple task to keep these two in balance, especially when it includes making predictions about future impacts and future market and regulatory environments. What is clear, of course, is that our responses, from the competition policy point of view, must be flexible and dynamic enough to keep up with the rapid change and development which characterises this area

Competition rules must, in any case, represent a safeguard which guarantees the sound development of multimedia - as the European Commission has shown in the recent handling of cases in this area.

Clearly, the growing multi-media sector will emphasise the role of competition policy since no sector specific regulation is capable of fully considering the impact of alliances implying sector convergence. Just so, international alliances will emphasise the role of transnational, or multilateral cooperation vis a vis competition rules, since insulated country specific consideration of markets and market players cannot address adequately the impact of global partnerships and services.

Let me lastly turn to another important aspect in this context : cross ownership of equity.

Where these cases do not fall under the EU Merger Regulation, as a general rule Art . 85 of Community competition rules, in principle, is not applicable to the sale and purchase of shares as such. However, in relevant Court cases, the European Court of Justice confirmed that "although the acquisition by one company of an interest in a competitor does not itself constitute restricting competition, such an acquisition may nevertheless serve as an instrument for influencing the commercial conduct of the companies in question so as to restrict or distort competition on the market on which they carry on business".

I believe it is best to refer here again to the BT/MCI case as a reference.

As published in the Official Journal of the Community, in this case, two distinct transactions were involved, namely the creation of a joint venture company for the provision of enhanced global telecommunications services and the acquisition by BT of 20% stake in the MCI cooperation.

With respect to BT's investment in MCI, the Commission reiterated the position taken in previous cases, namely that while Art. 85(1) does not apply to agreements for the sale or purchase of shares as such, it may be applicable if, in the light of the specific contractual provisions and the market conditions of a given case, the competitive behaviour of the parties will be coordinated or influenced.

In this context, the Commission took into account a number of elements in determining whether such coordination or influence would result from BT's minority investment in MCI. It concluded that the investment agreement had been drafted in such a way that BT would not have the possibility to seek to control or influence MCI. The agreement set down, inter alia, obligations on BT not to increase its shareholding for ten years and not to seek to control or influence the company. The Commission also considered that under U.S. corporation and antitrust laws, BT would be impeded from misusing or even having access to confidential information pertaining to MCI.

Under these circumstances, the Commission concluded that the investment by BT in MCI did not fall within the scope of Article 85(1).


At least eight major privatisations are now under way, or under discussion, in the European Union. Denmark and the Netherlands have completed successfully the current privatisation exercise. In Belgium, Italy, Portugal, and Greece plans are far advanced. Spain's Telefonica International holding is strengthening its base on the capital market. Finally, as mentioned, the current opening of the European telecommunications sector to the capital market will climax with the placement of the first tranche of DBP TELEKOM on the German, US, and the international capital markets, with the international consortium for the placement now chosen.

Taken together, these developments will mean that by 1996 fully or partially privatised companies will be the dominant feature of the European telecommunications market. This will fundamentally change the telecommunications environment in Europe and the evolving regulatory framework which is required. There will be major new opportunities for international telecommunications investors in Europe, with Europe fully opening to the global restructuring of telecommunications.

The agreement in Europe on full voice and facilities competition by 1st January 1998 has opened the way to the formulation of future policies in the European Union to deal effectively with the major challenges which its telecommunications sector will be facing during this decade.

These challenges are :

Q renovation of the sector with the tools of competition and private investment, i.e. under the scrutiny of public authorities and the capital markets ;

Q enabling operators to acquire a strong position as players "out there", in the new global market ;

Q marking the break-through in personal communications ; and

Q securing an entry into the multi-media field - building the global information highway.

As I have stressed, no sector's specific, or geographically myopic regulation is capable of considering the full impact of alliances implying sector globalisation and convergence. We believe that insisting on the full application of the EU competition rules is the best way to support current privatisation exercises in Europe in a future proof manner.

Our immediate efforts will focus on shaping the new regulatory framework at EU level during this year in preparation for 1998. At the same time we will seek short term impact and the size of liberalisation steps during this year in mobile, satellite, and cable.

Investors will face a competitive market in Europe. They should not look for short lived security of returns by seeking to prolong monopoly conditions, but they should base the investment on the growth expectations which only a competitive market can promise. It is this promise which is offered by the European liberalised telecommunications market of 1998 - a market of 380 million people in the European Union alone, with substantial additional potential in Central and Eastern Europe.

We hope that the forthcoming G7 Ministerial Conference on the global information highway for which the European Commission has invited the G7 countries to Brussels at the end of this week, will give the opportunity for a further exchange of experience of the sector.

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