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Competition

Full Competition - The Role of Services on Demand & Cable

Dr Herbert UNGERER
CommEd Conference, Services on Demand
London
30-31/3/1995

INTRODUCTION

The G7 ministerial meeting in Brussels end of February has set forth basic global principles for moving towards the global information highway and the future multi-media age :

It said that

"G7 partners are resolved to collaborate on the basis of the following eight

core principles in order to realise their common vision of the Global Information Society :

  • promoting dynamic competition
  • encouraging private investment
  • defining an adaptable regulatory framework
  • providing open access to networks
  • while
  • ensuring universal provision of and access to services
  • promoting equality of opportunity to the citizen
  • promoting diversity of content, including cultural and linguistic diversity
  • recognizing the necessity of worldwide cooperation with particular attention to less developed countries.

    These principles will apply to the Global Information Infrastructure by means of :

    # promotion of interconnectivity and interoperability ;

    # developing global markets for networks, services and applications ;

    # ensuring privacy and data security ;

    # protecting intellectual property rights ;

    # cooperating in R&D and in the development of new applications ;

    # monitoring of the social and societal implications of the Information Society."

    For Europe, the G7 principles represent the pinnacle of its own policy preparation for the Information Society age. Europe, together with the United States and Japan, has made a major contribution towards developing these principles.

    MOVING TOWARDS THE INFORMATION HIGHWAY

    In June of last year, 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 was the European response to the National Information Infrastructure (NII) initiative in the United States which has now led to the world-wide debate on global information highways.

    On 19th July of last year the European 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 infrastructure and services 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 LIBERALISATION SCHEDULE AT EU LEVEL

    The current EU liberalisation programme in the telecommunications sector sets the framework for the liberalisation in Member States. It is 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 :

    # 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.

    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.

    # 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.

    # 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.

    # 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.

    THE GREEN PAPER ON TELECOMMUNICATIONS INFRASTRUCTURE AND CABLE-TV NETWORKS

    As mentioned, on 25th October 1994, the first part of the Green Paper on infrastructure liberalisation was submitted. This aimed at achieving the basic agreement for infrastructure network liberalisation and for 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 countries with less developed networks, i.e. 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 new EU members Sweden and Finland, in urging the Commission, by way of a clear declaration, to undertake earlier and additional steps for a rapid implementation of phase I.

    The main regulatory positions of the Green Paper are set out in annex. The European Union will conclude on the future regulatory framework as set forth with these positions, once the comments received have been evaluated. The period for public comment ended on 15th March.

    MAJOR COMPONENTS OF THE MULTI-MEDIA AGE : MOBILE / SATELLITE / CABLE-TV

    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.

    The opening of the mobile sector in Europe marks the massive entry of competition into the European telecommunications sector before 1998. It also pre-shapes, and, to a certain extent pre-empts, the new European regulatory environment for fixed networks. We believe that the future multi-media age will have an important mobile component. The convergence and hybridisation of mobile and fixed (including cable) networks and the ultimate development of full scale PCS via wireless and wired means will be without doubt one of the most important transformations 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 and the evolution towards multi-media, 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 this year 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 an overall 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. A major 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 and to open them, in an early phase, for multi-media applications.

    The Cable 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 :

    # 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 from 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 the beginnings of true multi-media use of Cable-TV networks ;

    # 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 direct interconnection between Cable-TV networks should be permitted ;

    # 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 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.

    The draft Directive is currently being presented to the European Parliament and to the Council of Ministers and is being published in the Official Journal of the European Union for a two month period of public comments.

    We expect that it will be finally adopted by mid-Summer of this year.

    Application of competition rules to the new 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 and mergers 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.

    EC competition rules in principle prohibit restrictive agreements between actual or potential 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 fact, both product -wise and from the point of view of geographic markets, we are 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 a strategic alliance in the telecommunications sector as such which the European Commission has recently 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.

    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 - and therefore is characteristic of the future multi-media market.

    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.

    CONCLUSIONS

    The G7 consensus and the agreement in Europe on full voice and infrastructure liberalisation 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 and multi-media sectors will be facing during this decade.

    These challenges are :

    # renovation of the sector with the tools of competition ;

    # securing an entry into the multi-media field - building the global information highway ;

    # marking the break-through into full mobility - the future communications environment will be dominated by multi-media and mobility.

    With the G7 agreements, the global dynamics are in place. The G7 meeting has decided to set a number of pilot projects in motion, among them many projects which concern directly multi-media and related experiments, such as the creation of an electronically accessible multi-media inventory of information regarding major national and international projects, and projects concerning global interoperability for broadband networks.

    On a number of issues, the European Union is still defining its position, such as on video-on-demand and its relation to general broadcasting. However, we believe, the essential framework is now being put into place. Europe thus can move

    forward into the multi-media age.


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