Comments on "The Coherence of EU
Policies on Trade, Competition and Industry Case Study : High
by David DEACON (1) on the paper
by Dominique FORAY, Pauline RUTSAERT and Luc SOETE
- The authors have presented a useful historical summary
and factual overview of Community policy in the field of telecommunications
and the interaction between trade, competition and industry policies.
At the risk of oversimplifying they state that originally industry
policy dominated with R and D programmes and harmonisation. Competition
policy now seems to predominate with the current liberalisation
programme but trade policy will play a bigger role in future in
the framework of GATS and globalising markets.
- I will comment on this paper from my point of view as a
competition practioneer - trying to applying the Community competition
rules in a reasonable manner to a sector that is in the throes
of rapid and far reaching technological and regulatory upheavals
inside the Community and where globalisation and internationally
dimensioned strategic alliances are of growing importance (2).
As the paper shows the analysis of the sector is complex and
the interaction of the three Community policies in question -
industry, trade and competition - have to be taken into account
in order for any individual policy to be applied coherently, thereby
avoiding possible contradictions. The recent G7 conference underlines
the importance of the sector and coming together of the three
- By final word of introduction I must admit that I am optimist
about the coherent application of the three Community policies.
I see them as necessary complements. Much has been written on
the conflict of industry and competition policies. However the
Treaty is quite clear. In Article 3g it states that in order
to achieve the basic goals of the Community there shall be "
a system ensuring that competition in the internal markets"
is not distorted.
- Furthermore Article 130 states that industry policy shall
be applied "in accordance with a system of open and competitive
- The Commission put the flesh on these legal structures in
two important documents - the White Paper on Growth, Competitiveness
and Employment (3) and its Communication on Industry Policy (4).
Both these documents see the maintainence of effective competition
through vigorous competition policy as an essential element to
wider Community competitiveness. This theme is also found in
Commissioner VAN MIERT's declaration to Parliament (5) and in
a recent Competition Reports (6). The Bangemann Report underlines
the specific role of competition for telecoms. In fact the industry
policy programmes for telecommunications described by the authors
are not only not contradictory to competition policy, but are
in fact prerequisites for competition. Take for example the programmes
to define open standards and interoperability, without which the
Union would remain 12, now 15, different but separate telecommunication
- As regards competition and trade policies, again I see
them as complementary. Trade policies have a twofold effect.
Firstly they aim to open up the Community and third markets by
reducing tariff and other barriers - they therefore widen competition.
Secondly they protect Community industry from destructive or
unfair competition, which can normally only occur because of a
failure of competition policy in a third country. On the one
hand countervailing duties are imposed on imports that have received
what would be illegal subsidies in the Union and are recognised
as such under the GATT. On the other hand anti-dumping duties
protect EU industry from practices that would normally be made
impossible by the application of competition rules from companies
operating in a market economy (8). Thus the "protectionist"
side of trade policy is mainly to compensate EU firms from companies
in third countries not subject to effective competition rules.
In the long run it therefore promotes competition.
II. liberalisation a necessary but not sufficient condition
- In telecommunications, it is clear that liberalisation
(ie the abolition of exclusive rights which gives rise to legal
monopolies) must be applied before any competition can take place.
An ambitious programme going up to 1998 with the liberalisation
of voice telephony is described in the paper (9). However the
introduction of real competition implies much more than a mere
programme of the translation into national law of Community Directives
abolishing legal monopolies in the different Member States. To
arrive at a situation where the benefits of competition can be
really felt, takes both time and the vigorous enforcement of the
rules of competition. Without this latter we risk the incumbent
monopolist using both his market power and control over conditions
of access to his network to prevent the emergence of potential
competitors. Where previously the monopoly telephone operator
could hide behind a legal monopoly, after liberalisation he could
abuse his dominant position to prevent entry. Competition in
this sector is all the more difficult to get started up because,
unlike most industries, new entrants depend on the incumbent's
network to which the price of access is absolutely vital. Unfortunately
the paper does not go into this aspect, where the experience of
Mercury in the UK shows how difficult it is to get competition
beyond the legal possibility to become fully effective. Neither
does the paper explore methods employed in third countries - such
as the more radical solution employed in the USA by splitting
up of AT & T into regional Baby Bells.
- In fact many issues need to be resolved to make competition
effective beyond the classic application of the rules of competition.
- whether in addition to competition rules there needs to be
an EU telecoms regulator to determine the price of network access
or whether the same result can be achieved via the coordination
of existing regulators. In fact the complementarity of regulation
and competition could be usefully explored by the paper.
- decisions have to be made on contributions for the funding
of the universal service obligation, which is rapidly becoming
an effective way for incumbents to defend their entrenched position.
However certain commentators now imply that the financial burden
of this universal service obligation is not as heavy as has been
implied (10) and could be used by incumbents to block entry.
- a decision needs to be made in the EU on the liberalisation
of the infrastructure along with that of their associated liberalised
services. Competing infrastructures are the best way to facilitate
entry and bring about the industry policy advantages of extra
investment and capacity forecast in the Bangermann Report (11).
In fact US experience in "long" lines would suggest
that parallel networks are the best way to create both really
effective competition and new value added services.
Major political decisions need to be made because competition
requires tariff rebalancing ie tariffs should reflect costs which
is not the case at the moment. This is politically sensitive
as in most Member States business is de facto subsidising private
In fact the issue of the introduction of effective competition
as opposed to its mere legal possibility, on which the paper focuses,
is directly linked to industry and trade policy. Without effective
competitive pressure on the monopolist we are unlikely to see
the reduction in prices or the extra capacity generated for new
innovative value added services, that industry needs. Furthermore
unless entry becomes a de facto as well as de jure possibility,
third countries will continue to perceive our markets as foreclosed
and be understandably reluctant to open up their markets to EU
companies. In fact this consideration appears to have been a
factor in US in favour of permitting the cooperation between BT
and MCI because the UK market was regarded as an open one (12).
III. Need for market analysis to assess alliances
- The paper discusses the growing importance of strategic
alliances and other forms of cooperation in this sector, where
companies are positioning themselves for global markets. In fact
there are some extremely important cases either recently decided
-BT and MCI - or currently under consideration - Atlas, a cooperation
between French and German Telecom and Sprint. The paper states
"Therefore to assess in advance (emphasis added) the
pro- and anti-competitive effects of these alliances is extremely
complex", and that "the concentration of market power
induced by these strategic alliances constitutes a severe threat
to future competition". Finally the paper adds that the
arguments will be advanced by the parties and some governments
that alliances having anti-competitive effects may be defended
as necessary to enter new markets or to compete on a global scale.
According to the paper there appears to be a conflict between
competition and industry policy in the global market context.
Unfortunately the paper does not develop any analytical framework
which will allow the Commission, or any other anti-trust enforcement
agency, to make an assessment of these alliances before
they are consummated or to avoid possible contradictions between
trade, competition and industry policies. Because of their structural
nature the Commission is obliged to work on the basis of forecast
economies/synergies and forecast effects on the market.
Although mistakes can be made, especially on such dynamic markets,
the Commission has to assess their impact on the relevant market
and balance the gains and losses.
- This can be done as the BT-MCI decision of the Commission
shows (13). Its an example of how the Commission brought potential
conflicts into a coherent policy. In fact it is likely that the
Commission will not react favourably to alliances where domestic
markets are closed, as this may only serve to aggravate the difficulty
of eventually introducing competition (14). Because Commission
decision are subject to judicial review by the Court of First
Instance and subsequently the Court of Justice it is unlikely
to be able to approve agreements that seriously prejudice effective
competition inside the Community. Furthermore the creation of
a European champion at the price of eliminating effective competition
on the EU market goes against the spirit of the new EU industry
policy. Rather effective competition is seen as a way to train
Community firms to fight on wider markets (15). Where however
the market is truly global all EU firm can be allowed to cooperate
because competition the Community is not prejudiced (16).
- There are two other factors aspects also needed to be taken
into account when discussing alliances. Firstly, alliances may
be only the only way for EU service providers to break out of
their role as essentially domestic monopoly service providers
and enter the new fast moving globalising services market. Secondly
we are starting to see alliances between on the one hand non-telecoms
companies who have or can easily build physical networks (railway,
electricity, energy companies) but have no experience of telecoms
services and on the other hand telecoms service providers who
have the know-how to exploit these new alternative infrastructures.
Such alliances can be procompetitive and show the complementarity
rather than conflict of industry, trade and competition policies.
IV. POTS become PANS - a look to the not too distant future
- Similar forward looking analysis is required by the Commission
when it has to examine the emerging but increasingly important
interface between telecommunications, media and computing. If
the forecases are to be believed,the form of delivery, type and
quantity of media in the homes will be revolutionised and domestic
telecommunications will change from the current POTS (plain old
telecommunications services) to PANS (pretty amazing new services).
Whether ownership of the wires or cables that deliver these services
will become relatively less important compared to the services
offered over them, remains to be seen ie will telecoms wires
be like motorways, where any traffic that pays the toll can pass.
This convergance of sectors is already confronting Community
competition policy with its sensitive interaction with industry
policy and particularly for media with trade policy. In fact
the Commission's second negative merger decision concerned Deutsch
Telecom and the two leading German pay TV/media companies - Bertelsmann
and Kirch - that would have foreclosed the market (17). It concerned
directly industry policy because of the link to digital HDTV (18).
Some discussion of these aspects would have rendered the paper
more useful for practioners who have to analyse such cases, as
would the Community policy towards telecoms in the PECOS (former
East European state economy countries), with its links to trade
- The paper is a useful summary of the state of play in
telecommunications and the interaction between competition, trade
and industry policy. There are some omissions - notably no mention
is made of the Commission Communication on Telecommunications
Equipment (19) which highlighted the close industry, competition
and trade policy links between telecommunications equipment and
services. This is a particularly important high technology industry
where the Community has several world class players - Alcatel,
Siemens, Nokia, Ericsson - and where the Community in faced with
restructuring - see Siemens/Italtel, Teletrra and GEC/Plessey/Siemens.
In these cases structural links between national champion telecoms
equipment producers and monopoly service providers have to be
examined, in the context of liberalising but still essentially
monopoly service markets and the opening up of public procurement
for telecoms equipment (20).
- In fact many of the problems identified in the paper are
already or have already been involved in cases and policies before
the Commission. The paper's usefulness would have been enhanced
if it had ventured to look forward and via a more quantitative
and analytical, rather than descriptive, framework made policy
suggestions. Many apparent contradictions between trade, competition
and industry policy in fact disappear or become clear when the
real market situation is analysed in the individual case. Finally
liberalisation should not be equated with competition, it is in
fact only the first of many steps.
- (1) Official of the Commission of the European Communities-
Directorate General for Competition (DG IV). The views expressed
are those of the author and not necessarily those of the Commission
- (2) The author's duties inside the Commission involve coordination
of individual cases of the rules of competition to all sectors.
As such he has no specific knowledge of the telecommunications
sector; The author is therefore grateful for the comments of
Miguel PENA of the telecommunications unit in DG IV. All errors
and omissions are the author's.
- (3) Bulletin of the EC Supplement 6/93
- (4) An industrial competitiveness policy for the European
Union. Bulletin of the European Union Supplement 3/94 - COM(94)
- (5) Hearing of Euopean Parliament 16 January 1995
- (6) XXIII Report on Competition Policy 1993 European Commission
pt 17-26 and 150-161
- (7) This is not to deny that all standardisaton is procompetitive
- some can be detrimental and have a foreclosure effect. This
debate is beyond the scope of my remarks.
- (8) This is not to deny that all standardisaton is procompetitive
- some can be detrimental and have a foreclosure effect. This
debate is beyond the scope of my remarks.
- (9) The liberalisation of voice telephony is of absolutely
crucial importance to the sector and should not be underestimated.
- (10) see for example John Kay of London Economics Daily Telegraph
16 February 1995, 13 February 1995 page 7 (European edition)
- (11) These issues are treated in the two Green Papers on infrastructure
(COM 94/440 and COM 94/682) which also treat financing of the
universal service and interconnection problems. These Green Papers
are based on publicity available studies.
- (12) See also Financial Times Monday 27 February 1995 pg 16
(European edition) where US proposes to open its telecoms market
but only to investors from already liberalised countries. Al
Gore at G7 conference.
- (13) OJ L 233 of 27.08.1994
- (14) See for example declaration of Mr VAN MIERT to G7 on
Information Society. Financial Times 28 February 1995 page 16
- (15) See also Michael Porter, Competitive advantage of nations,
New York : Free Press 1990.
- (16) See Philips/Thomson/Sagem (Press Release IP/93/32 of
Commission and XXIII Competition Report point 215) where all Community
firms having interests in liquid Crystal Displays were allowed
to put together their efforts because of the intense competition
not only on world markets but also on Community markets from several
powerful Japanese producers.
- (17) Case IV M 469 MSG 9.11.94 published O.J. L 364, 31.12.1994.
Interestingly enough the only other negative merger decision
to date has also been in high technology - construction of aircraft.
IV M 053 DE HAVILLAND/Aerospatiale-Alenia of 2 October 1991;
published L 334, 5.12.91 page 42
- (18) The issue of cable TV and its infrastructure is a crucial
issue for the future of telecoms. Penetration of the domestic
market in Europe by cable TV although not as advanced as the US,
is growing rapidly. An alternative infrastructure network is
thus in the making.
- (19) SEC (92) 1049 Brussels 15 July 1992. The European Telecommunications
Equipment Industry. Communication from the Commission.
- (20) In fact the paper appears to confuse the opening up of
public procurement for telecoms equipment (switching gear, etc)
with the abolition of exclusive rights of telephone service operators
for terminal equipment (handsets etc). Furthermore if effective
competition is introduced for services, there will be less need
for public procurement rules as all service providers will be
obliged by pressure of competition to buy the most cost effective
equipment rather than simply rely on a national champion equipment