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Telecommunications - Developments in Europe

Dr Herbert

UNGERER

Conference Board Europe Forum

5/01/1996

Brussels


The Bangemann Report and the Action Plan for the information society have, in my view,

resulted in four major policy changes.

Ö First they have given a central role to European liberalisation efforts because the Bangemann Report clearly supports an information society driven by the private sector working in partnership with the public sector. In practice,this has speeded up liberalisation of the telecommunications infrastructure in Europe and the introduction of competition. Ö Second, they have accelerated the development of a broad legal framework for the information society covering issues such as data protection, privacy and intellectual property rights. Ö Third, they have encouraged the approval of a number of programmes, many public/private sector partnerships (e.g.,the Media II programme and INFO 2000). Ö Fourth, they have emphasised the social component of the information society. In the context of these changes, I shall focus on two issues.

The first is the credibility of the 1998 date set for the liberalisation of Europe's telecommunications infrastructure because it is fundamental to the success of the Action Plan. The second is the application of competition rules to the telecommunications sector as the market restructures and adjusts to the new environment.MegaTrends.

In the core sector of the information societytelecommunications and mediafour trends are evident in Europe, and in other parts of the world.

The opening up of European services and infrastructure to competition is underway and set for 1 January 1998. Rapid progress is also being made to open up digital mobile communications to competition which is important because it is one aspect of the information society that everyone understands. The same cannot be said of PCs yet (although last year consumer purchases rose sharply) or the Internet.

The trend towards privatisation is similarly progressing rapidly in the European telecommunications and media sector,spurred on by investors and deregulation. The pace is such that, by the end of this year in the telecommunications sector, only three member states will have carriers that are not at least partially privatised.

Those states are Luxembourg, Austria and France.Equally important is the restructuring in the media sector and its experimentation with multimedia. Since the late 1980s, Europe's primarily publiclyowned broadcasting system has been eroded by the private sector. Competition has increased rapidly, to the point where advertising revenue has almost reached saturation point and is forcing companies to seek new opportunities in multimedia and alliances.

The final trend is the continentwide dimensionindeed the global dimensionof the information society. European efforts alone are not sufficient for the success of the information society. Much will depend on global efforts.In Europe the most important element is the 1998 date, not simply because it is the liberalisation date but because it indicates the countdown has begun for the whole Action Plan

Progress is guaranteed by the Commission and the Member States.

The marketplace is responding; it believes in the change and this, more than anything, makes it irreversible.Telecommunications Reform. While widespread support exists for general liberalisation of Europe's network infrastructure by 1998 as contained in the Green Paper, some controversy has arisen over the immediate provisions of the Green Paper.

These provisions call for the immediate liberalisation of all existing or licensed networks for carriage of already liberalised services.

They are important in opening up the market now for investors and maintaining the dynamics of the process.The main components for telecommunications liberalisation,apart from the timing, are financing a universal service,interconnection and access conditions, and a regulatory framework. It is a myth that there is a contradiction between competition and a universal service.

These two objectives are reconciled in Article 90 which makes a tradeoff between guaranteeing a maximum market environment and allowing member states to reserve certain rights to certain public enterprises for specific public tasks, in particular public services. An additional provision in Article 90 gives the Commission powers to act as arbitrageur between the two objectives.

The Commission recognises that there are specific public tasks in the telecommunications sector, basically guaranteeing the service is available to everybody. On the other hand, it is clear that a monopoly has a high price and prevents others providing a better service. In the telecoms sector we have universal agreement by the Council of Ministers that less restricted means than a monopoly exist for providing a universal service. If the market fails to provide funds for a universal service, then other financial arrangements must be found.

In other words, under Article 90 the Commission is lifting all monopoly rights, with a number of conditions which allow it to check the efficiency of the process.Mobile Communications. An Article 90 directive for the liberalisation of mobile communications has recently been adopted. It abolishes remaining exclusive and special rights and opens the use of own and third party infrastructure, which is the major cost factor for new entrants to the sector. It also allows technologies to be combined for the development of future personal communications, specifically the combination of DECT technology (i.e., local wireless technology) with GSM and DCS1800 (technologies which will expand and facilitate the use of current digital mobile technologies in high density urban areas).

.Once this directive is implemented, the current telephone sector will be rapidly transformed. I predict that telephones as we know them today will no longer exist in five years. Instead customers will have a personal communications service, both wired and wireless, which combines current homebased cordless telephones with mobile telephones. The service is expected to expand quickly to include datacommunications.

By the end of the decade, we forecast 100 million people in Europe will be using mobile communications,compared with 20 million at present. A decade later, the figure is expected to rise to 200 million people.Satellite and Cable Communications. Another immediate liberalisation effort is being directed at satellite communications to catch up with worldwide developments. The satellite communications directive became effective in August last year, although a number of Member States have not yet implemented it and we are currently initiating the necessary infringement procedures.

The cable directive was adopted in September of last year and well become effective in June this year. It provides for unlimited use of all network licences for cable TV for all liberalised telecommunications services and ensures the interconnection of cable TV networks.As a result of this immediate liberalisation, by 1998 Europe will have a multimedia environment based on a combination of fixed, broad and narrow band communications, satellite and mobile communications.

The Move to 1998. The directive on full competition in the EU's telecommunications market was published for public consultation last autumn and is expected to be adopted shortly. It fixes the date of 1 January 1998 and gives guarantees to investors when the dates for making the necessary investment become effective. It means publication by the national regulatory authorities of the licensing conditions for 1998 by 1 July 1997.
Interconnection conditions and access to numbering will also be required by this date.At the same time, this directive will liberalise alternative infrastructures for any liberalised service this year, which means full liberalisation of infrastructure for closed user groups and for any data services.Guiding the Restructuring. With the measures under Article 90, we are opening the market and the effectiveness of those measures has been proved by the repositioning which is currently taking place in the European telecommunications market.

But it is a complete restructuring and a number of players are in bottle neck positions which they will try to use in the run up to 1998 to secure the best conditions for themselves.Multimedia, in many cases, can only be achieved by agreements between different market players in different sectors which means we have to be careful to screen proposed merger agreements to ensure that, while we are liberalising the market place, a number of market players are not immediately monopolising it again.

The types of alliances considered by the Commission include those which have a global component, for example, the BT/MCI alliance which the Commission has approved, the Phoenix/Atlas alliance where the Commission has indicated approval is underway, and the Unisource/AT&T alliance which the Commission is screening. In approving such alliances, the Commission has to fulfil the basic requirements of European competition, one of which is that there must be sufficient technological progress. Another is evidence of clear benefits for the consumer.The Commission must also fulfil the socalled negative conditions to ensure that competition is not completely eliminated, and that any restrictions imposed are the minimum required to make the proposed alliance effective.

These criteria are also applied to alliances in the multimedia field.Globalisation of the Information Society Telecommunications in the EU must have a global horizon. To achieve this the sector must be renovated using the tools of competition. We want Europe to have a strong position in the new global market.br> We also want to see a breakthrough in personal communications because this is where the mass market lies. From here we envisage an expansion into multimedia. While the Commission is in favour of the current restructuring, benefits for the consumer must be secured.

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