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Determining the New Regulatory Challenges for Competitive Telecommuications
Markets in the International Telecommunity and the Asia Pacific
International Telecommunications Summit 97
In the run up to the date of 1st January 1998, Europe and the Pacific Area are facing similar and formidable challenges, the more so that the commitments have been taken on full liberalisation of the telecommunications market in the WTO.
Countries world-wide, in Europe, America, and the Pacific Area are trying to cope with this task of a new dimension for the sector - not least this country where this conference is taking place. Therefore the effort of comparative analysis at this conference is most timely and welcome, and I am honoured to have the opportunity to make a few remarks.
Let me start by making a general comment.
The 1st of January 1998 will bring in Europe full-scale regulatory liberalisation - it will also bring it to many other parts of the world. The major issue will then be a structural issue : how to transform the market structures inherited from monopolies.
MAIN LINES OF THE LIBERALISATION PROCESS
In Europe, liberalisation implies a number of regulatory measures currently underway in EU-Member States and at European level. It means new telecom laws in all fifteen Member States. It also means independent regulators at national level and it means regulators and competition authorities working closely together This is not an easy task and it needs substantial political determination. But it will be resolved within the given deadlines.
Let me go into some more detail on our approach to market liberalisation.
As you may know we have worked since the publication of the EU-Telecom Green Paper in 1987 at progressively lifting restrictions on Europe's telecoms infrastructure and services which may be provided across it.
Let me just recall the latest most decisive phase.
A central link we tackled in the liberalisation process was mobile communications. The EU-Mobile Directive abolishes all remaining exclusive and special rights in the mobile communications market, for both service provision and use of own and third party infrastructure and it requires licences for DCS1800 and DECT before 1st January 1998 throughout the EU. This will now lead to a new round of mobile licences across the EU and a substantial increase of competition in the European mobile market
The EU-Cable Directive means unlimited use of all cable network licences in EU for liberalised telecoms services, including, from 1st January 1998 onwards, public telephone service. With the advent of the Internet, this has more recently become of major importance.
Satellite communications was fully liberalised by the European Commission at EU level, with an EU Directive adopted in Autumn 1994. This means full liberalisation of satellite systems across Europe. It breaks the grip of the incumbents on access to the space resource, particularly as concerns their privileged position as signatories of the International Satellite Organisations. Deep reform of the ISOs is in fact part and parcel of the logic of this Directive. We take an active part in the on-going reform of both Intelsat and Inmarsat and look for a speedy and successful conclusion to that reform.
The finale of the EU 1998 programme is the Full Competition Directive (Directive 96/19/EC).
1st July of last year was the deadline for liberalisation of alternative infrastructure. The date for lifting of all remaining restrictions on provision of public networks and voice telephony is, of course, for 1st January 1998, in line with our WTO commitments.
This is a great step forward indeed, but meaningless without the concomitant regulatory preparation. The Commission's Directives have to be implemented by the Member States. This means the setting up of licensing procedures, interconnection regime and fair rules on universal service obligations. The fifteen EU-Member States are currently notifying to the European Commission these new regulatory frameworks so that they can be screened under EU-Competition Rules
The 1st January 1998 will indeed be a watershed for telecommunications :
in Europe, the implementation record to date is far better than we would have hoped for ; and
the change is coming at the right time. The competitive challenge has become such that only a strong and competitive market can prepare telecom companies to compete on the global market - in Europe, as well as in the Asian Pacific area and here in Korea.
Progress towards full liberalisation by 1st January 1998 has been substantial. The European Commission is publishing reports at short intervals documenting the state of liberalisation (the last report was published in October, the next in the New Year). The Commission uses the principles of competition to enforce rapid implementation. The reports have noted the progress made on the most critical areas which determine the effectiveness of liberalisation and market access.
Implementation legislation falls into two major categories :
the abolition of special and exclusive rights ;
the creation of a regulatory framework ensuring both competition and universal service.
Progress on this is well advanced in the EU Member States due to liberalise on 1st January 1998. All have adopted the necessary measures to abolish special and exclusive rights, or have these measures in the final stage of the legislative process. Substantial progress has been made on the other critical points : licensing regimes, universal service definition, numbering - and, as a key area, access and interconnection.
According to the most recent report, independent regulators are now in place in nearly all Member States and the remaining Member States are progressing to rapidly do so.
Some gaps still remain to be filled and we will follow carefully the implementation. Five EU-Member States have obtained, in line with or shorter than their WTO commitments, transitional periods, with the longest transition period ending by 31st December 2000 for Greece. This means that the market will be completely open in Europe by the end of 2000. We hope that our partners in the WTO agreement will on their side fulfil their commitments, as we do.
As we implement our liberalisation commitments, four issues are moving to the forefront.
Access and interconnection ,
Global alliances ,
Next generation services.
Let me first turn to the central topic of this conference : Access and Interconnection.
ACCESS AND INTERCONNECTION
Network access was already central in the EU Green Paper on telecommunications of 1987, which set the guidelines for Europe's ten-year liberalisation process in this area.
One question was answered at the very beginning of the liberalisation process in the EU. There must be no general market entry prohibitions, no artificial division of the market like for instance a general separation of network / service and/or network use.
While in classical and relatively stable utility sectors this question may pose itself differently, the discussion in the EU came very quickly to the conviction that in sectors like telecommunications, which is presently subject to innovation at breathtaking speed, such general separations represent incalculable risks for investment and innovation.
Let me then turn to the central question on open access : the obligation of the dominant carrier, be it single or joint dominance, to provide open network access.
The question of ensuring open access has dominated EU telecom policy since the early nineties, first concentrating on the introduction of EU sector specific regulation on open network access, the EU's Open Network Provision (ONP) framework. Since then, full liberalisation and the convergence of the sector with other areas, in particular the audio-visual field have moved the emphasis to the definition of the relative relationship between sector-specific regulation and application of horizontal EU-Competition Law based on Article 86 EC-Treaty, concerning the abuse of dominant positions ; the development of an essential facilities doctrine.
The WTO Agreement and the Regulatory Reference Paper, to which both the EU and countries in the Asian Pacific area, such as Korea, have subscribed now give an international dimension to the issue of access to essential facilities. In the Reference Paper, essential facilities are defined as facilities of a public telecommunications transport network or service that (a) are exclusively or predominantly provided by a single or limited number of suppliers ; and (b) cannot feasibly be economically or technically substituted in order to provide a service.
The basic European framework for network access and Interconnection is defined by the EU ONP directives, which have been reviewed and amended during the last two years in preparation of the full liberalisation of the sector by 1 January 1998. This framework is the EU's main device to fully implement the commitments taken in the WTO Reference Paper as regards interconnection and the conditions required, such as non-discrimination, cost-orientation, structuring of interconnection points, transparency and accountability of the process, as well as dispute settlement by an independent regulator.
The EU ONP Interconnection Directive (Directive 97/33/EC) as finally adopted in July provides now throughout the EU the framework for access to public telecom networks. The Directive is the basis of the national interconnection regimes now being established.
The cornerstones of the EU concept can be briefly described as follows :
the framework of open network access (ONP), which had been originally developed for ensuring access for value-added services to the network of the monopoly, is now being adapted to a multi-operator environment through the Interconnection Directive. ONP thereby becomes the natural framework for the definition of basic principles for access to public networks in the EU ;
in parallel, with the starting of competition in both networks and public voice service, the application of EU competition rules comes to the forefront. This is also prompted by the Reference Paper's requirement to ensure necessary competitive safeguards ;
at the same time, there is a growing practice and experience in the EU regarding interconnection and access issues. This concerns access and interconnection of networks in the markets already liberalised - with countries like the UK obviously having substantial experience in this area. A Europe-wide experience and practice with regard to access questions has also been developed in interconnection of mobile and fixed networks.
Let me add some remarks on the amendment of the ONP framework, and in particular on the approach taken in Directive97/33/EC, the ONP Interconnection Directive.
In the new concept the role of the monopoly network operator is replaced by the concept of public network operators acting in competition, with a number of rights and duties. The rights concern the right to interconnection with networks of competitors of the same category. The duties concern the obligation to offer network access to others but also the guarantee of universal service.
A general duty to supply exists in particular for public network operators with "significant market power" - this corresponds to the "major supplier" concept in the WTO Reference Paper. In the Directive, operators with a significant market power are defined indicatively as those with a market share of more than 25%.
Regarding the establishment of the details of interconnect, the priority is to be given to commercial negotiations. However a strong role is given to the national sector-specific regulator concerning the control of the process and in particular the case of failure of commercial negotiations. The Directive also provides for a conciliation procedure for transnational problems at the EU level.
Combined with the EU's Full Competition Directive, the framework provides for :
the announcement of standard interconnection offerings ;
requires a sound balance between whole-sale activities and retail activities of the incumbents. Wholesale activities concern the provision of access services by the incumbents, retail their activities in the delivery of services to the final customers ;
aims at best practice interconnection rates across the EU. To this end, the European Commission has published two weeks ago, an "EU-Recommendation on Interconnection Pricing and Accounting Separation", recommending ranges of best practice interconnect prices.
Besides the ONP framework, the other line of EU-action concerning access and interconnection agreements is direct application of general EU Competition Law. The mandate for the application of general EU competition rules to access agreements results from the fact that these agreements determine fundamentally the future competition structures of the sector and have therefore an enormous impact on future overall competitive structures in the EU. Apart from the fact that EU Competition Law is used according to its nature across sectors, and therefore also includes areas such as cable-TV networks, the Internet, and multi-media, the issue is to develop a methodology for evaluation of interconnection and access issues under anti-trust law.
This is also necessary, in order to fulfil the WTO's Reference Paper's requirements to establish necessary safeguards against anti-competitive practices.
We have issued, earlier this year, a public Communication on the application of EU Competition Rules to access agreements. A final version is to be adopted within the next few weeks. The Communication defines to what extent Article 86 of EU general competition law, regarding the abuse of dominant positions, is applicable to the control of bottlenecks - like the bottleneck in the local loop. Another major goal is to define the co-operation between national sector-specific regulators and action under general anti-trust law.
Finally, the impact of interconnection and access agreements on third parties must be evaluated under competition law aspects. We must prevent that access and interconnection agreements are used to foreclose the markets to others.
The future relationship between sector-specific telecom regulation and general antitrust legislation is fundamental to the efficiency of the process, as well as for having the right structures in place to be able to fulfil the WTO requirements and in particular the requirements of the Regulatory Reference Paper. We observe with interest the experience in this respect in the Asia Pacific area, such as in Australia, New Zealand, Hong Kong, Japan and, in this country, as well as of course in the US.
Let me then say a few words on major restructuring issues : global alliances ; convergence ; next generation services.
The current telecom reform process is driven by fundamental technological change and rapid innovation on the one hand, globalisation on the other.
Europe has taken major initiatives in this area, and, with the deregulation of the European markets, Europe has played an active role in these developments. Examples are : Concert, GlobalOne, Unisource / Uniworld. With the growing deregulation of international services also in the Pacific area, the Asia Pacific region will, without doubt, take a more active part in these developments in the near future.
Under EU competition rules, as under US anti-trust and telecom regulation, clearing of these alliances is required, in order to ensure a pro-competitive market structure. The European Commission has generally taken a positive attitude towards global alliances, because we believe that they reflect the requirements of the globalisation of markets. We have approved Concert, GlobalOne, and last week, Unisource / Uniworld. But we have also made clear, in all cases, that we will not accept foreclosure of markets and we have imposed necessary conditions.
The European Commission has made it clear that liberalisation of home markets of those participating in these global alliances is an indispensable condition to avoid that markets are re-monopolised by these new structures.
Multi-media will be key in the future, both in its own right and as the future base for both the entertainment and professional industries and services.
The Internet has the potential to develop into the link between the current networks and the digital delivery systems of the future. The future delivery systems of the Information Society could be combinations of broadband cable and Internet type telecom backbones and integrate satellite and mobile systems. Customer terminals could become some sort of hybrid between television and PC. The distinction between interactive digital TV-service and Internet audio-visual service may become blurred. PC-based services may merge with TV-based services. Current developments seem to point into that direction.
Clearly, the growing multi-media sector will be a major challenge for regulators and competition and anti-trust policy since no sector specific regulation is fully capable of considering the impact of alliances implying sector convergence.
Similarly, insulated country specific consideration of markets and market players cannot address adequately the impact of global partnerships and services.
All of this will require regulators to be flexible and open but prepared to take tough action where required. Interconnection between networks can bring convergence and benefits to citizens. But they can also reinforce or create gatekeeper roles and introduce new bottleneck holders - both at the national and international level. We have seen mega-mergers in the media field and we are observing with interest the major battle in the US software industry for future control of market development. We have, of course, noted recent action by the US Justice Department in this area.
In Europe, we are currently undertaking two major initiatives. Firstly, we are reviewing the operation of cable-TV networks and their relationships with telecom networks - particularly the issues linked to cross ownership between the two, the EU "Cable Review". EU Competition Commissioner Van Miert has announced that we will publish results and our conclusions soon. Secondly, the EU has announced that it will publish a Green Paper on Convergence issues during the coming months.
NEXT GENERATION SERVICES
The Internet and the introduction of digital television together with the development of new multi-media services will be one major line of development. The future development of personal communications is likely to be the other.
The smooth transition from use of current mobile technologies to the future third generation systems is therefore central. The development of the mobile and wireless communications environment becomes key for the future competitive market structures.
With this, wireless-based communications have become a vital element in the telecommunications infrastructure, as well as representing an area of common global destiny in telecommunications, with the adoption of world-wide mobile systems.
Since its commercial launch in 1992, GSM has emerged as a World standard for mobile communications. GSM and its related technologies, DCS-1800 and PCS-1900, provide coverage through 187 networks in 103 countries and have a subscriber base of far more than 30 million users. Asia has been one of the biggest customers for GSM systems with China on top in size of market and contracts. In the USA, PCS-1900 is enjoying early success, with the licensed networks potentially offering, besides the two other main digital technologies, near 100% population coverage.
Europe has also made major contributions to other mobile technologies, such as DECT and CT2 - and we recognise the contributions made to the development of mobile communications by others, in fields such as CDMA systems. As is well known, Europe is operating major research programmes in the area covering the whole range of potential technologies for next generation systems.
1st January 1998 will mean a new environment for mobile communications services. Indeed, the mobile sector will face a range of new issues in a fully liberalised telecommunications market :
Merging of fixed and mobile telephony concepts
Breaking the local bottle-neck
With the advent of the global mobile satellite consortia in the market place, and the critical technological choices ahead in mobile communications, we now enter a critical phase. Our targets are :
increased competition. We will aim at lower prices in exchange for higher volume ;
avoid foreclosure of markets ;
avoid international price cartels. We will aim at efficient international pricing and services ;
ensure pro-competitive transition to the convergence of fixed and mobile ;
avoid incumbents taking over mobile markets. Extension into new technologies cannot be taken as a pretext for extending or maintaining dominant positions ;
ensure safeguards to check market power ;
ensure smooth transition to the future third generation global mobile systems, in the context of IMT 2000 / FPLMTS, in Europe called UMTS.
As regards the latter, from a competition point-of-view, once current consultations at regional and global level draw to an end, our main aim will be to avoid technology cartels. We believe that the world needs best practice technology. We also believe that, based on its experience on GSM, and GSM's proven system capabilities, Europe will continue to make a major contribution to global mobile systems - as European industry has shown by its strong involvement in mobile communications in this region.
We also believe that we must rapidly develop global positions on other next generation system issues, relevant to global system development and operation, such as the position taken on Internet telephony. Together with the advance of wireless, Internet telephony has the potential for a dramatic transformation of the "bread-and-butter" business of telecoms - the public voice telephony business. We will publish the EU's position on the matter during the coming week.
THE INTERNATIONAL DIMENSION
Europe, the US and the Asian Pacific area share a strong interest in the development of the global telecoms system. Market opening is key. The WTO agreement, to which also this country has made major commitments, as have other countries represented at this panel, provides the framework.
In the WTO competitive system, the system of originating and terminating international telecommunications will ultimately have to be regarded as nothing more and nothing less than a form of access agreement, replicating for international access the national agreements which will have to be set up. The same principles which are applied to fair access to telecommunications networks in the national context will have to apply to the replacement of the accounting rate system. This has major consequences and will require dramatic change of the international telecom environment. On-going discussions in the ITU framework testify to this.
We are recognising the requirement for changes in this area as they emerge from the liberalisation of the international telecommunications system. As EU Commissioner Van Miert has announced last week we have launched a major review of the accounting agreements of all of EU's major carriers with their international partners under EU Competition Rules.
On the other hand, any reform of the accounting rate system must take place on a symmetrical basis. It is not acceptable that any country in a leadership role due to international market power should choose to impose a system, whether liberal or protectionist, on countries at the other end of an international cable. Such an extension of national regulation would run counter to both the spirit and the letter of the WTO telecoms agreement.
The same principle of give and take must apply to the major international decisions of future development and technologies ahead. In these decisions which must be made in particular on the next generation mobile system in the IMT2000 context, all regions will have opportunity to contribute their best technology. The result should be systems reflecting best global practice and experience.
Market opening must be mutual. The WTO Agreement is again of crucial importance and steps such as the agreement signed last week between Korea and the EU on the opening of the telecommunications equipment market are encouraging. But major tasks are ahead. The aim of regulators must be to open markets and ensure pro-competitive market structures for the choice and benefit of the users and as a base for the development of our countries.