IMPORTANT LEGAL NOTICE - The information on this site is subject to a disclaimer and a copyright notice.

European FlagEuropa
The European Commission

Competition
en

Competition

The Impact of European Liberalisation and the WTO

H. Ungerer

CommEd Conference : Pricing '98

11/02//1998

Brussels

INTRODUCTION

The 1st January 1998 means fundamental change of the basic conditions for doing business in the telecom sector in Europe. The effect is magnified by the commitments taken under the WTO Agreement which came into force on 5th February.

In the future, telecom companies will no longer be able to thrive if they only think national. They will have to think European and global. Recent strategic moves may serve as an illustration. On the regulatory and competition side, we will need close co-operation and interaction between the national and the European levels.

Our immediate task is to make liberalisation fully effective. We are now entering a transition period, which will be a period of intensive work to ensure that competitive structures will develop, particularly in the local loop. After the change of regulation, we must address the change of market structures. This will be a difficult period which may well take us up to five years. Implementation of effective regulation and competition law at national and European levels will play a major role.

THE IMPLEMENTATION RECORD

The implementation record by Member States is being carefully monitored. The European Commission has strengthened its internal structure in this respect and has created a Joint Team between DG IV, the Competition Directorate General responsible for the liberalisation deadlines, and DG XIII, the Telecommunications Directorate General responsible for the harmonisation framework working in direct contact with national regulatory authorities. A new status report on implementation is due to be adopted by the Commission on 18th February.

During recent weeks we have witnessed growing expectations on the part of consumers, both domestic and business, as to the benefits liberalisation should bring in terms of choice, efficiency and lowered prices. New players, licensed or authorised under procedures established pursuant to the Community Directives are starting to back in most of the Member States those expectations with substantial investment in terms of finance and human resources. Several hundred providers of voice telephony are already operating in the market in competition with the former monopolies. However, enhanced activity has also led to a marked increase in direct and indirect complaints to the Commission by players dissatisfied with progress in several Member States in implementation of the liberalisation package.

The Commission has also noted a marked stiffening of political will on the part of the Member States to carry through the liberalisation process, and a corresponding effort by administrations and regulators to translate the detailed principles of the package into workable national provisions.

The Liberalisation Directives, which removed all special and exclusive rights in the telecommunications services and equipment markets, were adopted between May 1988 and March 1996. The last deadline for notification under the Liberalisation Directives was 1 July 1997. In November 1997, the Commission initiated infringement procedures against those Member States which had not notified the relevant transposition measures. In the meantime, most of the Member States concerned have duly notified, with the exception of those with additional implementation periods. However, even if not fully transposed, clear, and unconditional provisions of those Directives have direct effect, and certain Member States have granted provisional authorisations based on this direct effect of Community Law.

The aim of the Harmonisation Directives - the ONP Directives - is both to provide a clear and predictable regulatory framework during the period when competition is becoming established, and to introduce the common approaches necessary for the establishment of a single market in Europe for telecommunications services and equipment.

Two major Directives, on Interconnection and Licensing, were adopted during 1997. In addition, the ONP Framework and Leased Lines Directives were amended. The Terminals Directive, as supplemented as regards earth satellite terminals equipment, is in the process both of consolidation and fundamental revision.

The Commission has substantially shortened the transition periods for the remaining five Member States :

Luxembourg : 1st July 1998 (Commission Decision 98/568/EC) ;

Spain : 1st December 1998 (Commission Decision 97/603/EC) ;

Ireland : 1st January 2000 (Commission Decision 97/114/EC) ;

Portugal : 1st January 2000 (Commission Decision 97/310/EC) ;

Greece : 31st December 2000 (Commission Decision 97/607/EC)

This means that the EU's telecommunications market will now be fully liberalised in all Member States by the year 2000, including in those Member States for which transition periods beyond 1998 had been foreseen.

Generally the implementation record has improved substantially and can now be rated as very good. The process is based on two implementation mechanisms :

The National Regulatory Authorities ;

The EU Commission.

The Commission has made it clear that it will use fully Community law in case of non compliance. As mentioned, on 21 November and 2 December 1997, the Commission has sent letters of formal Notice to seven Member States regarding twenty cases of non-transposition or insufficient transposition of the Community Telecommunications Directives.

This initiative has had significant results in the sense that, in the meantime, fourteen of these potential infringements seem to have been remedied by the Member States concerned.

Our assessment is that, except in a small number of Member States, transposition has been completed. Where there are delays, drafts are in general awaiting adoption which will ensure transposition. As regards the application of the rules put in place in the Member States, the Commission's initial conclusion is that, despite a number of complaints, there is widespread evidence both that the necessary steps are being taken to ensure market entry, and that regulators are taking action to ensure compliance with the regulatory framework. However, if delays or incomplete transposition persist in certain Member States, the Commission will open additional infringement proceedings.

The Commission intends to issue further Communications to the Parliament and the Council on the state of implementation. The focus of future Communications will nevertheless been shifted away from transposition towards effective application and fuller reporting on the effective opening of national markets, on the basis of a wider range of indicators and more extensive data from the national regulatory authorities. These reports will also be made available on the Internet for the broader public.

Let me now turn to the future.

Main topics will be :

Access / Interconnection / Unbundling ;

Alliances;

Convergence ;

Next generation services.

all of which are also closely related to the WTO dimension.

ACCESS / INTERCONNECTION

The issue of access and interconnection will evolve among three major lines :

the EU's ONP framework : Open Network Provision ;

Application of competition rules ;

Essential facilities concept.

and, finally,

the WTO aspects.

The cornerstones of the EU concept with regard to access and interconnection 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 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 Scandinavian countries and the UK obviously having substantial experience in this area. Europe-wide experience and practice with regard to access questions has also been developed in interconnection of mobile and fixed networks.

I will not go into the details of ONP but let me simply summarise the main results. Combined with the EU's Full Competition Directive, the framework provides for :

the announcement of standard interconnection offerings;

aims at best practice interconnection rates across the EU.

To this end, the European Commission has published an EC Recommendation on Interconnection Pricing and Accounting Separation, recommending ranges of best practice interconnect prices.

The best practice approach has been decisive to break the deadlock in Europe on access and interconnect. First developed last year in the context of our competition proceeding against Deutsche Telekom in the dial / benefit tariff case, the Recommendation generalises the approach for all Member States. The benchmark is based on the three Member States with the lowest applied or announced interconnection rates at the time of publishing the recommendation (UK, France, Denmark). It sets the range for local access at 0.6 to 1.0 ECU/100, i.e. 0;7 to 1.2 US cents. This will make Europe the market with one of the lowest interconnection rates in the world and should rapidly bring new services to the customer.

In more detail, the best practice interconnection charges are :

local : between 0.6 and 1.0 ECU/100 per minute (at peak rate);

single transit (metropolitan level) : between 0.9 and 1.8 ECU/100 per minute (at peak rate)

double transit (national level) between 1.5 and 2.6 ECU/100 per minute (at peak rate)

The overall target is :

a fair balance between wholesale and retail activities by incumbents ;

competitive access markets.

This is at the centre of our approach concerning the application of competition rules to access agreements and the Notice on the application of Competition Rules to access and interconnection which is due to be adopted in final form by the Commission before the end of the month, after a period of extensive consultation.

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 establish necessary safeguards against anti-competitive practices.

The Notice 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 - for the essential facility. 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.

A problem looming on the horizon is the depth to which access to facilities must be left open - the "unbundling" issue. Unbundling and the rates applied could become a dominant issue during 1998.

Let me point here also to the close relationship with the international context.

The WTO Agreement on basic telecommunications services foresee the internationalisation of access principles and of competitive safeguards.

It defines essential facilities as :

facilities of a public telecommunications transport network or service;

exclusively or predominantly provided by a single or limited number of suppliers

and which

cannot feasibly be economically or technically substituted in order to provide a service.

The WTO reference paper also identifies required competitive safeguards concerning :

Prevention of anti-competitive practices in telecommunications :
"appropriate measures shall be maintained for the purpose of preventing suppliers who, alone or together, are a major supplier from engaging in or continuing anti-competitive practices" ;

Safeguards:
"The anti-competitive practices referred to above shall include in particular :
(a) engaging in anti-competitive cross-subsidisation,
(b) using information obtained from competitors with anti-competitive
results,
(c) not making available to other services suppliers on a timely basis
technical information about essential facilities and commercially
relevant information which are necessary for them to provide service.

Apart from substantial further provisions concerning interconnection and universal service - largely inspired by the EU's ONP approach - this shows the growing global dimension of competition rules in the sector.

Of course, one of the areas where the global dimension is most obvious at the moment, is the accounting rate issue.

THE ACCOUNTING RATE ISSUE

The accounting rate issue was left out of the WTO Agreement for the time being. It has however become an immediate international issue through the FCC benchmark rule making and the EU accounting rate investigation under Competition Rules which we have since initiated.

Let me recall the basic EU framework for accounting rates.

The EU Interconnection Directive :
Accounting rates must be cost-oriented - at least for intra-EU traffic ;

EU Competition Rules mandate the prohibition of abuse of dominant positions.

The aim of the on-going EU accounting rate investigation which we launched last December is to :

Scrutinise current accounting rate arrangements ;

Assess competition aspects ;

Examine rates within the EU and on routes to the US and to Japan ;

Further the goal of cost orientation.

As was announced on the occasion, we will scrutinise the current accounting rate arrangements within the EU, with a view to establish any abuse of dominant position and to furthering this goal of cost-orientation. Requests for information have therefore been sent to all dominant telecommunication operators in the EU in order to collect the information necessary to assess the competition aspects of the accounting rate arrangements. We are currently analysing the information. This will concern, inter alia, :

The costs involved in the various aspects of forwarding international calls, including the local network, the national network, the international gateways, exchanges and transmission facilities,

The revenues and profits derived from the accounting rates activity.

We welcome the discussions in the ITU but we will maintain our pressure towards a cost-oriented approach. We expect that at least within the EU the accounting rates mechanisms will be replaced by other price mechanisms based on cost of termination, during the next two years at the latest.

A clearly related issue is the EU Internet telephony Notice which was adopted in January in its final form. The notice makes clear that we want to secure a soft regime for voice via the Internet.

We believe that a main revolution for international voice could come out of the Internet context and we want to keep the door open for that development.

ALLIANCES

As we have continuously emphasised and as Commissioner Van Miert has said on a number of occasions, we take :

A positive attitude towards alliances under EU Competition Rules,

However, no foreclosure of markets,

Liberalisation of respective markets is a necessary condition for acceptance under EU Competition Rules.

This is how we have treated and approved global alliances, examples being :

Concert,

Global One

Unisource / Uniworld, the latter in Autumn of last year.

As you will know, there are a number of on-going cases in the global and the multi-media fields which the Commission is investigating. Let me limit myself here to some general remarks.

EU Treaty Articles 85/86 and 90, European Competition Rules, mandate three basic positions :

prohibition of anti-competitive agreements or concerted practices ;

prohibition of abuse of sole or joint dominant positions ;

abolition of special and exclusive rights, where they induce the abuse of dominant positions.

The main issues which we will have to address in the transformation of the sector are :

risks of restriction of competition : this concerns issues such as market partitioning, price fixing, foreclosure ;

issues of single or joint dominance. Here we will have to approach novel problems of assessment of the impact of dominance in areas such as access to essential facilities and refusal of interconnection.

and finally,

expansion of dominant positions, to the disadvantage of the consumer and the competitive market place.

We are watching out very closely for bottlenecks - preventing the creation of new ones and ensuring fair conditions of access where we have a fait accompli - and for any extensions of existing dominant positions.

This is just an example of our major objective : opening markets, avoiding market bottlenecks, opening the door to new development and technologies - and this means to more investment and jobs. We need the necessary incentives in the markets to fully exploit the new technological possibilities of telecoms networks on the one hand, cable networks and the new interactive television markets on the other. This is what creates new markets and maximum market potential.

This also determines the position on convergence.

CONVERGENCE

Let me make here just a few statements :

Multi-media will be key,

New partnerships and mergers are emerging and are bound to continue to emerge by the very fact of convergence,

The Internet develops into a link between current networks and future delivery systems,

The critical issue is the control of the gates.

As you will know, the Commission is currently undertaking two major actions in this field :

The EU Cable Review

and the

The EU Convergence Green Paper.

It is also currently determining the position on major multi-media joint ventures and mergers. Let me here add a remark on the Cable Review.

The EU-Full Competition Directive and the EU-Cable Directive mandated a Review of the cross-ownership between telecommunications and TV-cable networks by 1st January 1998. Underlying this issue is the whole issue of the future competitive situation in the local loop - the determining question of the future competitive structure of communications and media markets in Europe.

The "Cable Review" has been adopted by the Commission in December and was published on the Internet (http://europa.eu.int/dg04/lawliber/en/
cabrev1.htm). It will be published in the EU's Official Journal before the end of the month for the official start of the two month consultation period.

The major proposal is the announcement by the Commission of its intention to issue a Directive under Art. 90 mandating legal separation in those cases, where the incumbent offers both telecommunications and cable activities in the framework of a single legal entity. The aim is to allow the Commission to intensify scrutiny under Competition Law, of potential anti-competitive effects in such a situation.

In response to the on-going scrutiny major measures are already being taken by market actors. Out of the four largest cable operations in the European Union (Germany, The Netherlands, Belgium, Sweden), Deutsche Telekom has announced that it will separate its cable operations into a separate legal entity and that it will consider further measures. In The Netherlands, KPN has indicated plans for measures beyond legal separation. The Belgian cable operators are traditionally separated from the incumbent.

The cable issue will decide on the question if the access to local homes can be in a single hand and which measures must be taken in such cases. The Convergence Green Paper sets the wider context. It addresses the general issues of convergence of telecommunications, the media sectors, and the Internet.

The basic issue is that as we move into converging markets we must avoid creating new super monopolies both in upstream and downstream markets. We must maintain the creative dynamics of growth.

Summarising then, we are :

favourable to new technological developments ;

but we cannot accept new multi-media super-monopolies being shaped in the process of convergence because it would lead to market stalemate ;

the introduction or maintenance of competition in the parent's core markets is therefore fundamental.

Let me then turn to my fourth major point : next generation services

NEXT GENERATION SERVICES

Decisive will be :

wireless : transition to UMTS ;

cable : development towards multi-media ;

ADSL : expanding the general availability of broadband services.

A major concern is the smooth transition to the UMTS. The Commission is due to adopt today the announced proposal for a Council Decision on UMTS introduction.

I think it is interesting to look back. The European success in GSM was based on a delicate interplay between harmonisation and competition. The original system was developed in a harmonised approach between the incumbent mobile operators (at that time the PTOs). The actual rapid market introduction was essentially based on new market entrants (first mass deployment by Mannesmann Mobilfunk ; the incumbents would not have had enough incentive to rapidly replace their already existing analogue systems, in most cases). Finally, the global success of GSM was basically due to the rapidly expanding European market which provided a mass base and reference, and the lack of credible Japanese and American alternatives at the time.

For UMTS the situation will be substantially more difficult.

UMTS is based, at this stage, on a European / Japanese co-operation. We risk that first market introduction will be made in Japan. Therefore, the system will at the same time mark the re-entry of Japan on a large scale into the global mobile market, particularly in the Pacific area (which will be the biggest mobile market at that time).

It will therefore be vital for the European position to deploy UMTS as rapidly as possible after the year 2000 in Europe, in order to maintain Europe's weight in the world market.

The main issue will be if there is enough investment incentive for the mobile operators in Europe to rapidly replace, or expand, GSM by UMTS systems. Given the fact that, at that time, Europe will count around 50 million GSM users on existing GSM/DCS 1800 equipment, rapid replacement will only be possible if substantial competitive pressure is maintained.

This makes a strong competition-oriented component in the allocation of UMTS licences so important.

A pre-condition for promoting deployment of UMTS as a mass system is the effective convergence of fixed and mobile networks and services, as already recognised in the 1994 Mobile Green Paper.

This is the background to our investigation of price effects and interconnection rates of fixed and mobile and the related termination rates which was announced yesterday.

Promoting convergence and combating abusive behaviour and price cartellisation which prevents such convergence is also a pre-condition to the full effect of UMTS in increasing competition in the local loop.

The objectives of the inquiry into mobile and fixed telephony prices in the European Union, as announced yesterday by Commissioner Van Miert is to verify that:

public switched telecommunications network (PSTN) operators apply the same conditions to mobile operators as to other fixed operators for call termination on their network; and that

mobile operators apply the same conditions to fixed and mobile operators for call termination on their (mobile) network.

The impact of these interconnection fees on the level of prices for calls from fixed networks to mobile phones will also be examined.

At present, mobile network operators have joint control amongst themselves over the termination of calls on their networks, and it appears that in a number of cases, the price of calling a mobile phone from a fixed network is often substantially more expensive than calling from one mobile phone to another mobile phone. Where information is available, interconnection rates between fixed and mobile networks can be up to fourteen times higher than rates applied between fixed networks. As to charges paid by users, they are in certain cases up to six times higher from fixed towards mobile networks compared to fixed to fixed or mobile to mobile networks.

Finally, the outlook.

OUTLOOK

We aim at :

expanding competition in the local loop

ensure EU-wide open markets

the WTO agreement provides the global dimension.

This also sets the general framework for future pricing of telecommunications.

We still see little movement in the local loop in favour of customers and this is due to insufficient competition ;

We will see price decreases in the range of 30 to 50% in long distance and in international services, with new entrants now arriving in the market place, and this is already happening in a number of Member States :

The medium term perspective may be determined by the Internet developments.

A major issue will be :

Will Internet self-regulation extend into the traditional telecommunications domain. This would mean that we would see substantial further deregulation, ultimately only subject to general competition law scrutiny and general public interest legislation. The current debate on Internet governance and the International Charter will have to be watched closely ;

Or will traditional telecommunications try to extend telecom regulations to the Internet.

The decision on this issue will be also decisive for the future pricing environment of telecommunications. The development of Internet Voice Telephony - or its more powerful future variations and combinations - could be a major test in this respect.

If the Internet trend prevails and translates into a revolutionary reform of international telecommunications this could mean that within a very short time trans-Atlantic rates may undercut by far the two digit figure in cents per minute. Whatever the development, we will use competition rules to stop anybody from keeping prices artificially high and pre-empting users from the benefits which should be theirs. We have shown this with the launch of the accounting rate investigation and now with the mobile / fixed interconnection investigation.

Let me conclude.

We believe that technology justifies substantially lower prices in the sector and that we have to avoid that market cartellisation stops that development. We also believe that lower prices will bring substantial market expansion and will create the communication-rich society which we aim at - for the benefit of the European Citizen, of the European economy, and - of course - the sector actors, with the new wave of innovations, jobs and which this development will generate.

Top

SPEECH ] - [ Previous ]

What's New ?

Mail-Box

Search