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Cernobbio, 27th March 1998

 

 

 Dr. Herbert UNGERER

 

Aspen Seminar

Cernobbio, March 1998

"Communications Systems"

 

 

 

Global competition and issues of governance

 

Thank you for giving me the opportunity to say a few words at the start of our discussions on global competition in the communications sector.

The Mega Trends

I believe that the basic scenario for our discussion is set by four Mega trends :

  • Digitisation
    Digitisation basically means transforming our networks into multi-purpose / multi-use carrier systems. This means new possibilities. New possibilities mean new market structures. Digitisation has radically transformed telecom networks since the beginning of the eighties and led to complete reform of telecommunications markets and their system of governance. It is likely that digitisation of television will do the same in its field in the last years of the nineties.

  • Liberalisation
    Liberalisation of telecommunications in Europe has meant a fundamental change of the market place in a dramatically short period. 1st January 1998 in fact stands for two major milestones :
Full liberalisation of the European telecommunications markets, as fixed in the EU Liberalisation Directives.



World-wide commitments taken by the European Union, the United States, Japan, and a number of other countries according to their commitments in the WTO framework

  • Privatisation
    Privatisation completely transforms the incumbents’ operations in a top-down revolution. It is in Europe a necessary rsponse to a liberalised market place. At the same time we see the arrival of completely new types of newcomers on the market.

  • Convergence
    We are seeing the convergence of markets : fixed / mobile ; telecoms / media  - ultimately, the Internet which is testing the basics of our regulatory and pricing structures.

The total markets at stake world-wide are impressive. According to any count total volume corresponds (in 1998) to some 3 trillion ECUs (some 4.000 billion Lire) : roughly a third in telecoms, a third in computing, a third in the audio-visual sector. Out of the world-wide cake, approximately a third is in Europe.

I have said that we are seeing dramatic change through the liberalisation in the EU telecom market. It may be best to recall some figures. According to the most recent implementation report ("Third Report on the implementation of the telecommunications regulatory package", COM(98)80 final of 18th February 1998) published by the European Commission, in all of the ten Member States of the EU who had to liberalise their market by 1st January 1998, new licences for network and full voice telephony operations have now been allocated. This country is one of them. It has caught up substantially even if not all issues are resolved.

Let me give some more detail :

  • More than 500 local loop licences had been allocated by end February in the European Union. The Member States leading the list were the UK (173), the Netherlands (129 - mainly cable) ; Finland (51), Sweden (32), Germany (58).

    This is, of course, a moving target, with a number of licences allocated since. It means that since 1st January 1998 only Greece, Ireland, Luxembourg, and Portugal are still left with full network monopolies.

    However, one must also clearly see that in most Member States far more than 90% of the market remain with the incumbent. While 1st January 1998 has lifted regulatory restrictions and Member States have initiated the licensing process, the problem of market structure remains.

  • This shows the overriding role of mobile communications for bringing competition to the telecom market in Europe.

    By February 33 GSM licences were allocated in the European Union with at least two in all Member States, and additionally some very important analogue licences like in Italy.

  • 47 DCS 1800 licences, even if 25 of those were in Finland and many were still not operational.

    By the end of February, there were still no DCS1800 licences in Belgium, Spain, Ireland, and in Italy  - but in Italy this is, of course, going to change very soon with the allocation of the third mobile licence.

Without going into further detail, this shows the magnitude of change and the challenge for the markets and the governance of the system.

Therefore, 1st January 1998 was a real watershed for Europe’s and the global telecommunications systems  - the ITU’s World Policy Forum in March in Geneva and the World Development Conference in Malta have emphasised this is an impressive matter.

The Internet gives the ultimate global dimension and drive to the new telecommunications world, the digitisation of television extends it into the media world  - or extends the media world into telecommunications.

What is on the other side of the watershed ? Where will the development carry us ?
What should we focus on ?

It seems to me that, in Europe at least, there is a growing conviction that the critical points for the future development are the areas where the different actors meet.

  • Access and interconnection where the network operators and the regulators are determining the basis of future competition and investment, both in the telecom and in the media field, be it access to telecom networks, to cable, or to frequencies.

  • Alliances, both horizontal and vertical, where national operators meet their international partners to position themselves or where telecoms and media forge new positions on new segments.

  • More generally, what has now come to be called convergence : telecoms /media where a major debate has been launched by the European Commission with the publication of the Convergence Green Paper but also mobile / fixed and their combined offerings  - which may become the hottest topic in European telecom later this year  - and, of course, the Internet which has the potential to "net" all these actors.

Most of these topics are loosely inter-related, all of them are at the centre of attention in Europe, and some of them may be of major interest to our debate at this conference.

A word on the governance of the system which is so central for the investment climate as Reed Hunt emphasised a number of times during the discussions yesterday.

In the European Union, the system is just settling down :

  • Setting up of the new National Regulatory Authorities (the NRAs) ;

  • Ensuring the full enforcement of Community harmonisation  - ONP  - and Competition Law in the now liberalised sector ;

  • Working out the relationship of the new sector-specific NRAs with the general National Competition Authorities ;

  • Convergence : the convergence of authorities regulating media and authorities regulating telecoms ;

  • The interfaces between sector specific regulation / general competition law / EU / WTO.

In none of the Member States, I believe, a final balance has been reached. It remains a dynamic situation, but the outcome and the final balance will be determining the future investment and innovation climate for the sector, both in the telecom and media fields.

On the more global level, we seem to be faced with :

  • on the one hand, a profound transformation of the traditional telecoms system, most notably with the rapid erosion and the apparently imminent break-down of the accounting rate system and the tension this can bring between the developed and the developing world ;

  • on the other hand, the build-up of a completely different approach coming from the Internet, largely based on private self regulation, with the promise of flexibility and innovation but at the same time the open question who will control those private regulators and substantial questions about securing future competition.

All of this can give rise to substantial debate and perhaps it will do so during our discussions.

Let me conclude on some of the most burning immediate questions.

  • The major short term question will be how to create real competition in the local loop.

    We have changed regulations, but we have not taken radical steps for changing market structures. Divesting cable from telecoms will be one necessary route towards this goal in most European countries. This is the aim of the EU Cable Review we have undertaken. Radically increasing frequency allocation to mobile and wireless may a route in others, like in this country.

  • The other major immediate question underlying most competition cases is how to allow integration  - television / telecoms or mobile / fixed in a situation where competition in these markets is clearly still insufficient. We have liberalised to allow innovation. Convergence can not now mean the creation of new super-monopolies  - and this is danger is very real.

  • Finally, the Internet puts all concepts for the telecoms / television sectors in question  - not in its current form, even if can already deeply revolutionise most of current services and distribution sectors.

    Even more so in a future form. Imagine an Internet with 100 times current performance / cost levels in throughput and speed to the final user. Telephone would become a by-product with a few cents per minute only even for trans-Atlantic traffic, nearly un-limited distribution capability for television or other video products from distributed video servers via the Internet may become ultimately available  - not just for national but for world-wide distribution. Actors in both sectors would have to completely review their current strategies and revenue base, as we would have to review the regulatory systems.

    Such possibilities may seem remote at current Internet performance and use, but there are some indications : cable access to the Internet, Internet telephony, high performance video streaming techniques. Also, do not forget that the computer sector doubles now its performance / cost ratio according to some every six months or so.

    If this carries over to the Internet, we could be faced with such a situation in three to four years from now, unlikely as it may sound. Band-with requirements within the Internet have started already now to double every half year. If this is an indication of where we go, I believe we will have to prepare for radical innovation, radical change of markets and a radical challenge for competitive structures and the governance of the system.

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