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Competition

The liberalisation of telecommunications in Europe and the role of the regulators

Rome/12th April 1999

 

Jean-François PONS

Deputy Director General D.G. IV – Competition, European Commission

Amat victoria curam

(Catullus)

Ladies and Gentlemen,

I would like to thank the organizers for their very kind invitation to this conference, which takes place at a very interesting time for the telecommunications sector in Italy. The attempt by Olivetti to take control of Telecom Italia is certainly a clear illustration of the depth of the changes in this sector.

Another illustration is given by the pace of liberalisation in Italy. A year ago, I would have underlined the delays of liberalisation in this country as compared to the European time-table (the reference date of the 1/1/98) and to the other Member States of the European Union.

Today, even if the liberalisation measures are not all complete, real progress has been made, especially since the creation of the Autorita Garante delle Communicazione, which I am pleased to congratulate for the work it has done.

 

1. The liberalisation process and the Commission’s role in the telecommunications sector

  1. The effort required to liberalise the telecommunications sector has been tremendous, involving legislation spread over ten years. However, what is on the statute books must be turned into reality. To see the effectiveness of telecoms liberalisation, you have to take a look at its impact on markets. We have clearly made progress in Europe with international call charges where in some cases there has been a drop in prices of up to 30% (the reduction has been even more striking in the case of national long distance calls) and with the tremendous growth of services offered to consumers and business, especially SMEs (the success of mobile telephony is a clear example).
  2. This process has lagged somewhat in Italy, where real competition is only now emerging. Omnitel Pronto Italia has been the first competitor to Telecom Italia in the mobile market, where the Commission was obliged to intervene to ensure that it was not discriminated against. I am happy to note today that OPI has become one of the largest mobile operators in Europe. There is now a third operator and I am looking forward to the granting of the fourth mobile licence in Italy.

     

    In the fixed telephony market too, the market structure is evolving. It is true that the number of operators in Italy (18 in September 1998) is smaller than in Germany (108 at the time) or France (28 at the time), but consumer choice is increasing, at least as regards long distance and international calls.

    As regards local calls, competition in the Italian market is handicapped by the fact that there are no cable TV networks which could, as in Belgium, the Netherlands or Denmark, be upgraded to compete with the incumbent. However, the Italian legislation provides for access to the unbundled loop and I hope that when this possibility is effectively implemented by the regulator, competition will also emerge in the local loop.

  3. The Commission has a double role in this process :
  4. 1°) We must ensure that the relevant European Directives (harmonisation and liberalisation directives) are properly implemented. If not, we will have to open proceedings against the Member States.

    The two Directorates General of the Commission involved in this action, DG XIII and DGIV, have constituted a joint team in monitoring developments in the Member States. At the end of 1998, there were 89 infringement proceedings open against Member States (30 relating to the liberalisation and 59 to the harmonisation Directives). The Commission has closed 3 proceedings since the beginning of this year because the Member State concerned changed its previous position in a satisfactory way, but is now considering opening 11 new procedures and closing one other procedure.

    In the case of Italy, we have opened, since the beginning of 1998, 8 procedures, amongst which 2 have been closed. The procedures which are still open concern :

    - the rebalancing of tariffs,

    - some obligations imposed on new entrants („performance bond", research and development commitments),

    - gaps in the implementation of the interconnection Directive.

    In addition, we are assessing complaints regarding the lack of adoption of measures regarding the provison of audiotext services and closed-network mobile communications.

    2°) The Commission acting as the Community Competition authority, has the duty to implement (art.86) antitrust law which prohibits anti-competitive agreements (art.85), abuse of dominant position and allows us to vet mergers, acquisitions and JVs.

    As is well known, we have dealt successfully with a generation of cases concerning global alliances or mergers : Concert, Global One, Unisource/Uniworld, Wordcom/MCI. The Commission has just adopted a favourable decision in the BT/AT&T case as well. The basic precondition is that markets are not closed off and that competitive opportunities remain.

     

    A recent and important case was that involving the Italian national railway operator Ferrovie dello Stato and Infostrada, a joint venture formed between Olivetti and Mannesmann to build a telecommunications network based on the railway infrastructure built up by FS. After discussion with the companies concerned and consultation of the A.G., we have considered that the agreement does not fall under Article 85(1), as it would not lead to an appreciable restriction of competition provided that the priority access was limited to the time necessary to put the network into service and access was given where the railway network is the only available infrastructure. The case is now to be closed by a so-called negative clearance comfort letter.

    2. Cooperation between the Commission and National Regulatory authorities

    This specific example allows me to turn to the main issue I would like to cover today: how to ensure efficient cooperation between the Commission and the national regulator and how to organise the cooperation between national telecom regulators and national competition authorities.

    a) National Regulatory Authorities

    The NRAs have various responsibilities, of which the main ones are:

    - the drafting (sometimes granting) of authorisations to enter a national market;

    - dealing with disputes between operators or between an operator and its customer. Where a user is in conflict with their network operator, they may complain to the NRA. NRAs must ensure that there are procedures for resolving the dispute which are easily accessible and in principle relatively inexpensive. Under Community Law, the NRA has a broad discretionary power to settle disputes;

    - more generally, to ensure that the telephone services are affordable and therefore play an important role in the rebalancing of telecommunications tariffs.

     

    b) The relationship between the Commission and the national authorities

    (the "Access Notice")

    The Commission "Notice on the application of competition rules to access agreements in the telecommunications sector" (the "Access Notice") deals with the relationship between the application of competition rules and sector-specific regulation as well as procedural issues regarding access agreements in the telecommunications sector. It notably sets out (para 28) that priority should be given to sector-specific regulation applied by NRAs, where applicable and subject to the rights of companies to complain under the competition rules.

    In antitrust cases under Regulation 17 , which are clearly national cases, where there are related actions before an NRA and where it has the powers to remedy the competition problems at issue, the Commission will generally not initially pursue any investigation as to the existence of an infringement of EU competition rules. In these cases, the Commission would suspend its own investigation pending the conclusion of the national proceeding. The Commission will then decide to close its own case, if the competition problems have been solved in line with the case-law of the Court of Justice.

    This is however subject to the following points:

    - national proceedings must be concluded in a reasonable period of time, typically not more than six months;

    - some particular cases might have a substantial Community interest affecting, or likely to affect, competition in a number of Member States.

    Moreover, the NRAs must ensure that actions taken by them in application of sector-specific rules are consistent with Community competition law. Indeed, it results from the case law of the Court of Justice, in particular the Ahmed Saeed judgement and the recent "CNSD" judgement, that they must not encourage or reinforce or approve anti-competitive behaviour, for example pricing practices contrary to Article 85 or Article 86.

    For all these reasons, there is a need for informal contacts between the Commission, the NRAs and the NCAs, notably when a particular case can be dealt with either by the Commission or by an NRA.

     

  5. Example: the Commission’s inquiry into fixed-mobile interconnection charges

This inquiry, based on Article 86, has revealed several potential competition issues which could be solved by sector-specific regulation. This investigation thus provides an opportunity to apply concretely the principles mentioned above and allows us to assess any practical difficulties in doing so.

 

In July 1998, the Commission announced the preliminary results of its inquiry into interconnection charges between fixed and mobile operators. These cases dealt with:

    • termination in the Public Switched Telephone Network (PSTN) for mobile-to-fixed calls;
    • retention by the fixed network operators, on fixed-to-mobile calls, of their share in the payments;
    • termination in the mobile networks for fixed-to-mobile calls.

The objective of the first phase of this investigation was to gather comprehensive data on the issue in all Member States, and, with the help of consultants, to assess these with a view to identifying any possible competition problem. As a result of this analysis, the Commission now considers that further in-depth investigations are warranted in at least fourteen cases (in eight Member States), on the basis of a "best practice" comparison.

As regards the issue of termination in the PSTN of calls from mobile telephones, the Commission considers that the NRAs could deal it with more efficiently in the countries concerned, on the basis of the sector-specific legislation. Indeed, procedures are available within the ONP framework to tackle this issue and NRAs have carried out a significant amount of work on the interconnection offer of incumbent operators.

In the issue of call termination charges in mobile networks, the Commission pursued itself the investigation into this subject, but concentrated its resources on operators in a very limited number of countries, amongst which Italy.

I would like to mention also that a similar inquiry was launched by DG IV as regards international accounting rates, where seven potential cases of excessive margins were identified. The Commission has informed the NRA of these findings. In those cases where the relevant authority decided to pursue the issues under its own jurisdiction, the Commission suspended its own proceedings. There also, the results are very good : most of these rates have been reduced following the intervention of the national regulators.

* * *

The respective roles of the NRAs, the NCAs and the Commission (in its dual role) and their relationship can give an impression of complexity. In fact, according to the principle of subsidiarity and of role specialisation, the NRAs must have a leading role for national cases (and the NCAs when the case is not linked to sector specific rules, but to competition ones) ; the Commission being in charge of ensuring a correct transposition of directives and of competition cases of Community interest. Last but not least, all these authorities must be in very close contact to ensure satisfactory exchange of information and analysis.

Conclusions

The liberalisation of telecommunications in Europe is a "success story" : it has ensured that technological progress has led to new services, lower prices and job creation. Operators, financiers, workers, consumers, regulators, governments, European Institutions have all played a part in this success. But the story is not yet over, in particular with the development of competition, as we can see in Italy, and the task of the national authorities and of the Commission will continue to be important in the near future.

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