E.U. May Seek to Break Up Former Monopoly Telcos

Viviane Reding, the European commissioner in charge of telecommunications regulation, is considering following the United Kingdom in forcing the structural separation of incumbent telecom operators into service and infrastructure divisions across the European Union, she said Thursday.

The commissioner was unveiling a series of proposals aimed at improving competition among telecom operators. She also mooted the idea of one single union-wide telecom regulator, to act as an umbrella organization for the 25 national regulators that exist at present.

She also proposed more effective use of radio spectrum, saying that with the switch from analog to digital TV, there is an opportunity to re-use the analog frequencies for new technologies.

Structural separation of different services such as broadband Internet access and fixed line telephony has worked well in the United Kingdom, the commissioner said, so “why not look at it with the view to applying it across the E.U.?”

Structural separation was imposed on the telecom industry in the United States in the 1980s, she said. “Today, most Americans get fast Internet access from cable suppliers rather than telecom operators. Here, consumers rely heavily on DSL from phone operators; they don’t really have a choice,” Reding said.

Overall, the rules created in 2002 have worked well, Reding said at a news conference. “Opening the telecom markets to competition is a success story,” she said.

The price of a 10-minute local fixed-line telephone call has fallen by an average 75 percent since 2003, she said. And of the 270 billion euros in annual revenues across the industry last year, half was generated by new competitors rather than by the former state monopolies that used to dominate the market.

In 2002, 18 specific market sectors were given a strict rulebook, so-called ex-ante regulations, in order to prevent them being dominated by the incumbents. Reding said that competition had been established in six of them and proposed lifting the special rules in those sectors.

However, the 12 remaining sectors, mainly wholesale markets in the mobile phone market, still haven’t seen enough free competition, so the rules there will have to remain in place, and in some cases be tightened further, she said.

“The current regulations have had an impact; we’ve seen an increase in competition. I don’t want to phase out sector-specific regulation where there is no efficiency, but if we succeed in making all these sectors competitive, we could end all ex-ante regulation during the following review of telecom rules,” she said.

The commission’s review of the telecom rules and her proposals for changes have been both vilified by the former incumbents and welcomed by smaller competitors.

The European Competitive Telecommunications Association said it welcomed the proposals, specifically the possibility of a form of “functional separation” similar to what has been adopted in the United Kingdom.

“We are delighted that the commission has reaffirmed the importance of competition in driving investment and innovation and is committed to examining solutions that might address competitive problems at their core,” said Steen Clausen, managing director of ECTA.

“But the proposal as it stands may mean that by removing critical retail markets from regulatory protection, the commission could put in jeopardy the many benefits consumers have already enjoyed as a result of the framework as it exists today,” he said.

Michael Bartholomew, director of the European Telecommunications Network Operators Association (ETNO), said Reding’s proposals threaten investment in European telecom.

“We have the commissioner who is a populist,” he told reporters. “Is this good for the health of the European telecom sector?”

“Mrs. Reding does not want to be confused with the facts. … This is unacceptable for the future of the European information society, and we are falling behind other regions of the world,” he said.

ETNO dismissed Reding’s assertion that she was rolling back regulation, adding that companies will not upgrade networks if they are forced to open them up to competitors.

A consultation with the industry, the European Parliament and national governments will now run until the end of October. Reding said she will make concrete proposals for changes to the laws by the end of the year.

-Paul Meller, IDG News Service (Brussels Bureau)

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