Good article on high costs in European telecom
zdnet.com
Cheapest Network Is Indirect Line
By Will Rodger, Inter@ctive WeekMay 25, 1998
Say your company has offices in France. Say, too, you
want to set up a high-speed network from Paris to
London. Logic says the wires should run from one
capital to the next. But reality says something else.
Instead of paying for lines from London to Paris, you'd
actually save money by sending all that traffic to the
U.S. and back again over U.S.-owned networks. In all,
data travels 500 times as far for one-tenth the cost,
even though all sides agree that actual costs for
equipment and services are roughly equal in the U.S.
and Europe.
Why are prices different? Chalk it up to monopoly
power.
"It's expensive for historic reasons. People wanted to
protect the European [phone monopolies] from the
American giants," says Ian Dixon, president of the
European Internet Service Providers Association. "We
need to solve this problem."
To do that, EuroISPA is holding a two-day conference
in Brussels, Belgium, June 4-5. There, Internet service
providers (ISPs), hardware makers and software
developers will huddle with members of the European
Parliament, telecom ministers from the European
Commission and others to talk about how to cut prices.
Perversely, Dixon says, protectionist policies that
guaranteed prosperity for the phone monopolies are
hobbling the European telecom sector today.
When every phone company had a monopoly, it could
charge whatever it wished. And since governments
owned them, they generally charged heavily to fill public
coffers and provide jobs with security - a guarantee
that foreigners would be kept out sealed the deal.
But the growth of international communications has
exposed a weakness in those arrangements.
International tariffs to the U.S. are still lower than
intracontinental rates. As a result, ISPs and large corporations buy 45 megabit-per-second lines to the
U.S. for Net service instead of lines within the
continent. Those circuits cost a staggering $450,000
per month for what amounts to local service. U.S.
ISPs, by contrast, typically charge $4,000 monthly for
a similar domestic connection.
Problems don't end there, though. In addition to facing
high rates for intracontinental traffic, European ISPs
subsidize European telcos every time they buy a line to
the U.S. because, by law, European telecom
monopolies get half the fees paid for the line. U.S.
companies, in turn, use those fat overseas rates to
subsidize their forays into Europe.
The solution? More competition, like the free market
that was supposed to start in Europe Jan. 1. As in the
U.S., though, incumbents move slowly to hook their
networks to rivals'.
EuroISPA can be reached at www.euroispa.org |
