European Phone Competition Will Take Time: Industry Spotlight
London, Nov. 20 (Bloomberg) -- Europe's plan to open its $176
billion-a-year phone market in January won't bring the competition
it should because existing phone companies will defy the law and
hang on to their dominant positions as long as they can, analysts
say.
Phone companies within the 15-nation European Union, as former
arms of the state, have enjoyed virtual monopolies. They are now
required, according to a 1993 mandate, to give rivals access to
their phone networks with the aim of providing better service and
lower prices, much as the U.S. government tried to do with last
year's telecom reform law.
As occurred in the U.S., however, phone providers like
Deutsche Telekom AG and Telecom Italia SPA are seen dragging their
feet to hold onto their dominant advantages. They are likely to
make it harder for potential rivals by charging high fees and
giving little access to customer information, delaying the consumer
benefits.
''It'll take many years to really pry open the markets,'' said
Philip Harris, an investment manager at Albert E. Sharp.
The EU rules bring Europe into line with laws set by the World
Trade Organization earlier this year. Under them, European
countries must offer to all 70 countries that signed the WTO
agreement the same operating rules they offer to their domestic
companies.
The incumbents' reluctance to cooperate is not surprising. The
Finnish government opened its long-distance and international phone
markets to competition in 1994. Since then, Telecom Finland's
market share has dropped to 42 percent from a virtual monopoly.
Only a few countries, such as Denmark, Finland, the
Netherlands, Sweden and the U.K., already have competition in their
domestic phone markets.
Legal Action
Other countries, such as Belgium, Denmark, Germany, Greece,
Italy, Luxembourg and Portugal, stand accused of dragging their
feet. The European Commission, the executive agency of the European
Union, said the seven are using stalling tactics and setting high
prices for competitors to access their networks and customers -- a
procedure called interconnect.
The Commission said the dominant Danish and German phone
companies, Tele Danmark A/S and Deutsche Telekom, didn't publish
standard terms and conditions for interconnection, including
prices, by the July deadline.
''Interconnect is the biggest single issue -- if you're a
competitor, getting the right terms for interconnect is obviously
key,'' said Graham Finnie, an analyst at the Yankee Group Europe, a
consulting firm.
Equal access -- allowing customers to dial a prefix number to
choose which phone company they want to use -- has also been
delayed by some companies. If equal access is not available, calls
are automatically routed via the dominant national phone company.
Belgium and Germany also have not yet appointed independent
regulators, a key recourse for new entrants. In France, no licenses
have been issued. And licenses awarded in one European country are
not valid in any other.
Competition's Benefits
The Commission's mandate is designed to make Europe's phone
companies competitive, to attract investment to the EU, give
consumers and businesses lower phone bills and give European
companies better access to foreign markets.
Deregulation has already brought certain benefits. In the
U.K., phone prices have fallen 40 percent since deregulation began
in 1984, one of the top four reasons the U.K. cites for attracting
40 percent of all investment in the EU from non-EU businesses.
Still, competition has slowly crept into the European phone
market. U.S. companies such as Ameritech Corp., SBC Communications
Inc., WorldCom Inc., COLT Telecom Plc and AT&T Corp.'s Unisource
venture with the four dominant telephone companies of the
Netherlands, Sweden and Switzerland have made some inroads.
European utilities such as railways and other companies who
have existing networks have also set up as telephone operators in
competition with the incumbents.
''In most countries, there are at least two groups of
competitors already in place -- it's unlikely we'll see a lot of
new players coming in,'' said Finnie.
The incumbents are ''going to do their level best to delay the
procedures that would allow a level playing field.'' said Rob
Ollerenshaw, director of market analysis at CIT Research Ltd., a
telecommunications consultancy in London.
For certain countries, they won't be breaking any laws by not
opening their markets in two months. The European Commission has
granted more time to five countries who claim they are not ready
for full deregulation.
Spain won't open its market until the end of 1998, Ireland
will open in the year 2000 and Greece, Luxembourg and Portugal do
not plan to liberalize their markets until 2003.
''There will be other problems that arise where incumbent
phone companies will use various methods to freeze out
competition,'' said Finnie.
The Commission has promised to review whether competition is
working in 1999, when plans for a pan-European regulator could be
introduced. For the moment, it's hoping the threat of legal action
will spur member states into action.
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