EU receives complaints over telecom competition

Five of Europe's large telecommunication companies have written to the European Commissioner for Competition, Mario Monti, complaining about "methodological anti-competitive behavior" by former telecommunication monopolies in the market for local telecommunication services in Europe.

The chief executive officers (CEOs) of Cable and Wireless PLC (C&W) of London, Arcor AG & Co. of Eschborn, Germany, Groupe Cégétel SA of Velizy, France, Wind Telecomunicazioni SpA of Rome and QS Communications Benelux BV of Amersfoort, Netherlands, said that in spite of a one year-old European Union law designed to open up to competition the so-called local loop, the link between the subscriber and the local exchange, they and other new entrants to the market "still face entry barriers."

The five companies urged the Commission to separate the local loop "structurally" from the incumbents, if they continue to prevent fair competition.

The Commission is sympathetic in principle to their concerns. It believes that unbundling the local loop is essential for the rollout of high speed, broadband Internet access -- a key political aim in the E.U.

Monti said at a conference in Brussels on Monday that his service is aware of alleged discriminatory practices by the incumbents beyond the two cases they are already examining, and hinted that further antitrust cases may soon be opened.

The Commission sent a statement of objections to Deutsche Telecom AG last December, accusing the company of squeezing its profit margins to force rivals out of the market. In May this year the competition regulator accused France Télécom SA of predatory pricing to support its ISP (Internet service provider) subsidiary Wanadoo SA.

Competition Commission spokeswoman Amelia Torres said the allegations made in informal complaints pointed to a "pattern of discrimination" by incumbents across the 15 member states of the European Union.

The discriminatory behavior is not necessarily to do with pricing, but is more about the conditions facing new entrants, such as the ability to install their equipment in incumbents' local exchanges, she said.

Some incumbents are alleged to have been causing "unjustified delays" in installing equipment and to be providing inferior services to new entrants, she said.

The Commission said that in the year since the local loop law was passed, only around 2 percent to 3 percent of local lines have been opened up to fair competition. In the first quarter of this year an average of 6,000 phone lines a week across the E.U. were unbundled to allow the subscriber a choice of operator, according to new research by the Commission. During the same period telecom incumbents established 65,000 new high speed ADSL (Asymmetric Digital Subscriber Line) Internet connections a week. Competitors can only offer a rival ADSL service if they have access to the local loop.

However, the E.U. competition regulator is unlikely to consider the call for a breakup of the incumbent operators, said a person familiar with the Commission's thinking. "There is no doubt that the new entrants are having it tough right now but is it realistic to ask for the incumbents to be broken up? Such action would be disproportionate," she said.

A representative of the incumbent operators was unsympathetic.

"It sounds like a cry of desperation by the new entrants," said Michael Bartholomew, a director of the European Telecommunications Network Operators' Association (ETNO), a trade body which represents the incumbent operators. But he added that if incumbents were forced to sell off their local loop businesses "then they must be able to get a return on their investment."

Bartholomew said the incumbents have spent €330 million establishing collocation facilities in local telephone exchanges to accommodate competitors and denies that his members have been preventing fair competition.

The expectations for local loop unbundling are too great, he said. "It is not the magic wand that will create broadband Internet access in Europe. There are alternative, less costly ways of providing fast Internet, such as cable TV lines and fiber-optic lines. The reason why so few local telecom lines have been unbundled is that there is no market demand from competitors for local loop products," he said.

While new entrants to the telecom market said the Commission's attempts to regulate the local loop had failed, one Internet service provider said such efforts are in vain anyway. Renato Soru, chief executive officer of Italian ISP Tiscali SpA said that companies like his that offer competing Internet access would do better by gaining access to the incumbents' telecom network at a central location. He said regulatory action would be needed to permit his company to connect at a more central point and then pay a fee to the incumbent to connect to local exchanges.

"As far as ADSL is concerned, the reconsolidation of incumbents in their respective national markets is only too apparent. The road that should be taken is not that of unbundling the local loop, as this is not an efficient answer to the problem from an economic point of view. The real solution is free access to infrastructures, following the interconnection model, which has already led to the liberalization of the telephony and dial-up Internet sectors," Soru said.

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