EU decision might break up incumbent telcos…

Posted: September 1, 2007 in Uncategorized
Interesting article in the Financial Times:
 

Britain is sometimes embroiled in bruising battles in Brussels. But it finds itself singled out by the European Union’s telecoms chief as a model pupil in the drive to boost broadband competition.
Viviane Reding, the EU media commissioner, this week cited the decision to split the networks and services division of BT of the UK as a potential template for other former state-run telecoms operators. Her suggestion goes to the heart of a debate on how to spur investment in new ultra-fast broadband networks to meet European business and consumer hunger for bandwidth.
EU broadband subscriptions have risen sharply since 2002. Nearly three in 10 households use the service and prices have fallen faster than the global average. So why suggest splitting
companies such as Deutsche Telekom or Telefónica?
In the British case, BT agreed in 2005 with national regulator Ofcom to create an independent unit responsible for giving rivals access to its networks. The division, which BT still owns, is obliged to treat competitors on the same basis as its own services. The split came after Ofcom felt competition was weak and that the UK was trailing the rest of the
EU in broadband adoption. Now, Ofcom says this “functional separation” is a reason behind a doubling of maximum broadband speeds in the UK. Rivals to BT say British broadband subscriptions are approaching the levels of the world-leading Nordic countries. Many younger telecoms operators in the EU relish the prospect of change. ­Stefano Parisi, the chief executive of Fastweb of Italy, says: “We fully support Ms Reding’s position. More transparency and investment is needed.” Still, EU officials insist that such a forced administrative division of operators would be a last resort if all other attempts to overcome a company’s dominant market position had failed. Nevertheless, a number of question marks remain.
First, would a forced split of big operators hinder spending on new ultra-fast broadband networks? Critics say that it could reduce incentives for companies to build infrastructure. For example, Ms Reding is embroiled in a court case with Berlin over its decision to stop rivals from selling services on Deutsche Telekom’s €3bn ($4bn, £2bn) new broadband infrastructure, amid a spat over how big operators guarantee a decent return on investments.
Second, a soon-to-be published European Commission study concedes that the experience of the UK model is “still rather limited”. A third concern is that market conditions vary
widely across the EU. While the Italian watchdog is considering splitting Telecom Italia, the paper reveals that French and Dutch regulators question whether “functional separation” would work on their markets.
Big telecoms operators have hit out at Ms Reding’s suggestion. Etno, their lobby group, says: “Consumer prices are consistently falling and markets are increasingly competitive.
Mandatory functional separation would entail a costly and lengthy reorganisation of major European companies, which is irreversible.” Will this stop Ms Reding, as she seeks to push
through the biggest overhaul of the rules governing the EU’s €289bn-a-year telecoms rulebook?
The limelight-loving Luxembourger was behind a contentious law to slash the cost of international mobile phone use, a move that enraged big operators. Now, she must convince her fellow 26 commissioners that her approach is right, before formally launching her plan. EU countries and the European parliament must also back it. No stranger to controversy, Ms Reding has a remarkably consistent method. The former journalist and ex-member of the European parliament is seen by some in the industry to use a “bomb-dropping” technique. First, she outlines outlandish ideas then waits for the air to clear before returning to the table to get a deal.
The coming months will reveal what effect her approach has on the EU’s leading telecoms groups.

Copyright The Financial Times Limited 2007

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