Incumbents resist unbundling lines

Jun 1st, 2002
95849

Why are there fewer unbundled lines in Paris than there are restaurants? Matthew Peach travelled there to find out - about both.

Last month's annual KMI Conference on "Fibre Optics Markets in Europe" in Paris drew a goodly number of speakers and attendees from the industry. So far, so positive, for an industry hungry for good news. But in between some didactic presentations about the merits of system "X" over the bad old ways, one speaker provoked much interest with his critique of Europe's supposedly deregulated carrier community, in particular, its leased line-unbundling behaviour of recent years - or rather lack of it. He didn't quite use the phrase "bad old ways", but he might as well have.

Lawyer Andrew Lipman, head of telecom and a partner in the New York-based firm Swidler, Berlin Shereff, Friedman, pulled no punches as he looked at six examples of former state-owned PTTs and examined how easy it would be for competitors to gain access to their unbundled lines. Then, like a disapproving schoolmaster, he scored them: UK: A-/B+; France B-; Germany B-; Italy C; Spain and the Netherlands both D.

Lipman had some sharp words for Europe's biggest names in the telecoms provision business. Of France Telecom, he said,"There are fewer unbundled lines than restaurants in Paris. FT holds back vital information from competitors."

Of Deutsche Telekom: "Unbundled line leasing has been available since 1996 but DT is still dragging its feet - and restricting co-location." And Telecom Italia has an "ineffective ordering system - to order a line means completing a 58-section document".

While he acknowledged that BT "once spearheaded liberalisation in Europe," Lipman added, "but now BT has fallen back. There are delays and excessive charges."

In Spain, TESAU has not unbundled a single Telefonica line 10 months after the supposed ULL launch date. "TESAU has a deny, delay, degrade attitude," he said.

Lipman was most scathing about The Netherlands where, he said, the Dutch legislature took nine months to grant regulator OPTA the powers to administer ULL. "Meanwhile KPN was deploying its DSL solution, way ahead of potential competition".

So why haven't the likes of BT, Deutsche Telekom and France Telecom done right by would-be competitors?

"Providing local services remains a cash cow for the incumbents who are facing stiff competition in other markets. From the viewpoint of the incumbents, unbundling is as if Burger King would be allowed to set up its own cash registers and sell its own hamburgers in each McDonald's outlet. Germany is the perfect example for this strategy. Even though unbundling is mandatory since 1998, competitors hold far less than 5% in the local market," Lipman said.

Unbundling will not really happen overnight, but it requires constant monitoring and resolving a host of technical issues. Europe's incumbents should have complied with the EU's Regulation on Unbundling the Local Loops that came into force in January 2001.

Complaints
Already some potential competitors have filed complaints in many EU countries and with the European Commission against incumbents dragging their feet.

Lipman is of the opinion that a protectionist approach is good for nobody - not even the incumbents. "Economically, it does not make sense that competitors are forced to duplicate lines or entire networks to serve their customers. Protecting a market from competition is a strategy that backfires, in particular in a global economy. Line sharing, for instance would allow the incumbent to continue its voice services to a customer, whereas a competitor provides high-speed data services. Unfortunately, line sharing is rarely available in the EU.

So are there any signs of positive change?

"We hope that the recent launch of EU proceedings against several companies give incumbents and regulators a wake-up call. Some EU countries have brought down the charges already to some degree, for instance in Austria and Scandinavia. It is difficult to foresee when the European Directorate General Competition will render a ruling against an incumbent.

Discussion at the national level on how to implement new EU Directives on "Communications", released on April 24, will play a crucial role for the EU telecoms market.

Many competitors argue that national governments should get rid of the entanglement of interests and sell their stakes in their national operators but, since their share prices is generally low, this may only be wishful thinking for the foreseeable future.

Lipman concluded," We also expect further cross-border mergers between EU incumbents. This may provide an opportunity for the EU to push for further liberalisation by imposing merger conditions."

More in Market Research