Dirty tricks on the deregulation line

Financial Times ; 25-Apr-1995

Since 1992, the European Union has been committed to deregulating telecommunications to create an open market by 1998. Many in the telecom sector assume that the process is progressing in a positive and planned fashion.

However, there is a wide gap between the principles of EU directives on telecommunications and conditions in most of the markets they cover. Throughout continental Europe, laws to promote competition on international and national telecom services are being ignored as a matter of routine.

For example, most of the national telecom monopolies have failed to provide accurate data on their underlying costs, as required by the EU more than a year ago. The national regulators need this information so that they can bring telecom charges closer to costs, one of the goals of the EU programme.

Just as important, anticompetitive business behavior is common in many EU countries. These "dirty tricks" include:

• The setting of prices that are arbitrary, discriminatory and lacking in transparency - for example, offering individual customers special prices to ward off a competitor
• Using profits made in sectors such as local telephone services where there is no competition to subsides activities in competitive sectors such as provision of equipment.
• The abuse of privileged information the national telecom operators obtain from their monopolies. For example, when approached by new telecom operators who need to lease local lines to link customers to their networks, some have used the information to identify customers that are poised to leave their grip and mount efforts to keep them.

Anti-competitive practices are also occurring in markets that are competitive in theory, but controlled by the national monopolies in practice. One such market is that for internal office telephone systems or private branch exchanges which allow large business users to control and route their telephone and fax traffic. New telecom service providers must modify customers' exchanges to divert calls over their networks, but in some cases, the national monopoly refuses to modify exchanges it has supplied to do this.

Another strategy used by the national monopolies is to circumvent restrictions on operations in their home markets by moving into other countries through alliances.

While governments own monopoly companies they are unlikely to encourage real competition with other telecom companies. In some cases, they also set up separate companies in their home markets to compete against new entrances in segment that have been liberalized - for example, mobile telecommunications. Safeguards to prevent such ventures from benefiting from direct and indirect subsidies, as well as favoritism, from their monopoly parents are usually hopelessly inadequate.

Telecom monopolies should not be allowed to operate in liberalized markets while their home markets remain closed. Consumers are forced to wait for lower prices and new services, while their national monopoly suppliers stalk the globe in search of new opportunities - subsidized by years of artificially high prices.

The regulators hear much of the blame for the damage that has been done to the market as a result of such practices. They have failed to force the national telecom operators to separate monopoly services from those that are competitive to stop cross-subsidization. They have also failed to enforce the laws on providing data on costs, so that charges still do not reflect underlying costs.

It is not surprising that the monopolies are unwilling to relinquish their dominant positions. But as long as governments own part or all of their monopoly telephone companies, they are unlikely to encourage real competition that will erode the value of their stakes in these companies.

In the UK, privatization and liberalization have resulted in the emergence of British Telecommunication as an important international company and London as the telecommunication s hub of Europe.  BT still has some outstanding issues to resolve, such as the charges made for connecting competitors to their customers through the local network. But the fact that BT’s prices are significantly lower than those charged by most European telephone monopolies is compelling evidence of the benefits of successfully managed liberalization.

It is time the illegal practices of the telecommunication monopolies were exposed. National operators in almost every EU country are over charging their customers to the tune of billions of Eu's every year.  All talk of building a telecommunications superhighway in Europe is premature until these fundamental issues are resolved.

The author is director of Esprit Telecom, a telecommunications company.

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