Reseller seeks damages over delays

By JENNIFER L. SCHENKER, CommumcationsWeek, MAY.8, 1995

Reseller Esprit Telecom is billing Europe's national regulators for financial damages, claiming that their failure to enforce cost-based prices for leased lines has cost the company millions of dollars.

Esprit is basing its action in part on the 1991 decision on Francovich vs. the Italian Republic, a legal precedent for demanding monetary compensation if a European Union member slate's failure to enforce an EU directive has caused a company economic harm.

Because most public telecoms operators in Europe are a year late in providing accurate data on their underlying costs, as required by the Open Network Provision directive on leased lines. Esprit is being overcharged for leased lines, the reseller claims.

This delay, Esprit argues, makes it difficult for competitive service providers throughout Europe to get fair interconnect deals and for end-users to get cost-based tariffs.

Last month, Esprit presented the Dutch ministry responsible for telecoms with an invoice for "hundreds and hundreds of thousands of guilders." which the Amsterdam-based reseller claims it has been overcharged since 1 January 1994, the deadline for public operators to prove that their leaded-line pricing is cost-oriented.

Esprit, which would not release the exact amount it is billing the Dutch ministry, said it based its calculations on the difference between leaded-line prices charged by the United Kingdom's Mercury Communications and those charged by PTT Telecom Netherlands. Esprit said it plans to present bills to telecoms ministries in other European Countries.

"There is not a single carrier I know of that has completely complied with cost accounting [rules]," said Esprit president Michael Potter. "We don't care how long it takes everybody to be in compliance as long as we get a refund for every year they don't comply."

Potter said he finds it "irritating" that national regulators and public telecoms operators act as if they have just been notified that their "Soviet-style" accounting practices, which do not follow commercial principles, must be revised. They have known for a decade." he said.

David Cleevely, managing director of Analysys Ltd., a consultancy in Cambridge. England, said Esprit's action could put an end to member slates' foot-dragging.

"For too long, the stability of the European telecom sector has depended on people not rocking the boat rather than on a solid legal framework." Cleevely said. "If Esprit is helping us make the transition, then it is a very good thing."

Said Potter: "We are saying. 'Let us put in our own networks or bring everything down to costs.' and regulators are saying no to both. I think it is outrageous and I think it is scandalous.'

An official in DG IV, the European Commission's competition directorate, said the marketplace ---not regulation -will force public operators to change their accounting practice.

As soon as network infrastructure competition exists, public telecoms operators will need to become more commercial, restructuring their companies and their accounting systems to become more efficient, the official said.

But if cost accounting procedures are not in place by 1998, when the market is fully liberalized, competition will be further delayed, critics say. "Some people think it is a technical issue."

EC draft directive
Transparent accounting procedures are the lynchpin of the Commission's draft directive on network interconnect procedures for 1998.The directive was presented for the first time on 5 May to the ONP Consultative committee in Brussels. The draft directive proposes:

• imposing I transparent cost accounting procedures and Ac-counting separation on network providers "with a significant market power," including public telecoms operators. It also broadens the definition to include vertically integrated organizations, such as electricity companies, "which hold monopoly rights in non-telecommunication areas."
• obliging all companies authorized to provide leased lines or public voice telephony to accept "reasonable requests for interconnect." Requests for interconnection could be refused only if tile national regulatory authority agrees.

The directive also says operators "must not discriminate between interconnection offerings used for its own services to end-users (retail activities) and Interconnection offerings made available to other service providers (wholesale activities)."

The Commission's draft directive on interconnection covers both general principles relevant to ail networks or services offered to third parties and specific rules for interconnection to the public telecoms infrastructure used for voice telephony and leased lines. DG IV is separately considering how it might apply competition rules to interconnect.

"The Commission acknowledges in the draft that each member State will implement its own interpretation of the rules.

Providers of pan-European services that do not want to navigate the difficult process of striking interconnect deals in 15 EU member stales "will have to build their own networks." said an official in DG XIII, the Commission's telecoms directorate.