Brussels, Saturday 25 February 1995
It goes without saying these days that competition is the linchpin of the development of
the information society. There is very little contention any longer that an open and
competitive market in both services and goods is the goal. What is a little more
challenging is deciding upon the solid time schedule for liberalisation. And then, to
specify the type of regulatory framework needed to ensure a smooth running and fair market
place, which will also protect "non commodity values", such as public service,
cultural identity and free speech.
Recently, the AEU successfully met the first of theses challenges. We are now
concentrating our efforts on the second.
Concluding with the adoption of the Commission's Green Paper Part I on Infrastructure
liberalisation, and the consequent political agreement between Europe's TELECOMS Ministers
last November, a firm schedule for the introduction of competition in telecoms has now
been set. 1998 is the deadline. Before this date all Member States (except those
with very small or undeveloped networks who have been granted a 5 year derogation) must
lift restrictions on the provision of all telecoms services over any infrastructure by any
market player. Six of the Member States (those representing the major part of the AEU
telecoms market) together with the European parliament, are also supporting the existing
alternative infrastructure such as cable TV, rail and utilities networks.
As it represents the most important gateway to the provision of multi-media applications
to the home, we have decided to start with a proposal to lift restrictions on the use of
cable TV networks for telecoms services by 1996. I will be announcing the
issuing of the d raft directive for public consultation within the next two weeks.
We can be confident that universal service will not be compromised by full telecoms
liberalisation. Far from it. The evidence says the contrary. The experience of those
countries around the world who are at the forefront of the drive to turn
telecommunications into a real market place has shown that competition enhances the
provision of universal service. Innovation and increased efficiency brings more choice to
more people at a lower cost. The most advanced and cheapest universal service will be that
which is provided over a complex web of interleaving systems and technologies; and by a
variety of providers competing to best match the product to the needs of the consumer.
When this is coupled with a regulatory framework which ensures that, come what may, a
minimum service is available for all at a reasonable cost, the choice for competition
is clear.
The second part of our Green paper on telecoms infrastructure competition calls for
the broadest possible public comment on the "best practice" vis a vis this
regulatory framework. Intensive consultations and hearings are being held currently on the
issues raised by full liberalisation: including universal service, interconnection and
licensing procedures. However, the document is also issued to the public and we welcome
all written comments before the 15th of March.
Lastly, but not at all least, I have mentioned the importance of cultural identity
in relation to the introduction of competition. Culture is in fact just one of many vital
issues raised by the market in the provision of value added content. Others include
quality, censorship, privacy, intellectual property, pluralism and freedom of information.
It is vital that content issues be considered as content issues and not confused with the
market for carriage of communications.
Just as a postal service is not responsible for the content or quality of the magazine a
certain reader subscribes to, regulation of the market in telecommunications need not be
unnecessarily burdened with concerns about what they are carrying. In fact, the
traditional principle of non-discrimination and neutrality of the telecoms operator
towards the substance of the communication ought to be maintained.
Clearly the European Commission's efforts to liberalize the telecommunications sector
would serve no purpose if cartels were allowed to develop eliminating competition on
liberalized markets or if Telecommunication Organisations were left free to engage in
abusive behaviour aimed at preserving their positions which for the foreseeable future
will continue to be dominant.
As we all know, strategic alliances are the "flavour of the year". There are
several factors which explain and to a certain extent justify why operators in this area
are grouping together. We might bracket these into two categories: globalisation and
convergence.
From the point of view of EU competition policy, it would be impossibly simplistic to say,
a priori, whether such alliances are good or bad. Naturally they must pass the test of
scrutiny under competition laws, in particular concerning restrictive agreements between
market participants and abusive behaviour on the part of dominant players. However, the
important advantages which they may bring to consumers must also be taken into account.
EC competition rules in principle prohibit restrictive agreements between actual or
potential competitors. Given their strong position in the market, albeit the domestic one,
and their technical skills, the incumbent Telecom Operators of the EU can, generally
speaking, be considered to be at least potential competitors, if not actual competitors.
In general then, alliances involving them will tend to be caught by EU competition rules.
However, our analysis will also test the objective economic and technical benefits which
may justify the alliance when weighed against the impact on existing of future
competition. This balance allows us to consider if the green light can be given.
From our point of view, the recent phenomenon of strategic and global alliances has a
number of characteristics which distinguish them from their predecessors: the services
involved are often not clearly delineated, but can expand from cooperation regarding
relatively few services to an unlimited package, also depending on technological
developments. The geographic coverage may likewise expand from an initially limited area
to the genuine world-wide coverage which appears to be so essential to the operators and
their targeted customers, the Fortune 500 companies.
Both product-wise and from the point of view of geographic markets, we are thus often
dealing with a moving target. Thus the European Commission is very aware of the
need to ensure that periodic re-assessments or reviews are part and parcel of any
decisions we take.
To illustrate these general principles I would like to say a few words about the first of
such strategic alliances which the European Commission has dealt with, namely the BT-MCI
alliance.
I think one can genuinely characterize this alliance as being "strategic": BT,
being quite legitimately interested in being a strong global player, felt that an
association with one of the largest U.S. telecom operators was indispensable: 40% of the
multinationals who are so vigorously pursued, as potential customers, by all the
alliances, are actually located in the United States. MCI on the other hand, benefits from
BT's sizeable contribution to its capital which will enable it to strengthen its position
on the U.S. market; at the same time, the joint venture with BT will allow it to add a
global dimension to its offerings without having to establish companies outside its home
territory by itself.
Taking into account the evolving nature of the market and of the alliance itself, the
exemption granted under EU competition rules last July must be understood as specifically
limited to the activities actually notified. The exemption is of a relatively short
duration, in order to enable a reassessment in the medium term. Important elements in our
positive attitude to this alliance were the genuinely global nature of the services
concerned and - of particular importance - the fact that the markets of both parents
companies are already open to competition.
The second type of alliance is concerned with market "convergence". It
includes partnerships and joint ventures between traditionally separate market sectors
such as broadcasting, electronics, software and, of course, telecommunications.
The recent case of Media Service GmbH (MSG) highlighted the tension inherent
between alliance in the presence of exclusive rights and competition policy. The main
object of this German joint venture was technical, business and administrative handling of
pay TV and other communications services (bringing together in the JV, decoding capacity,
handling of conditional access, subscriber management, settling of accounts with
programmes suppliers). MSG was notified to the Commission in June. In November the
Commission declared the setting up of MSG as incompatible with the Treaty competition
rules. The investigation had concluded that MSG would aggravate or extend a dominant
position on three markets regarding pay TV: administrative and technical services,
provision or programmes and films and cables infrastructure.
The bottom line was that it seemed very likely that any competitors would be able to enter
these markets, and if they did they would have to accept the entry conditions imposed by
MSG in order to obtain the services (essential to any conceivable entrants) which were
provided by MSG. The monopoly rights of Deutsche Bundestpost Telekom as regards cable
infrastructure, together with the dominant position of the other partners in the
programming and pay TV market were essential factors in the decision to block the joint
venture.
The issue we need to focus on here is the need to keep two considerations in mind from
a competition policy point of view: that is, the promotion of such mergers and alliances
in the interest of the information society and coordinated offerings on the one hand, and
the caution, which ensuring a competitive environment here makes necessary. It is clearly
not a simple task to keep these two in balance, especially when it includes making
predictions about future impacts and future market and regulatory environments. What is
clear, of course, is that our responses, from the competition policy point of view, must
be flexible and dynamic enough to keep up with the rapid change and development which
characterises this area.
Clearly, the growing multi-media sector will emphasise the role of competition policy
since no sector specific regulation is capable of fully considering the impact of
alliances implying sector convergence. Just so, international alliances will emphasise the
role of transnational, or multilateral cooperation vis a vis competition rules, since
insulated country specific consideration of markets and market players cannot address
adequately the impact of global partnerships and services.
We are currently in a state of flux between de-regulation and re-regulation. The
introduction of competition into the increasingly multi-media services markets of the
information society calls for the convergence of some policy principles and the clear
separation of others.
As far as the market players are concerned, the wholesale relationships between
producers and providers, competition policy is, per force, taking over from sector
specific regulation based on sector division which are ceasing to exist from a commercial
point of view. Policy needs to be coordinated under a single framework. The framework is
fair and efficient competition.
However, as far as consumers and citizens are concerned, certain issues must remain
distinct and it makes no sense to confound them. This includes issues like universal
service, cultural content, pluralism and privacy. These are non-commercial issues which
are best looked after by focused regulation, not apart of, but as a complement to
competition policy.
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