EU may seek to split telco monopolies

Viviane Reding, the European Commissioner in charge of telecommunications regulation, is considering following the U.K. in forcing the structural separation of incumbent telecom operators into service and infrastructure divisions across the European Union, she said Thursday.

The commissioner was unveiling a series of proposals aimed at improving competition among telecom operators. She also mooted the idea of one single E.U. wide telecom regulator, to act as an umbrella organization for the 25 national regulators that exist at present.

She also proposed more effective use of radio spectrum, saying that with the switch from analogue to digital TV there is a one off opportunity to re-use the analogue frequencies for new technologies.

Structural separation of different services such as broadband internet access and fixed line telephony has worked well in the U.K., the commissioner said, so "Why not look at it with the view to applying it across the E.U.?"

Structural separation was imposed on the telecom industry in the U.S. in the 1980s, she said. "Today most Americans get fast internet access from cable suppliers rather than telecom operators. Here consumers rely heavily on DSL (digital subscriber lines) from phone operators, they don't really have a choice," Reding said.

Overall the rules created in 2002 have worked well, Reding said at a news conference. "Opening the telecom markets to competition is a success story," she said.

The price of a ten-minute local fixed-line telephone call has fallen by an average 75 percent since 2003, she said. And of the €270 billion in annual revenues across the industry last year, half was generated by new competitors rather than by the former state monopolies that used to dominate the market.

In 2002, 18 specific market sectors were given a strict rule book, so-called ex-ante regulations, in order to prevent them being dominated by the incumbents. Reding said that competition had been established in six of them and proposed lifting the special rules in those sectors.

However, the 12 remaining sectors, mainly wholesale markets in the mobile phone market, still haven't seen enough free competition, so the rules there will have to remain in place, and in some cases be tightened further, she said.

"The current regulations have had an impact; we've seen an increase in competition. I don't want to phase out sector specific regulation where there is no efficiency, but if we succeed in making all these sectors competitive we could end all ex-ante regulation during the following review of telecom rules," she said.

The Commission's review of the telecom rules and her proposals for changes have been both vilified by the former incumbents and welcomed by smaller competitors.

The European Competitive Telecommunications Association said it welcomed the proposals, specifically the possibility of a form of "functional separation" similar to what has been adopted in the U.K.

"We are delighted that the Commission has reaffirmed the importance of competition in driving investment and innovation and is committed to examining solutions that might address competitive problems at their core," said Steen Clausen, managing director of ECTA.