INCUMBENTS SAID TO BURDEN COMPETITION WITH UNFAIR CONDITIONS

The ECTA rating makes several findings: (1) Incumbents in nearly all European Union member states have “found a way of making the interconnect leased line product an ineffective tool for competition” by including unfair supply conditions. Among those imposed by Denmark’s Telia, ECTA said, is a requirement that entrants forecast requests for interconnect leased lines up to a year before they can used. In other countries, such as France (France Telecom) and Ireland (eircom), incumbents offer inferior quality-of-service levels to new market entrants, ECTA said. (2) Some states, including Austria and Germany (Deutsche Telekom), have failed to make any interconnect leased line products available though they are covered by the 1997 Interconnection Directive and the new Access and Interconnection Directives of the e- communications regulatory package. (3) Several countries have no difference between wholesale and retail prices, which means the incumbent’s retail arm is subsidized by its wholesale arm or the wholesale arm is overcharging entrants. (4) Some member states have a price squeeze between the costs of retail leased lines and interconnect partial leased lines.

In nearly every country, ECTA said, interconnect prices exceed EC benchmarks. Incumbents used to “engage in relatively unsophisticated forms of abuse, such as a simple refusal to supply monopoly products to… competitors,” ECTA Managing Dir. Roger Wilson said. While that still occurs, he said, “under pressure from regulators, incumbents now commit a better class of crime.” Regulators must pay closer attention to quality of service, pricing abuses and constructive refusals to supply (via contract conditions), Wilson said. Ewan Sutherland, exec. dir. of the International Telecom Users Group, said supplying leased lines to new entrants was “an essential part” of a competitive market. “The capacity of incumbent operators to diminish competition is enormous,” he said. “Here we see further instances of the games played to disadvantage the rest of the economy for their short-term gain.”

A British Telecom (BT) official said that while he didn’t disagree entirely with ECTA’s conclusions, the U.K. had far less to worry about than other countries. The scorecard lists several anticompetitive terms said to be contained in BT partial leased line interconnection agreements: (1) Up-front costs for network terminating equipment at the customer end are high. (2) Not all retail products are offered as a partial private circuit (PPC) equivalent. (3) Multiplexers can’t be shared between different operators or between retail and PPC circuits. BT’s interconnect prices are said not to exceed EC benchmarks, but “upfront payment at the customer end can be a barrier to entry.”

The report must be put in context, said Tom Kiedrowski, BT Group mgr.-operational regulation. While it would be “churlish” to say there aren’t PPC problems in some member states, they range from the situation in Germany and Austria, which don’t even offer PPCs, to the U.K., where BT has provided them since Aug. 2002, he said. Moreover, Kiedrowski said, while BT’s interconnection charges are quite high, compared with, say, Spain’s, Telefonica’s rental fee is higher. When other prices are factored in, he said, BT has some of Europe’s lowest rates.

BT already has been under “tremendous scrutiny” from the Office of Telecommunications, the U.K.’s former regulator (now subsumed into the Office of Communications), Kiedrowski said. When the EC -- pressed by corporate end-users -- ordered telcos in 2001 to cut the price of leased lines and provide partial interconnects to spur e-commerce, BT complied and since has made more changes in its offering, he said. The company will talk with ECTA to ensure it has accurate information, Kiedrowski said, but it doesn’t think any more regulatory action should be taken in the U.K.

Belgian incumbent Belgacom questioned ECTA’s research methods. The scorecard criticizes Belgacom for a price squeeze between prices for retail leased lines and interconnect partial leased lines. But a company spokeswoman denied any price squeeze, saying a 2003 study by the Belgian Institute for Postal Services & Telecommunications, the country’s telecom regulator, showed no such thing. She also said it was “striking” that while 4 countries offered no interconnect partial leased lines at all, and France had only a partial offer, ECTA chose to criticize those that had made such products available. Eircom, Deutsche Telekom and France Telecom didn’t return requests for comment by our deadline. - - Dugie Standeford

ECTA Notebook…

Telecom regulators must do more than mandate bitstream access to keep entrenched incumbents from hogging the ISP broadband market, the European Competitive Telecom Assn. (ECTA) said Thurs. Rather, the group said, broadband must be viewed in the context of convergence and remedies must be imposed to ensure open markets all along the broadband value chain -- including preventing price squeezes and promoting migration between bitstream products and to local loop unbundling (LLU) and alternative infrastructures. ECTA’s comments came in a paper submitted to the European Commission (EC) in advance of a Jan. 26 public hearing on a draft EC- European Regulators Group (ERG) paper on competition remedies. The EC defines bitstream access as an incumbent’s providing a high-speed access link between end-users and new market entrants. The broadband ISP market so far has “proved to be far from competitive” in most European Union member states, ECTA said. With many incumbent operators dominating not only the provision of access but also the downstream ISP sector, it said, the threat is that incumbent-related ISPs will entrench their position by signing up the best content and will be able to retain an outsized proportion of revenues accruing to that content, leading to undersupply by Europe’s e-content industries and slower broadband uptake. In that context, ECTA said, “the broader importance of bitstream access becomes very clear.” Without effective ISP competition, the addressable market for backhaul providers (long-distance operators over whose networks traffic can be hauled back to an ISP’s premises) will be small because incumbents’ ISPs “invariably procure from their mother company,” ECTA said. Moreover, it said, enabling backhaul and ISP competition will make it easier for new local access providers to find possible partners to work with to retail their access products. “In other words,” ECTA said, “bitstream reduces the entry costs and risks for local access market entry (including LLU) and thereby facilitates sustainable broadband competition.” While incumbents contend the best way to spur local access competition is to deregulate DSL, ECTA said, precisely the opposite is true: Without effective wholesale broadband access remedies, vertical integration by incumbents will slow new entrants. The group stressed that it was not asking for regulation of commercial negotiations between content providers and ISPs, but said rules for wholesale broadband products were needed to ensure “incumbent market power based on the existing dominance in access products is not leveraged throughout the value chain.” While some countries have lagged, most now require bitstream access, ECTA Regulatory Affairs Dir. Andy Tarrant said. But there also needed to be “actual workable bitstream products” to avoid jeopardizing a “whole series of markets,” he said. ECTA will publish a scorecard rating member states’ bitstream status in a month or so, Tarrant said. The EC and ERG unveiled their consultation paper last month.