Competitors Urge Regulators to Monitor Market Impacts

The buy-backs could have both indirect and direct effects, said Winston Maxwell, a telecom law specialist in Paris. National regulatory authorities (NRAs) are focused on the wholesale markets because the European Union’s (EU) regulatory approach is not to intervene in retail markets. That means they will be hard-pressed to prevent vertically integrated companies like France Telecom/Wanadoo from offering pricing schemes -- such as “triple-play” packages of phone, Internet and TV services -- that hurt competitors, Maxwell said. The danger in France is that alternative telcos won’t be able to match Wanadoo offers at “low and aggressive” prices, he said.

Predatory pricing is illegal under EU law, so Wanadoo competitors will have to rely increasingly on competition rules to protect themselves, Maxwell said. But because competition remedies are imposed after the damage is done, NRAs are now trying to open local loops so rival telcos can offer reasonably priced DSL services. Regulators want to avoid “price squeezes” between the cost of a competitor’s access to the local loop and retail rates prevailing on the market, he said.

A more direct effect of the reintegration of former monopolies is that there’s less transparency in pricing between the parent and subsidiary, Maxwell said. Regulators will have to ensure there’s transparent accounting and pricing information between the parent and its subsidiary, and that the telco isn’t discriminating in favor of its own ISP, Maxwell said.

In theory, the buy-backs won’t hurt competition. But in practice they probably will, Maxwell said, because a wholly owned subsidiary is “in a black box” with inherently less transparency.

Smaller German ISPs and Carriers Worry About DTAG Takeover

German operators’ views of the reabsorption appear to depend on their size, but they all said it’s critical that the regulator, RegTP, maintain strong competition in the broadband and VoIP markets.

DT reintegrated because it’s well aware that without T-Online it would have to cannabalize its fixed-line business to compete with VoIP providers, said a spokeswoman for Broadnet Mediascape Communications AG. Broadnet offers VoIP over its own network, so it doesn’t “depend too much on the [DT] behavior,” she said. The fewer services a provider has to buy from DT, the better off they are, the spokeswoman said. “If the market is not regulated, [DT] would not hesitate to design the conditions according to their own ‘amusement,'” she said.

Telecom regulators should watch the markets very carefully and set conditions that will help alternative carriers enter, the Broadnet spokeswoman said. European markets are on their way to becoming more advantageous to alternative telcos, which are taking more and more business from DT, she said. It would hurt Germany’s economy if the market were again dominated by the incumbent, the spokeswoman said.

But one German ISP group wondered why RegTP apparently hasn’t launched an antitrust probe of DT’s plan to buy back T-Online. T-Com, the voice side of DT, holds a 96% share of the DSL market in a country where DSL is the predominant form of broadband access, said Klaus Landefeld, a board member of German ISP association ECO. Of the 6 million broadband connections in Germany, roughly 3 million are handled by T-Online, and it’s even more concentrated in the dial-up market, he said. DT is offering bundled connection/online services and the minute the telco and its ISP are one company again there will be no regulatory check on prices, Landefeld said. By the time the acquisition is complete several months from now, roughly 2/3 of Germany’s broadband connections may be handled through DT, he said.

DT submitted the proposed T-Mobile merger to the Federal Cartel Office, a company spokesman said. Last Nov., the office said the reacquisition didn’t need to be formally filed under competition law.

Germany’s DSL network is different from other countries’, Landefeld said. T-Com provides DSL only between the home and the network access server, where customers log on to various ISPs. There’s competition in online services but none in the physical connection part, he said. The rejoining of T-Com and T-Online will have some “interesting side effects,” Landefeld said. Among other things, it raises the issue of how, in a country with no quality-of-service requirements, DTAG will be prevented from serving up inferior quality of service to rivals.

ECO is trying to spread the word about possible complications from the buy-back, but Landefeld said the larger ISPs haven’t engaged on the issue. Smaller companies are worried about the acquisition, he said, but it’s very hard for smaller telcos to get anything done in Germany at the moment.

“Personally, I think deregulation in Germany has fatally failed,” Landefeld said. In Germany, the only regulation of DSL relates to the underlying price for copper lines. The failure to address broadband as something that had to be “strictly regulated right from the beginning” is a pan-European problem, he said. In some countries alternatives to DSL such as cable may ease the situation, he said, but there are essentially no alternate providers in Germany.

The buy-backs may harm competitors because the “ISP and the telco operator will roll back competition with bundled offers, in particular VoIP and DSL,” said Axel Spies, a Washington attorney who represents the German Competitive Carriers Assn. “This is a serious concern of the VoIP industry,” he said.

Indeed, DT said earlier this month it will invest $330 million in new products in its fixed-line unit to try to stem a 2-year drop in revenue from traditional phone calls. T-Com and T-Mobile are now jointly offering VoIP services and DT will begin offering high-speed Internet access later in the year, Bloomberg reported.

This is an omen, Spies said. The new offer “must fall under the [prior] price control” of RegTP as part of the regulator’s market definition for the voice market, he said. In any case, he said, “in-net calls for free [to other T-Online users] are dumping and must be prohibited.” DT is trying to leverage its dominant position in the DSL and voice markets to force rivals out of the lucrative DSL sector, Spies said. “To allow this would set a bad precedent in Europe.”