Telecom, IP Services Sectors Still Problems for EU Firms

Important 2005 mergers illustrated a “clear trend toward consolidation” of the U.S. wireline and wireless sectors, the Commission said. Lose of wireline competitors raises concerns like provision of local connectivity over special access lines to businesses needing dedicated, nonswitched connections to outside networks, the report said. Special access lines are key to providing global telecom services, and a fair and nondiscriminatory special access offer is essential, it said. But comments to the FCC voice concern about decreased competition in the Internet backbone market, leading to “de-peering,” dominance and packet-discrimination worries, it said.

The FCC seems to favor the progressive establishment of a model based on competition among infrastructure operators, the EC said. Service-based competition - in which new entrants rely on access to parts of incumbents’ networks for market entry -- “may prove more difficult in the future,” the report said. The effect of an emerging U.S. regulatory approach on foreign operators must be assessed, the report said, noting new FCC rules on provision of unbundled network elements by incumbent local exchange carriers and its reclassification of high-speed Internet access services as information rather than telecom services. The regulatory framework is unstable due to federal and state litigation and chances of a Telecom Act rewrite, the report said.

The regulatory framework “needs a comprehensive review to streamline it and make it less segmented along ‘legacy technology’ lines,” the EC said. The approach should arise from analysis of market problems and possible remedies, not “ad hoc legislative and/or regulatory solutions,” it said.

Notwithstanding U.S. WTO commitments, European companies have had trouble entering American markets, the EC said. It’s particularly bad in the satellite and mobile sectors, it said. Satellite operators face lengthy proceedings, conditional market access and de facto reciprocity-based procedures. Mobile providers face investment restrictions, drawn-out, costly proceedings and “protectionist attitudes in certain congressional circles.” Despite gradual improvements, market access isn’t ensured -- a situation out of line with the market access policy the U.S. advocates, the report said.

Over the years, the U.S. has made WTO commitments on telecom services, the EC noted. In 1997, when 69 govts. agreed to open their telecom markets, the U.S. committed to grant market access on most telecom services, but retained significant curbs on market access. Foreign direct investment in U.S. firms with common carrier licenses remains limited to 20%. Satellite-based services -- Comsat’s monopoly to link with Intelsat and Immarsat are restricted, and the U.S. exempts direct-to-home (DTH), direct broadcast satellite (DBS) and digital audio services from most favored nation (MFN) status, the report said.

In the new round of WTO negotiations, the U.S. signalled it might eliminate the MFN principle for one-way satellite transmission to DTH, DBS and digital audio services, the EC said, but other restrictions remain. U.S. reclassification of some services as proposed in the offer would sap previous regulatory commitments, it said -- a “form of backtracking.” And some EU operators fear a reference to state ownership in the U.S. offer, “unwarranted in the WTO forum,” may be used to deny EU companies entry into the market.

The Commission criticized a U.S. decision to require exclusive use of a DTV standard different from Europe’s. That contradicts U.S. calls for technological neutrality and a market-driven approach in other sectors such as mobile communications, it said.

Aspects of U.S. IP law don’t track with the nation’s international trade commitments, the report said. Despite ratifying the World Intellectual Property Organization copyright and performances and phonograms treaties, the U.S. denies creators the “moral rights” granted U.S. creators in Europe. U.S. copyright law lets bars and other public places play broadcast music without paying royalties, a violation of the Trade-Related Aspects of IP Rights Agreement.

Another beef is with the U.S. stance on patentability of software and business methods. Innovative business methods and computer programs are generally patentable in the U.S. but not in Europe -- unless the invention isn’t a computer program “as such” and has a distinct technical character, the report said. The differing approaches mean EU companies on the Internet or directly in the U.S. market may have problems if their activities are “free of patents in their home markets but fall within the scope of valid U.S. patents,” the report said.

Moreover, the EC said, the U.S. has the world’s only patent system based on the “first-to-invent” principle. All others follow a “first-to-file” method that clearly defines a moment when the right to a patent is established. U.S. refusal to conform to the global system boosts costs for EU and U.S. companies, the Commission said.

In May 1993, the U.S. set sanctions on 11 EU countries, claiming an EU govt. procurement directive letting them give a 3% price break to EU companies in the telecom and several other sectors discriminated against U.S. operators. The EU did the same. Wed., both sides lifted the sanctions, the U.S. agreeing Europe’s telecom market is now liberalized, the Commission said.

The U.S. Trade Representative said Tues. it’s trying to jump-start WTO talks on communications, AV, computer and other services. Among other things, the U.S. and other countries seek removal of bars on supplying cross-border (Internet) services and an end to discriminatory regulatory policies.