Broadband Competition a Success But Obstacles Remain, EU Official Says

Penetration rates in Denmark, Finland, the Netherlands and Sweden exceeded 30 percent at year-end, Reding said. They, the U.K., Belgium, Luxembourg and France had higher rates than the U.S.’s 22.1 percent, she said.

Claims that no one wants to invest in European e- communications markets are false, Reding told reporters. In 2007, the fifth straight year of increased investment in the industry, investors put in more than $78 billion, a figure comparable to the U.S.’s and higher than Japan’s and China’s combined, she said. More of that came from new entrants than from incumbents, she said. Growth in fixed communications continues to drop at 5 percent a year as consumers switch to mobile and Internet Protocol services, Reding said, but the fixed business remains important in powering broadband adoption.

The European regulatory model is starting to pay off but “the job is not yet done,” Reding said. More than 86 percent of the direct-access market remains in the hands of incumbents, cross-border competition is spotty and consumers still face excessive prices for data roaming and other services, she said.

Nineteen million broadband lines were connected last year, for 20 percent penetration, but there are wide gaps between strong players and laggards, said Reding, who’s pushing for 30 percent by 2010 in each of the 27 EU countries. Incumbents hold more than 46 percent of broadband lines and in seven countries control more than 60 percent of broadband connections, she said. And wholesale mobile termination rates vary widely across the EU, creating headaches for pan-European operators. Number portability is also still troublesome, Reding said. The EC wants consumers to be able to port their numbers to a new provider in a day, but waiting times range from a day to 20, she said.

Industry Feud Continues

Europe’s two leading telecommunications industry groups used the report to back up their varying agendas in the EC review of its telecom rules. The European Telecommunications Network Operators’ Association said the report showed competition is working, negating the need for new regulatory tools such as splitting dominant players’ infrastructure and services arms -- called functional separation. The European Competitive Telecommunications Association said the review underlined how important functional separation of British Telecom was in boosting competition in the U.K.

The organizations continued to squabble over whether regulation hurts or helps investment in the industry. The report doesn’t take up the investment challenge of deploying next-generation broadband access networks, but recent data show Europe lagging behind its main global rivals, the network operators said. The industry’s slowed revenue growth makes investment in new networks even riskier than it had been, ETNO said.

But the competitors’ group said the EC report “calls time on incumbent investment scare tactics.” Not only has investment increased five years in a row, but it’s the alternative providers who are spearheading it, despite the fact that established telecom companies own 85 percent of telephone lines, it said. The scare stories about regulation undercutting investment are a “self-serving effort” to divert policy makers from incumbent attempts to preserve their monopolies, ECTA said.

Reding noted that Germany, like Italy, suffers a severe digital divide. Italy’s coverage is at 89 percent nationally but only 50 percent in rural areas, she said, creating “unacceptable white spots on the broadband map.” It’s up to regulators to decide, as the U.K., Italy and Sweden have done, whether functional separation is an appropriate response, she said. She stressed the competition condition won’t be imposed top down but will be available as a possible regulatory tool, if the EC proposal is ultimately approved.

The report criticized several aspects of Germany’s e- communications market, including its regulator’s lack of independence from the government, the excessive length of its regulatory proceedings, Deutsche Telekom’s failure to offer bitstream wholesale access to rivals, and its new long-term contract rates.

DT has raised its share in new DSL connections from 5 percent above 40 since the second quarter of 2007, attorney Axel Spies said on behalf of the German Competitive Carriers Association VATM. Including the DSL resale business, which forces competitors to pass on over 90 percent of their revenues in this sector to DT, two in three new DSL lines are operated through the incumbent’s network, he said. EC figures show that DT remains dominant in the broadband sector, and that Germany hasn’t made significant progress in opening the market to competition, he said.

Separately, the Swedish government approved functional separation legislation. The regulator last year sought authority to impose the condition, prompting TeliaSonera to voluntarily open its broadband network by creating a new infrastructure company to cover copper wire and fiber networks, Ovum analysts said. The company also promised to offer services under equal terms, they said. But the action apparently didn’t satisfy the regulator, Ovum said.

Reding said she intends to complete action on telecommunications regulatory reform before the 2009 European Parliament elections.