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EC Gets Tough On Incumbents

The European Commission (EC) is unhappy with the closed-door access incumbent telecom carriers give to the competition, and decided Monday to throw the gauntlet in order to get them to open up broadband access lines.

In March, 2001, the EC adopted five directives to regulate the industry, which were essentially incumbent-friendly and relied more upon market forces to determine competition. The directives were to go into effect July 25, 2003.

That's all changed, with stronger wording going into the directives that treats carriers like British Telecom (BT), Deutsche Telekom and France Telekom as monopolists.

Using Article 82 of the EC Treaty as a template, every carrier will be judged in relation to its market position in each country. If there is no real competition in one area, the new regulatory guidelines go into effect. However, if there are one or more carriers in a market with "significant market power," regulators aren't allowed to impose any obligations to that incumbent network.

The revised guidelines go into effect today.

The change in mindset, from market-driven to regulatory-driven, bears a lot of similarities to efforts in the U.S. to get incumbent local exchange carriers (ILECs) like Verizon Communications and SBC Communications to unbundle their networks. Called the Telecom Act of 1996, the legislation gave the Federal Communications Commission (FCC) the power to enforce compliance.

Mario Monti, EU Commissioner for Competition, points to the "disappointing" number of access lines available to competitors in Europe -- 900,000 lines -- and the foot-dragging going on at the incumbent carriers to open more.

"In many countries unbundling has not gone beyond a merely experimental stage," he said.

Regulations governing unbundling the local loop have been in effect since January, 2001, when the EC implemented the measure to "provide a lighter regulatory touch where markets have become more competitive."

But the regulation and actual enforcement, along with incumbent compliance, has been spotty at best. Critics point to the increasing cost for digital subscriber line (DSL) and slow rollout of broadband throughout Europe as a sign that this "lighter" touch isn't enough.

At the behest of those critics, the EC launched a sector enquiry into each European Union nation and immediately found violations to tariff regulations that are part of the unbundling process. Tariffs are the fees incumbent carriers charge competitors to use its unbundled access lines.

Charged in the regulation violations was France Telecom subsidiary Wanadoo -- for predatory DSL pricing -- and Deutsche Telekom for "margin squeeze," or undercutting, in local access costs. Three other member nations were charged for shared access violations and another five were singled out for not giving out unbundled lines to the competition because of availability, when they in fact did have the lines.

"A sector enquiry is not carried out for the beauty of the exercise, but with a view to identifying possible competition problems and taking action to resolve them," Monti said. "Even though the process of unbundling is not an easy one, I believe that there is no smoke without fire and that the numerous complaints by access seekers at national and European levels do reflect actual competition problems."