A Rush To Untie European Telecom

When it comes to busting up Europe's entrenched telecommunications monopolies, no one expects an overnight revolution. But behind closed doors, a radical shift is under way.

Industry and European Union officials are pressing for a speedier introduction of competition than the 1998 date the EU agreed to just a year ago. The catalyst is the Information Superhighway. European companies and policymakers fear they may be clobbered by the U.S. in emerging information technologies if they delay too long in allowing the private competition needed to invest in new infrastructure. "There is no question we are advocating speeding up the process. Something has to happen--and quickly. If it doesn't, we will lose our trumps," says Etienne Davignon, president Societe Generale de Belgique and member of a special EU commission developing initiatives for a European Information Superhighway.

European Union members will debate plans for stepped-up deregulation at the EC summit in late June. On June 1, the special EU committee on the Information Superhighway, headed by EU Industry Commissioner Martin Bangemann, unveiled a report it will present to member states at the summit. The report calls for countries to voluntarily deregulate before 1998.

OVERDUE DEBATE. That idea is unlikely to win wholesale backing. But officials say it's a starting point to spur an overdue public debate on deregulation at a national level. That's an important step. "We need to explain to the public why the system needs to change," says Alain Vallee, head of the forecast-and-policy-analysis unit at France's Postal Services & Telecommunications Ministry.

While deregulating basic voice services will continue to be a slow process, EU officials will press ahead in other sectors. They will push hard for full liberalization of cellular markets, cable TV, and other private networks. Brussels is already winning strong backing from the industry and even from some foot-dragging national governments, including the French. "We will definitely approve infrastructure competition in 1995," confides one senior French telecommunications official.

Unleashing competition in those areas could quickly transform the European telecom market. The larger the number of Europeans using cellular phones, for example, or cellular plus cable, the faster uill be the natural shift toward a competitive market. "The creeping wireless revolution is the most important economic factor in deregulation," says one EU official. "It's the only thing that can rapidly shift the core of ownership to the private sector."

To be sure, the policy drive could run adrift. Upcoming federal elections in Germany and France will make it difficult for politicians to make unpopular decisions that could result in thousands of job losses at state-owned telecom operators. But reformers are promoting competition as a growth policy--and the most viable solution to Europe's intractable 12% unemployment.

HOW MUCH RISK? Recent developments in the digital cellular market provide a strong argument for deregulating faster. The market has been booming for the past 18 months, creating many new jobs. By freeing markets such as cellular first, "we can get an expansion effect while going through the transition without major job losses," says the EU official. "The basic issue is how much risk will Europe take to overcome its problems."

Also at stake is Europe's early lead in cellular wireless communications. While U.S. politicians dither over the allocation of airwaves for new digital cellular services in the U.S., European operators have gained an 18-month jump in digital cellular-telecom technology. The spread of a European digital standard called GSM (Global System for Mobile Communications) is helping local champions such as Nokia and L.M. Ericsson seize a huge slice of global equipment markets. Winning in digital cellular is making converts of Europe's deregulation-reticent industry leaders. "If we have to wait until 1998 or later for the network monopoly to be abolished, we could fall dangerously behind and never catch up," says Siemens Chief Executive Heinrich von Pierer.

Behind the new rush to deregulate is an important shift in telecom philosophy in Europe. The commission's report makes it clear that private investment--not European subsidies--must drive the new markets. "In the next 24 months, you're going to see an investment El Dorado," predicts one official. That's certainly a new approach for Europe. But that's what it will take if the EU wants its telecom markets to blossom.

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