Network Competition for European Telecommunications

Network Competition for European Telecommunications

Network Competition for European Telecommunications

Network Competition for European Telecommunications

Synopsis

The telecommunications industry is in the throes of rapid technological and regulatory change. Markets for terminals and services have been liberalized, and only the provision of networks has remained under the control of national operators. This book analyses from an economist's point of view the benefits which may be expected from the introduction of network competition in Europe, and describes how competition can be reconciled with social objectives. The author discusses the convergence of broadcasting and telecommunications, network competition, policy in Europe and the USA, the European Commission's approach, and a strategy for network competition in Europe which takes into account both the latest developments and the characteristics of the European environment.

Excerpt

Only two decades ago the telecommunications sector was considered to be a stationary system mainly concerned with providing voice telephony communication between network customers. In Europe, state provision of the telephone network was not disputed and the network was run as an administration rather than as a (publicly owned) enterprise. Universal provision at a uniform price of the telephone service was regarded as a key part of the state's social policy obligations. Based on this philosophy, for instance, the status of the Deutsche Bundespost as a publicly owned company was well entrenched in the German constitution. Telecommunications operators were exempt from competition policy and procured equipment from national champions without regard to cost. For most of the century one of the largest sectors of the economy had been completely sheltered from market forces.

In Europe, this bilateral monopoly has been challenged from two sides since the mid-1980s. The Single Market project aiming at dismantling internal frontiers within the Community addressed the 'cost of non-Europe' due to national procurement policies. Whilst the state's control of public networks was not questioned, operators were obliged to open up their procurement of equipment. The main challenge to the traditional system, however, arose from developments within the telecommunications sector. The economic impact of the sector is enormous as regards both overall size and growth potential. In 1991 overall revenues in telecommunications amounted to $US 460 billion world-wide, of which services had 72 per cent share (OMSYC, 1991). In spite of the general economic crises, telecommunications services revenues increased by 4 per cent in 1992. This strong growth is mainly due to the rapid technological change which dominated the telecommunications industry during the 1980s and 1990s. It led to the development of a large variety of new services and transmission technologies. The potential loss in terms of revenues, growth, and employment by maintaining an outdated regulatory framework is therefore considerable. There is growing awareness of the importance of telecommunications as a service to other industries. Rapid and reliable access to telecom facilities at low prices is regarded as essential for the competitiveness of the overall service sector. The importance of efficient trans-European telecommunications networks has been recognized in the Treaty of the European Union. If business and residential customers are to benefit from new developments, it was felt that a more flexible regime would be required to foster innovation in the industry.

Broadly speaking, the telecommunications sector comprises the network infrastructure, network equipment, terminal equipment, and telecommunications services. Terminals are equipment which is connected to the . . .

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