Reding: Divide, regulate monopolies

Plan's detractors have 'functional separation' anxiety

When were you first told that on-demand cinema and television would be the next big thing? It has been over a decade since it was promised in Europe, but few households today can confidently claim instant access to entertainment.

Next Tuesday, however, the European Commission will unveil measures that aim to eliminate the main obstacles to the much-heralded living room revolution. The proposals are designed to break up Europe's telecom and cable monopolies, blamed for stifling the rollout of the new on-demand technologies.

Drafted by EU Media and Information Society Commissioner Viviane Reding, the measures could inject vital competition into a sector that she says is being choked by former state-owned monopolies, or "incumbents" like Deutsch Telekom and Spain's Telefónica. "Our objective is to open up Europe's single market with its 500 million consumers and to ensure that economies of scale, cross-border services and increased competition lead to innovation, new services and tangible consumer benefits," she told Europe's national regulators last month.

Reding herself is on a roll. This year alone, she secured EU backing for a massive rewrite of EU broadcasting rules; she named the DVB-H technology developed by Nokia as the standard for mobile broadcasting in Europe; and she forced mobile phone giants to slash roaming fees.

Her impetus was Germany's plan to defy EU law by barring Deutsche Telekom competitors from its new high-speed broadband network. Since then, Reding has initiated a lawsuit against Berlin in the European Court of Justice.

Reding's diagnosis is that inaction by national regulators in the face of incumbents has held back new services, as high prices and limited choice turn people off. By contrast, countries where national regulators have forced former state monopolies to give way to newer rivals tend to have more Internet and cable use.

The situation is uneven: Some countries such as Denmark or Sweden need no further action, but others including Greece, Ireland, Poland and Slovakia have work to do. Overall figures show only 10.5% of the EU Internet access market is in the hands of alternative providers that provide their services on their own network.

The commissioner's remedy is to give regulators the power to split the services and network arms of cable and telecom companies, a process known as "functional separation." It was applied in the U.K. in 2005, when British Telecom became the first European operator to put its infrastructure business into a new unit and have it sell network services back to BT as well as rivals. Regulators in Italy and Sweden are considering doing it as well.

Though the proposal has still to be officially published, it already has been attacked by Europe's incumbent operators, who say that under the plans, they will have to finance most of the expected spread of fiber-optic cables — but then be forced to grant access to the new market entrants.

Last month, they produced data suggesting Reding's proposals would harm future investment in the next-generation access networks. "The lost investment due to intense access regulation could exceed €10 billion ($14.37 billion)," said the European Telecoms Operators Assn. (ETNO), which represents incumbents.

The chief executive of U.K. media and telecoms regulator Ofcom, Ed Richards, also has criticized Reding's call for a pan-European telecoms regulator as a bureaucratic move that will cramp businesses and lead to significant costs.

Reding even had to face down fierce opposition in-house from EU Competition Commissioner Neelie Kroes, who said there was enough competition for new services to be rolled out for cable TV, Internet and voice services over fixed-line telephones, mobile phone and fiber networks.

Reding does have support from the many challengers to the incumbent cable and telecom operators. "We support functional separation as a possible remedy because, although we've seen how positive effective regulation can be for consumers, we've also seen how difficult it can be to enforce," says Ilsa Godlovitch, head of regulatory affairs at the European Competitive Telecommunications Assn.

Lobbying will continue once the proposals are published, as they still have to be voted on by both EU governments and the European Parliament next year. But Reding feels she has momentum: For her, this is just one of many plans to ensure Europe is at the vanguard of the innovation overhaul that new technologies offer.