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E.U. Plan Could Raise Phone Rates In Europe, a Push for Higher Phone Fees
(about 3 hours later)
BERLIN — When the authorities have tinkered with European telecommunications rules, it has usually been to lower prices for consumers, whether through retail price controls on mobile roaming fees or mandatory cuts in regulated interconnection charges.BERLIN — When the authorities have tinkered with European telecommunications rules, it has usually been to lower prices for consumers, whether through retail price controls on mobile roaming fees or mandatory cuts in regulated interconnection charges.
But this year, to encourage more investment in high-speed broadband networks, regulators are considering helping the biggest operators increase a main source of income: the rent they receive from rivals that lease their landline grids.But this year, to encourage more investment in high-speed broadband networks, regulators are considering helping the biggest operators increase a main source of income: the rent they receive from rivals that lease their landline grids.
The architect of the plan, Neelie Kroes, the European Union’s digital agenda commissioner, has pitched the increases as part of a broader package to stimulate spending while preserving competition and consumer choice.The architect of the plan, Neelie Kroes, the European Union’s digital agenda commissioner, has pitched the increases as part of a broader package to stimulate spending while preserving competition and consumer choice.
The plan, however, has alarmed operators that would have to pay the higher charges, like the British mobile operator Vodafone. Vittorio Colao, chief executive of Vodafone, said that the plan to increase the fees collected by former monopolies, including BT, Deutsche Telekom, France Télécom, KPN, Telecom Italia and Telefónica, could lead to a “re-monopolization” of the business.The plan, however, has alarmed operators that would have to pay the higher charges, like the British mobile operator Vodafone. Vittorio Colao, chief executive of Vodafone, said that the plan to increase the fees collected by former monopolies, including BT, Deutsche Telekom, France Télécom, KPN, Telecom Italia and Telefónica, could lead to a “re-monopolization” of the business.
Mr. Colao said he was worried that landline operators would use the additional revenue to lower their own prices and try to squeeze competitors like Vodafone.Mr. Colao said he was worried that landline operators would use the additional revenue to lower their own prices and try to squeeze competitors like Vodafone.
“Increasing the incentive to invest is a good thing,” Mr. Colao said. But now Ms. Kroes must “demonstrate that these new criteria won’t contaminate the competitive arena in Europe,” he said.“Increasing the incentive to invest is a good thing,” Mr. Colao said. But now Ms. Kroes must “demonstrate that these new criteria won’t contaminate the competitive arena in Europe,” he said.
Under the plan, the European Commission, the executive arm of the European Union, would begin regulating the fees that mobile operators routinely pay to lease the grids of landline operators.Under the plan, the European Commission, the executive arm of the European Union, would begin regulating the fees that mobile operators routinely pay to lease the grids of landline operators.
In much of the world, running telecommunications lines to homes and businesses has traditionally been the domain of a local monopoly, or sometimes a duopoly in the case of telephones and cable television in the United States. Until 1998, countries in the European Union were allowed to maintain national monopolies for this “local loop” to the consumer.In much of the world, running telecommunications lines to homes and businesses has traditionally been the domain of a local monopoly, or sometimes a duopoly in the case of telephones and cable television in the United States. Until 1998, countries in the European Union were allowed to maintain national monopolies for this “local loop” to the consumer.
With deregulation, however, the former monopolies were required to unbundle the cost of the local loop and offer it to competitors, thus allowing companies like Vodafone to enter the market.With deregulation, however, the former monopolies were required to unbundle the cost of the local loop and offer it to competitors, thus allowing companies like Vodafone to enter the market.
Despite 14 years of deregulation, and the addition of more than 100 mobile operators in Europe, the former monopolies still supply the majority of fixed-line services in their home countries. In Spain, Telefónica has more than 70 percent of this business.Despite 14 years of deregulation, and the addition of more than 100 mobile operators in Europe, the former monopolies still supply the majority of fixed-line services in their home countries. In Spain, Telefónica has more than 70 percent of this business.
Until now, these unbundling rates have been set by national regulators, and the average monthly cost per customer in the European Union stands at €8.62, or $11.35. The fee typically makes up a third or more of monthly landline phone bills in Europe and also influences wireless prices because it affects mobile operator costs. The fee ranges from €4.20 in Slovakia to €12.41 in Ireland.Until now, these unbundling rates have been set by national regulators, and the average monthly cost per customer in the European Union stands at €8.62, or $11.35. The fee typically makes up a third or more of monthly landline phone bills in Europe and also influences wireless prices because it affects mobile operator costs. The fee ranges from €4.20 in Slovakia to €12.41 in Ireland.
Mrs. Kroes proposed to lower, not raise, unbundling fees in September 2011, to make the old landline networks less profitable for big operators and to encourage them to invest in new networks. But the former monopolies protested, and after personal appeals from executives at big operators, in some cases accompanied by their investors, she reversed course.Mrs. Kroes proposed to lower, not raise, unbundling fees in September 2011, to make the old landline networks less profitable for big operators and to encourage them to invest in new networks. But the former monopolies protested, and after personal appeals from executives at big operators, in some cases accompanied by their investors, she reversed course.
Ms. Kroes is proposing that each country within the European Union be required to set its fee within the range of €8 to €10 per month, according to a copy of her proposal obtained by the International Herald Tribune. The new range would most likely require 10 E.U. countries where the fee is currently below this range to raise it, in some cases only slightly, and in others, sharply.Ms. Kroes is proposing that each country within the European Union be required to set its fee within the range of €8 to €10 per month, according to a copy of her proposal obtained by the International Herald Tribune. The new range would most likely require 10 E.U. countries where the fee is currently below this range to raise it, in some cases only slightly, and in others, sharply.
The increases would in all likelihood be passed on to consumers. The rise in fees could be greatest in Eastern Europe, where regulators have been most aggressive in setting low leasing rates to encourage competition. The level of leasing charges could double in Estonia, Latvia, Poland and Slovakia.The increases would in all likelihood be passed on to consumers. The rise in fees could be greatest in Eastern Europe, where regulators have been most aggressive in setting low leasing rates to encourage competition. The level of leasing charges could double in Estonia, Latvia, Poland and Slovakia.
Mr. Colao, the Vodafone chief executive, said Ms. Kroes needed to tighten the legal safeguards in her plan to prevent big operators from exploiting access to landline networks.Mr. Colao, the Vodafone chief executive, said Ms. Kroes needed to tighten the legal safeguards in her plan to prevent big operators from exploiting access to landline networks.
The current safeguards in the proposal, a margin-squeeze test and a test that measures whether former monopolies are discriminating against rivals by offering less attractive leasing terms for using the local loop, are insufficient and need to be strengthened, he said.The current safeguards in the proposal, a margin-squeeze test and a test that measures whether former monopolies are discriminating against rivals by offering less attractive leasing terms for using the local loop, are insufficient and need to be strengthened, he said.
“We need to be very vigilant to preserve competition in the market,” Mr. Colao said.“We need to be very vigilant to preserve competition in the market,” Mr. Colao said.
Those changes may already be in the works.Those changes may already be in the works.
On Tuesday, Ms. Kroes plans to announce a set of stronger measures to bar discriminatory behavior by landline operators as part of a comprehensive package of proposed regulations intended to increase broadband investment.On Tuesday, Ms. Kroes plans to announce a set of stronger measures to bar discriminatory behavior by landline operators as part of a comprehensive package of proposed regulations intended to increase broadband investment.
The full European Commission is expected to vote on the proposal in February. The package would include legal mechanisms to reduce the cost of civil engineering associated with broadband network construction, as well as a new methodology that national regulators can use to calculate the cost of wholesale access for rival mobile operators.The full European Commission is expected to vote on the proposal in February. The package would include legal mechanisms to reduce the cost of civil engineering associated with broadband network construction, as well as a new methodology that national regulators can use to calculate the cost of wholesale access for rival mobile operators.
Ms. Kroes will also present a draft recommendation on ensuring that network operators treat all content providers equally in the age of mobile computing, and new safeguards to make sure that universal service obligations are not neglected as alternative computer-based communications networks spread.Ms. Kroes will also present a draft recommendation on ensuring that network operators treat all content providers equally in the age of mobile computing, and new safeguards to make sure that universal service obligations are not neglected as alternative computer-based communications networks spread.
The priority is to create a stable environment for investing in broadband networks, which has been lagging amid the economic downturn. The slowdown is threatening the European Commission’s goal of building a high-speed broadband infrastructure by 2020.The priority is to create a stable environment for investing in broadband networks, which has been lagging amid the economic downturn. The slowdown is threatening the European Commission’s goal of building a high-speed broadband infrastructure by 2020.
Only 2 percent of the households in the European Union have access to broadband download speeds of 100 megabits per second or greater. In the United States, by comparison, at least 50 million homes, or nearly half, are connected to networks with speeds of at least 100 megabits per second. By 2020, the commission’s goal is for half of E.U. households to have access to this service. Meanwhile, only half of E.U. households have service at 30 megabits per second. By 2020, the commission wants all E.U. households to have this as an option.Only 2 percent of the households in the European Union have access to broadband download speeds of 100 megabits per second or greater. In the United States, by comparison, at least 50 million homes, or nearly half, are connected to networks with speeds of at least 100 megabits per second. By 2020, the commission’s goal is for half of E.U. households to have access to this service. Meanwhile, only half of E.U. households have service at 30 megabits per second. By 2020, the commission wants all E.U. households to have this as an option.
“Fast connections cannot be a luxury for the urban few,” Ms. Kroes said in a statement. “I am ready to take on vested interests and ‘business as usual’ to make sure everyone gets connected. All in all, we are offering a balanced package.”“Fast connections cannot be a luxury for the urban few,” Ms. Kroes said in a statement. “I am ready to take on vested interests and ‘business as usual’ to make sure everyone gets connected. All in all, we are offering a balanced package.”
Smaller mobile operators, especially those in Eastern Europe that face potentially steep increases in leasing costs, are lobbying against the uniform pricing guidelines.Smaller mobile operators, especially those in Eastern Europe that face potentially steep increases in leasing costs, are lobbying against the uniform pricing guidelines.
Miroslaw Godlewski, the chief executive of Netia, an operator based in Warsaw, said increases in unbundling costs would raise the cost of phone service in Poland beyond what many consumers could afford.Miroslaw Godlewski, the chief executive of Netia, an operator based in Warsaw, said increases in unbundling costs would raise the cost of phone service in Poland beyond what many consumers could afford.
“This would be bad news for consumers and competition in Central and Eastern European countries with relatively low average monthly revenue per user and relative low salary levels,” Mr. Godlewski said.“This would be bad news for consumers and competition in Central and Eastern European countries with relatively low average monthly revenue per user and relative low salary levels,” Mr. Godlewski said.
But Hannes Wittig, an analyst in London at J.P. Morgan Cazenove, said Ms. Kroes’s plan would achieve its goal of increasing investment in new networks by giving the biggest operators roughly 6 percent more sales revenue and 11 percent more pretax income.But Hannes Wittig, an analyst in London at J.P. Morgan Cazenove, said Ms. Kroes’s plan would achieve its goal of increasing investment in new networks by giving the biggest operators roughly 6 percent more sales revenue and 11 percent more pretax income.
In a note to investors, Mr. Wittig said that Ms. Kroes’s decision to raise unbundling rates was a “paradigm change” in European regulation of the sector, which in recent years has been marked by ever tighter control of prices, even down to the retail level.In a note to investors, Mr. Wittig said that Ms. Kroes’s decision to raise unbundling rates was a “paradigm change” in European regulation of the sector, which in recent years has been marked by ever tighter control of prices, even down to the retail level.
Mr. Wittig said that Deutsche Telecom, BT, Telefónica, Telecom Italia and TDC in Denmark would be most likely to invest more in fast networks with the extra revenue.Mr. Wittig said that Deutsche Telecom, BT, Telefónica, Telecom Italia and TDC in Denmark would be most likely to invest more in fast networks with the extra revenue.