Europe to Consider Splitting Telecom, Internet Access Divisions of Telcos

The European Commission will consider tomorrow a plan to fundamentally restructure the way a European telecommunications company manages and offers services to its customers. A new and broad-reaching centralized regulatory framework may mandate that companies separate their Internet data and telephone voice communications services into distinct divisions, in the name of maintaining fair competition with providers who can't offer bundled services.

"I have come to the conclusion that the instrument of functional separation should be added to the remedies tool box of national telecom regulators, to be available for the stubborn cases where other remedies have been tried, but have failed to deliver the desired regulatory outcome," stated EU Commissioner for Information Society and Media Viviane Reding, in a speech last October 11. There, Comm.

Reding outlined a plan to be discussed tomorrow for a new continental regulatory body for communications, whose active title (today) is the European Telecom Market Authority. That body would serve as a single source for mandating policies for all of Europe's telecommunications services, which today include data and mobile communication.

The "functional separation" tool that Reding introduced last month would be a non-mandatory option for the EMTA regulator - a kind of "plan B" for big companies that appear to be unshakable in their resistance to opening markets for competition. Broadband adoption throughout Europe is by no means uniform, with 37.2% of households in Denmark equipped for broadband, versus just 5.7% of Bulgarian households.

Part of the reason for that disparity among member nations, commissioners believe, is that so-called "alternative access providers" don't have much of an inroad. While they can offer low-cost Internet service to limited areas, they can't simultaneously offer landline or mobile phone service. So customers in many countries end up choosing bundled services just for the convenience, even if the Internet component ends up being slightly higher-priced.

Thus in situations where alternative providers just can't seem to get a leg up, the EMTA regulator would be enabled to order telcos to split their services, perhaps even spinning off their business units.

"Functional separation means that inside a company, without changing its ownership structure, a clear line is drawn - and supervised by the regulator - between the access business and the services branch of the company, while non-discriminatory access is granted to service providers to the access network," Reding stated. "Functional separation is in my view the right tool for the telecom sector, which is a network economy with continues to show a number of structural competition problems, but at the same time, because of the potential of technological change, is more dynamic than the energy sector."

Naturally, European telcos are expressing their opposition. Ironically, the center of opposition for this somewhat socialistic approach comes from the country that, until this year, represented the center of the Socialist movement in Western Europe: France.

At a news conference in the EU capital of Brussels this morning, Jacques Champeaux, executive vice president for regulatory affairs at France Telecom - which exports its services under the Orange brand - made it clear he felt the entire EMTA proposal constituted a statement of mistrust in the European telecommunications system by its continental government. In the best translation from the French we've found, Thomson Financial quotes Champeaux as saying, "Even when presented as a last recourse, we believe [functional separation] goes in the wrong direction.

"It is not a fully consistent message," Champeaux continued. "On the one hand there is a real message on deregulation, with the commission acknowledging we need less regulation; [on the other], some measures in the proposals make us believe that the European Commission does not think we can achieve full competition."

Also opposing the measure is the ETNO group, which represents Europe's publicly held (i.e., not private like Orange), state-owned telecommunications companies. ETNO will have a powerful voice in this debate. Its head of regulatory affairs recently told reporters, "Although some new services that are pan-European by nature may call for a more harmonized approach, no permanent additional layer of bureaucracy should be created, in line with the transitory character of the EU regulatory framework."

Other opponents to the EMTA have argued that an existing regulatory body - the European Regulatory Group - already has telecommunications market management in its purview. Comm. Reding has stated her hope is to have the EMTA work in tandem with the ERG, though previous statements she's made to the press indicate she has not always been supportive of how the ERG presently functions.

The head of regulatory affairs at the European Competitive Telecommunications Association - credited at one point as being the catalyst for EMTA - now says she supports EMTA only as long as it learns to cooperate with ERG. "Competitive telecoms operators across Europe often find that the wheel is being invented several times over to solve similar problems," Ilsa Godlovitch told reporters. "Therefore, we have always advocated closer co-operation between regulators, in order to spread best practices. In that respect, it is quite clear how helpful the European Regulators Group's taking a greater role over the past eighteen months has been. We would like to see that role still boosted, and any institutional mechanism to forward that - be it in the form of an agency or in some other form - would be welcome.

But on the opposite end of the political scale from ERG supporters are reportedly commissioners who not only believe the EMTA should be set up, and soon, but who also believe it should be charged with the duty of making sure telecommunications companies do their best to combat cyber-terrorism. These supporters cite recent speeches from Comm. Reding, saying the existing regulatory body there - ENISA - has not been doing enough to stop the spread of spam and online attacks, suggesting it should be replaced.

It is an extremely difficult debate, and like so many other matters in Europe these days, it has at least five sides to it, maybe more. But after tomorrow's critical EC meeting, the stage could very well be set for Europe to undo the kinds of market dynamics the American FCC has actually encouraged: the bundling of services and the convergence of media.