EU break-up plans have telcos, regulators worried

13 Jul 2007

Proposals by the European Union’s telecoms commissioner Viviane Reding to allow the Commission to take control of national regulatory powers are causing concern among Europe’s leading telecoms players, which fear the move could lead to them being broken up. Viviane Reding has long made it clear that she intends to announce plans in October to radically overhaul EU telecoms legislation. In several speeches given in the last twelve months Ms Reding has indicated that she is looking to take control of some regulatory powers that are currently held at a national level, and is also considering moves to break-up some national operators to increase competition in the industry. The commissioner argues that some European incumbents are guilty of using their dominant position to stifle competition and bar the entrance of new operators. Targets on Reding’s radar include France Télécom (FT) and Deutsche Telekom which together, she notes, control four-fifths of Europe’s broadband connections.

Commenting on Reding’s proposals, FT made clear its lack of enthusiasm about the plan: ‘We think functional separation is a false good idea – it looks like a good idea, but it’s not necessarily.’ The French incumbent argues that breaking the company up would only result in a lower level of service quality as the new unit responsible for running and granting access to the network would have less incentive to maintain high standards. The group is also concerned that hiving off its network and retail access functions would have a negative impact on investment, leading to market uncertainty over who is actually responsible for leading the operations. Reding counters by citing the UK example of BT Group which hived off its network access division from its consumer operations in 2005, setting up Openreach in the process. In a speech given earlier this year Reding said the UK precedent had ‘created a situation of equality of access to the incumbent’s network that has led to a take-off in unbundling in the past year.’