EU To Force Telco Competition

In an effort to jump-start e-commerce, the European Commission (EC) has warned European Union (EU) member governments that they must foster competition for local telephone lines that connect homes and businesses to the Internet by December, or be forced to do so.

The EC’s stiff threat comes just one week before a scheduled hearing in Brussels on unbundling access to local telephone companies’ networks. Many industry analysts say that the timing of this announcement underscores the European Union’s strong desire to eliminate charges that make European Internet access costs many times those in the United States.

The recommendations are non-binding in theory, but if EU governments do not begin offering full local-loop unbundling and lower pricing voluntarily by December, the EC will issue a formal directive that forces them to comply.

Not a New Problem

Earlier this month, Microsoft Corp. founder and Chairman Bill Gates told a gathering at the World Economic Forum in Davos, Switzerland that European e-commerce continues to be hamstrung by high per-minute telephone tolls.

“A country’s communications will determine how quickly the Internet takes off in that country,” Gates said.

Even though there is a growing number of successful European Internet entrepreneurs, many industry analysts agree with Gates’ assessment that an e-commerce critical mass will only be achieved in Europe when telcos reduce their tolls.

While Internet access in the U.S. is generally available for a flat rate of about $15 to $20 (US$) per month for unlimited usage, European telcos charge based on a per minute basis — making Internet access far more expensive than in the United States.

Blue Ribbon Panel

In August, British Prime Minister Tony Blair commissioned a blue ribbon panel to examine why UK e-commerce lags miserably behind the United States, Germany and France.

Some industry observers were quick to point out that the UK’s lack of e-commerce success has nothing to do with a lack of initiative, innovation, or talent among British companies and entrepreneurs. If anything, the recent success of Freeserve’s IPO on the British stock exchange and Wall Street proves that e-commerce has come to the boiling point in the United Kingdom.

These analysts blame shortsighted telcos for driving to make money now instead of investing in the UK’s future. Additionally, proponents of the new economy predict that if telcos eliminate the tolls, the UK’s Internet economy will soar — allowing individuals and businesses to afford more telecommunications services that were previously out of reach.

Slow Going

According to a study by London’s HSBC Investment Banking PLC, the U.S. generates about 80 percent of worldwide e-commerce, with Western Europe kicking in 10 percent and Asia about five percent.

European leaders recognize the problem and have been banding together to press Europe to catch up with the United States.

For Instance, Ekki Liikanen, the European commissioner responsible for information-society industrial policy, has been strongly promoting the concept that open access to phone lines will spark the technical innovation and competition that Europe desperately needs.

The most explosive issue at next week’s hearing is expected to be pricing. Currently, incumbent telcos charge their competitors high rates for access, making it impractical for the smaller operators to offer lower cost Internet access.

Incumbent telcos argue that the higher rates are necessary to cover the cost of building and maintaining the infrastructure.