Brussels, 29/12/2000 (Agence Europe) - The European Commission is pursuing its action aimed at preventing the former telecommunications monopolies of certain Member States from continuing to benefit from their old positions, in spite of the liberalisation process and the opening of telecoms services, notably telephony, to competition. Two Member States are concerned by the Commission's latest initiatives:
a) Italy. The Commission suspended the proceedings opened in 1998 because the Italian telecommunications regulator authorised Telecom Italia (the former monopoly) to raise its subscription charges by a percentage equal to inflation plus 6% in 2001, in order to bring them into line with access network costs. The Italian monopoly thus moves closer to the rebalancing of its tariffs. The procedure now suspended will be definitively closed provided rebalancing is completed by 1 July 2002.
b) Spain. The Commission decided to send Spain a reasoned opinion within the framework of the infringement proceedings initiated in 1998 on the rebalancing of telecommunications tariffs. A note by the Commission spokesman states that "Spain has still failed to give the Commission the proof that it has complied with its obligations in this field", since the authorities have not authorised the former monopoly Telefonica to increase its tariffs sufficiently. Telefonica asserts that it is incurring a high access deficit because it is unable to set subscription tariffs at an adequate level.
The reasoned opinion represents the next-to-last phase of infringement proceedings; if Spain does not comply with the Commission's demands, the Community Executive could take the matter before the Court of Justice in Luxembourg.
The reasons why the former monopolies must be authorised to increase their subscription and connection charges are very complicated. At first sight, such increases would appear to run counter to the interests of consumers, who will face increases, whereas the main objective of the opening of the sector to competition is precisely to enable consumers to enjoy lower tariffs (which is the case in general, because telecommunications tariffs have dropped considerably since the start of liberalisation). The Commission's spokesman explained the situation in the following "background note".
"Article 4c of the 1990 services directive, as amended by the 'full competition' directive of March 1996, requires Member States to allow former telecommunications monopolies to rebalance their tariffs, i.e. to base them on underlying costs in order to put an end to cross-subsidisation between various segments subject to varying degrees of competition. The rebalancing was to be completed by 1 January 2000. The principle may entail an increase in the telephone subscription which, however, is offset by a reduction in the cost of long-distance calls. In a sector still characterised by a dominant operator, such as telecommunications, the principle of basing tariffs on costs allows new operators to enter the market and expand in economically balanced conditions. Competition is thus allowed to operate to the advantage of consumers in terms of price, quality and diversification of supply.
The increase in telephone subscription and connection costs, which in absolute terms are relatively modest, does not necessarily mean an increase in the consumer's bill. Rebalancing is conceived as a reduction in call tariffs, especially long-distance calls. In addition, the rebalancing is compatible with the tariff mechanisms adapted to the needs of those who use telephone services less and those with social needs."
On the two specific cases in question, the spokesman explained the following.
1. Telecom Italia expected to be able to complete rebalancing in 18 months
"On 12 December 2000, the European Commission was notified by the Italian telecoms regulation authority (AGCOM) of a decision adopted the previous day which authorised Telecom Italia to increase its subscription and connection charges in 2001 by a percentage equal to inflation, plus 6%. The decision also includes an undertaking to allow Telecom Italia to complete the rebalancing of all its tariffs by 1 July 2002.
The Commission welcomes this important decision which follows constructive technical exchanges between the Italian authorities and its own departments after a reasoned opinion was sent to Italy on 1 September. The Commission considers that the AGCOM decision contains sufficiently precise undertakings for the procedure to be suspended. The procedure will be definitively closed in 2002, once the Commission has ascertained that Italy has fulfilled its commitments.
In its reply to the reasoned opinion, AGCOM concluded that Telecom Italia would, failing new measures, incur an access deficit of some ITL 1.120 billion, assessed on methodological bases deemed valid by the Commission. The access deficit is simply the difference between subscription and connection revenue and the costs of the access network. The approach developed in the AGCOM decision should allow the deficit to be made up within 18 months, the first stage starting at the beginning of 2001."
2. Spain must either prove rebalancing has been completed or comply rapidly with its obligations:
"Since proceedings were initiated in the autumn of 1998, Spain has not yet provided the information which would enable the Commission to determine whether it has complied with its obligation to authorise Telefonica to rebalance its tariffs on the basis of underlying costs. The incumbent, which lodged a complaint with the Commission against Spain in November 1998, claims that it incurred access deficit charges in 1999 of over PTA 250-300 billion because subscription and connection revenue did not cover access network costs. At this stage, therefore, the Commission considers that rebalancing has still not been completed in Spain. It is asking the Member State either to furnish evidence to the contrary or to comply rapidly with its obligations.
This question of rebalancing is particularly important given the imminent local loop unbundling which should increase competition in the market for local calls and high speed services, especially access to the Internet. An inadequate level of subscription tariffs is liable to create scissors' effects, with Telefonica's competitors being billed by it at rates for unbundled lines in excess of the retail subscription rates charged to Telefonica's customers, which would make their offer unattractive to subscribers."