In three years, Europe will achieve the level of deregulation in long distance and local telecommunications markets that took 25 years to accomplish in the US, according to analysts. A November study from the European Commission shows that in just the first year of deregulation, competition in EU states increased 12- to 40-fold, with most states jumping from a single, state-run carrier to multiple competitors.
However, Europeans must first tackle issues arising from differences in regulatory approaches, culture, and infrastructure before they can accomplish one of the key goals of a deregulated market, the so-called "unbundling of the local loop" - opening up to competition the provision and servicing of the "last mile" of cable that connects homes and businesses to larger telecommunications networks.
In the Republic, the director of the Office of Telecommunications Regulation, Ms Etain Doyle, has issued a consultation paper on unbundling the local loop. She has invited submissions from telecoms companies and a report on her findings is due at the end of the month.
"Europe is a healthy and growing market and the evolution and growth of CLECs [competitive local exchange carriers, or telecommunications companies providing local-loop services] will be similar to that in the US," says Ms Audrey Mandela, an independent analyst, formerly with the Yankee Group. Ms Mandela was in Dublin recently to address a gathering of telecommunications company representatives.
She says that in the US, CLECs have been able to gain market share because the regional Bell operating companies (RBOCs), the "baby Bells" that resulted from the US government's dismantling of one-time monopolist, Bell Telephone, have been barred from offering long-distance services. That has kept the market fragmented and heated up competition for local-loop provision.
But in Europe, the incumbent telecommunications companies which were once state-controlled monopolies are allowed to compete in all areas of the market and can bundle together voice, data, mobile and Internet offerings to customers who tend to prefer a single source and single bill for services.
"The incumbents can already bundle and therefore can compete quite strongly," says Ms Mandela. In contrast, a recent court ruling in the US mandates that RBOCs cannot bundle services with other providers, leaving the market to CLECs.
Thus, the European market is more difficult to enter for new competitors, who cannot easily challenge incumbents with bundled services or, alternatively, operate in just one small corner of the market. "In the US, there's always a margin to be had by using the unbundled local loop. In countries such as Germany, that's not attractive," she says.
And although the situation is changing gradually, Europe also lacks the level of venture capital available to US companies, which makes it difficult for new entrants to piece together the necessary funding to take on the incumbent carriers across a range of service offerings.
On the other hand, Ms Mandela says, the US propensity to sue has meant that true competition in the telecommunications market has yet to happen in the US.
She notes the Telecommunications Act of 1996, the first major change in US communications law in 62 years which was intended to throw open the telecoms market, has not achieved its intentions because the RBOCs constantly take new entrants to court.
"The US is quite litigious," she says. "It's extremely important for carriers that want to compete with RBOCs to have very good lawyers."
She predicts that companies wishing to compete on the local loop in Europe also come armed with a strong legal team. But that is as much due to the lack of clarity about national and pan-European regulations as it is the aggressiveness of incumbent carriers.
Not only does the European Union set overall EU law, but each of the 15 member-states has a Telecommunications Regulator whose job it is to interpret and enforce EU and national telecommunications regulations. In some countries such as Britain, says Ms Mandela, the regulators are given wide authority to enforce a competitive environment. But in others, weak regulators make for an uncertain and risky market.
She also pointed out other regulative barriers: the lack of pan-European licensing for carriers, restrictive operating and pricing conditions, high costs for building infrastructure, and the irresolution of many local-loop issues.
Indeed, not all EU members are required yet by their country's regulators to unbundle the local loop, even though the deadline set by the Union itself has passed. To date, Denmark, Finland, Germany and the Netherlands have mandated unbundling. Italy says it intends to do so by the end of the year, Ireland favours it but has no deadline, France has promised to finish consultations on the issue by year end, and Britain and Belgium are "reconsidering" the issue, Ms Mandela says.
But the US has shown that when the local loop market is unbundled, there are significant opportunities for CLECs and therefore, more diverse offerings for consumers. CLECs are "definitely the fastest growing players in the market today", Ms Mandela says, doubling revenues in 1997 and nearly doubling them in 1998. Still, CLECs are also still tiny players in the telecoms market, operating less than 5 per cent of lines.
CLECs in the US also face changes in their operating environment which may force them to seek new sources of revenue. At the moment, says Ms Mandela, most CLECs sign up lots of Internet service providers as partners because the CLECs generate revenue from calls that terminate in CLEC networks. But the Federal Communications Commission recently has determined that calls to ISPs are long distance and not local calls, which means that telecommunications carriers do not have to pay call termination fees any longer. CLECs are thus looking for acquisitions to broaden their offerings, or are looking to become acquisitions themselves, or form new partnerships. So, at the same time that the European market is creating opportunities for Euro-CLECs to form and expand, US CLECs may find Europe offers possibilities for partnerships, acquisitions and growth, says Ms Mandela.
