European Phone Fight on Hold

Except for British Telecom, companies are dragging their feet on liberalization

THE wave of liberalization that transformed United States telecommunications 10 years ago is just now lapping at Europe's shores.

European telecommunications companies talk about opening service to competitors. But so far, with the exception of Britain, the pace seems leisurely.

"The pace of liberalization is slowing down," says Gerhard Sundt, director of European networking services for Gartner Group. Originally, several European companies planned to liberalize in 1994; now the European Community (EC) has set a target date of Jan. 1, 1998.

"It's going to be very slow," adds Joanne Smith, at Nomura Research Institute America in New York. The companies have no built-in incentive to liberalize. "They'll say it ... because it's politically correct," she says. "[But] if you were the monopoly provider, why would you want competition?"

Even the most reluctant European telecoms acknowledge that liberalization will come. But there are good reasons to move slowly, they say. The situation in Europe is different than in the US. One difference is that the companies, with the exception of British Telecom, are not yet strong enough to take on the American companies. "In five or six years there will be a new telecommunications landscape," says Gerard Moine, special adviser to the chairman of France Telecom. "We will have a shakeup. We must be a rmed to equality."

France Telecom, one of the stronger players, plans to begin its fitness program next year. It expects to raise local rates and lower long-distance rates within the country. The company has already cut long-distance rates by 40 percent since 1987. Mr. Moine expects at least that much more in rate cuts in coming years.

Another difference is that Europeans plan to liberalize local and long-distance service, at least the voice traffic, by 1998. US local service is still a near monopoly.

A third distinction: the US has a single market; Europe has a patchwork of national companies with different standards, networks, and liberalization timetables.

Britain, for one, is fast becoming as competitive as the US. The Netherlands plans to liberalize its service and its infrastructure in 1995. Its railroad, cable TV, and electric companies will be able to lease lines to business telephone users, though some limits will remain.

Other companies are woefully behind. Here in Germany, for example, privatizing Deutsche Telekom will require a constitutional change. Only a parliamentary supermajority can ratify such a change, so the market-leaning conservatives are trying to hammer out a compromise with the left-leaning opposition. "We are not convinced that regulators and politicians will really make this a fully competitive marketplace," says Bernhard Spohr, Deutsche Telekom's director for EC telecommunications policy.

At the moment, for example, the company is spending heavily to rewire former East Germany. Virtually all of Deutsche Telekom's 7 billion deutsche mark [US $4.1 billion] gross profit last year went to subsidize the national post office, postal bank, and the government itself.

Without the necessary resources to rebuild its infrastructure, Deutsche Telekom is seeing its once-advanced analog system quickly surpassed by the digital technology being installed in other countries.

Privatization can be an important advantage. On July 19, Gerard Longuet, France's minister of industry, postal and telecommunications services, said he would turn France Telecom into a joint-stock company. The minister said the lack of private shareholders hurt France Telecom's ability to clinch a deal with MCI, which teamed up with British Telecom instead. The government will still hold a majority interest in its telecommunications company.

Many European governments are leery of giving up control of their telephone companies because they have been such cash cows up to now. But their decision to slow liberalization may carry other costs.

High telecommunications rates make countries less attractive to business. The gaps can be significant. Some analysts contend that telephone rates are a big disincentive to business.

"If the politicians don't act quickly, then we believe that Europe will lose ground compared with the US and Japan," says Mr. Sundt. "It's that critical."

Ms. Smith says services may prove to be more important than cost. "I don't think its necessarily a competitive disadvantage as long as you have the services," she says. "If there's proper regulation, the services will develop. If you have improper regulation, that won't happen."

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