From...

June 24, 1999
Web posted at: 1:18 p.m. EDT (1718 GMT)

by Elizabeth de Bony

BRUSSELS (IDG) -- The European Commission Wednesday approved rules which will require former monopoly telecommunications operators to legally separate their cable operations from their traditional phone services, a move that the commission hopes will ensure greater market access for competitors.

The law stipulates that all telecommunications operators which are controlled by a member state of the European Union or which benefit from special rights and which are dominant in a specific market must operate their cable television network operations as separate legal entities.

"Package deals offering consumers both telecom and television services will no longer be possible," said Stefan Rating, the spokesman for Competition Commissioner Karel Van Miert.

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The move reflects the Commission's continuing frustration with the EU's telecommunications market, where liberalization may exist on paper, but where competitors are still having trouble breaking into new markets because the incumbents remain not only the dominant service provider, but also control the infrastructure and networks which competitors must use.

There are questions however about how effective this directive will be in facilitating competition, because the two incumbents with the biggest cable operations, Deutsche Telekom (DT) and British Telecommunications, have already announced their plans to divest their cable operations. Divestment goes further than what is required by the new EU rules. France Telecom (FTE) and Telecom Eireann also have cable operations, however.

"You have to understand that the timeline for European legislation is very long, and the market has moved on faster than the commission can act," Susen Sarkar, senior analyst at Yankee Group Europe, told IDG.

"The Directive may already be obsolete," admitted one commission official who asked not to be identified.

The former telecommunications monopolists saw the writing on the wall several years ago when the commission first started to realize that existing 1995 rules were insufficient to increase access to consumers. In 1995 the commission approved rules which required accounting separation between telecommunications services and cable operations to prevent illegal cross-subsidization of the new services.

Cable networks are important because they provide "an ideal alternative infrastructure for the provision of a full range of broad-based services," notably the Internet, the commission official explained.

For the moment only a few cable companies operating in the European Union offer Internet access, but this option is certain to grow, Sarkar said.

This development has prompted the former incumbents to accelerate the introduction of DSL (digital subscriber line) technologies to provide high-speed Internet access over the phone lines, Sarkar added.