Global Insight Perspective | |
Significance | Portugal Telecom has demanded compensation from the regulator, tacitly suggesting that in the post-1998 era, when the telecoms market was liberalised and former incumbents privatised, any mandatory network investments in non-viable markets are of illegal benefit to the government that ought to be refunded. |
Implications | The demand sets a precedent and potentially opens the door for all ex-incumbents to demand compensation from their national regulators for monopoly-era investments. |
Outlook | Although Portugal Telecom is unlikely to win any compensation, the audacious demand gives a new slant to the increasingly strained battles between the EU and ex-incumbents, and could potentially trigger a review of the existing EU directive on universal services. |
Portugal Telecom is demanding financial compensation from the Portuguese telecoms regulator, Anacom, for the investments it made in the country's telecoms network while still a monopoly player. In a landmark case that could have radical implications for the entire telecoms sector across Europe, Portugal Telecom is asking for compensation for providing mandatory network services to regions incapable of supporting a viable telecoms business. Dow Jones reports that Portugal Telecom still allocates about 30% of its 500 million euro (US$731.27 million) network investment fund to these mandatory network services under regulatory obligations imposed on it as the monopoly telecoms provider in Portugal.
Speaking to reporters in Lisbon (Portugal), Zeinal Bava, the deputy chief executive of Portugal Telecom, said that regulatory obligations—including the deployment of countrywide infrastructure—ought to stop, given that Portugal Telecom is no longer a monopoly player in the Portuguese telecoms market. Bava argued that the European Union's (EU) 1998 telecoms liberalisation agenda and the eventual spin-off of Portugal Telecom's cable unit, PT Multimedia, have stripped the former incumbent of its monopoly status. Dow Jones reports that Bava declined to put a figure on the compensation demand.
Outlook and Implications
- Sticking Point: The key sticking point in the debate is the EU's Universal Services Directive (Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002), which mandates that regulators ensure that basic telecommunication services are available to every citizen of the EU. The directive is analogous to capitalism versus socialism, where telcos willingly roll out services in regions with enough population to support viable telecoms services, but are then compelled by regulators to provide similar services in areas without a sizable population. It has thus meant rolling out and maintaining telecoms networks and services—such as pay-phones—in rural and remote locations where a viable telecoms business cannot be supported. The former incumbents remain obliged to provide such services and have so far tried unsuccessfully to shed the responsibility. In most EU member countries, the ex-incumbents do not fund the universal services provision alone. Regulators usually maintain a universal services fund, into which every telecoms provider in the country pays, and from where investments for universal services are made.
- Setting a Precedent: Portugal Telecom's audacious demand is bound to set alarm bells ringing across Europe as other ex-incumbents wake up to the idea that they may have a case too. By demanding compensation for its obligatory network investments, Portugal Telecom is attempting to turn the balance of opinion in the way ex-incumbents are regulated. Much of the EU's telecoms competition laws—especially local loop unbundling (LLU) and wholesale access—were conceived on the premise that the incumbents' existing copper network infrastructure were somehow funded by the tax-payer. Consequently, the telcos are duty-bound to make those networks available to any interested party. However, Portugal Telecom is tacitly suggesting that post-1998 and its attendant incumbent-privatisation push, any mandatory network investments in non-viable markets are of illegal benefit to the state that ought to be refunded.
- Demand May Open New Debates: Although Portugal Telecom is unlikely to get any compensation, its arguments will come in handy for those telcos vehemently opposed to the EU's push for functional separation, and the EU's reluctance to allow telcos investing in new fibre networks not to share access to the new networks. Depending on how water-tight Portugal Telecom's arguments are, former incumbents may pounce on the matter and use it as a bargaining chip in their increasingly strained battles with the EU. Furthermore, given the ubiquity of mobile phones, the demand could potentially precipitate a new debate about the merits of the universal services directive in its current form.