Developments in Telecommunications: An Update (1997)


Interested countries were asked to provide brief descriptions of subsequent important competition enhancing developments in their telecommunications sectors: (in PDF Format)

Australia (35 697 bytes)
Italy (18 631 bytes)
Poland (13 286 bytes)


The Australian delegate initiated this session. He pointed out that the main developments are summarised in Australia's submission. The comments here are limited to the main points.

First, Australia now has new legislation and open market access. All entry barriers have been removed to all parts of the industry. Second, economic and competition regulation will be handed over to the competition regulator, i.e., the Australian Competition and Consumer Commission. Previously, there was an industry-specific regulator, Austel. Now all those functions concerning competition and economic regulation will be performed by the general competition regulator. The central reason is that Australia wanted to instil a competition culture into the regulation of telecommunications, rather than have an industry-specific regulator pursuing regulatory goals in isolation from wider competition-policy goals. Similar decisions have been made in the electricity and gas sectors (at least at the national level).

There remains, however, quite a lot of technical regulation that needs to be carried out. This is being carried out by a new agency, the Australian Communications Authority. It has responsibility for licensing new telephones and a range of other technical issues. These were previously carried out by Austel. These technical operations have been combined with the technical functions of the Spectrum Management Agency. In broad terms, the competition regulator also has some oversight over those technical decisions made by the Communications Authority, when those technical decisions have an effect on competition.

Regarding the actual legislation, from 1991-1997, there was a very detailed, descriptive, somewhat interventionist, regime for telecommunications. That has been removed. Instead, regulation has been shifted over to the general competition statute, the Trade Practices Act. However, it has been recognised that there is some need, at least for a few years, to have some special provisions regarding telecommunications.

The first special provisions concern access. The Australian Trade Practices Act was amended to have a general law for resolving access disputes, whether they relate to the communications sector (including telecommunications and post) or the energy sector (such as electricity or gas) or the transport sector (airports, rail etc.). Because there are, however, special features about telecommunications (such as the need for any-to-any connectivity), there is a special set of provisions relating to access disputes and how they are to be resolved under the Trade Practices Act.

The second significant legislative change in the Trade Practices Act is in regard to what might be called monopolisation, Â'abuse of dominanceÂ' or Â'market powerÂ'-type provisions. There are, of course, provisions in the Act relating to the abuse of market power, but, with respect to telecommunications, they have been slightly strengthened in a couple of ways, without departing from competition policy concepts. For those with a detailed interest, for example, the purpose test in issues of market power has been strengthened - it is now sufficient that there can be established that there is an anticompetitive effect of the behaviour of the monopolist. The other change is that is that for most breaches of the Trade Practices Act, it is necessary for the regulator to go to the courts to prove that there has been a breach of the law. That process can take many years if there is resistance by the other side and if they wish to appeal decisions up the line of appeals. Here, in the context of telecommunications an attempt has been made to reverse this situation. The competition regulator can now issue a notice, finding that certain behaviour is anticompetitive and in breach of the law. If that behaviour continues, there can be fines of up to $10 million or $1 million per day that the behaviour continues, so long as the regulator can prove its case in court. This is a kind of Â'reverse onusÂ' which attempts to speed up the processing of these decisions.

There are a few other provisions in the legislation that set out rules about tariff filing, record-keeping, international rules of conduct, access to the radio communications spectrum, and so on. One of the other interesting features of the new law is that the regulator has the full range of weapons available to it to deal with the industry. There are now greater possibilities for an integrated policy-making approach. For example, at the present time, perhaps the single most important matter occurring is that the regulator is using the merger provisions of the Trade Practices Act to regulate a proposed merger between the dominant telecommunications company, Telstra and what would be the dominant pay television company. This is an example of the integrated approach to policy that can occur when you bring together the industry-specific regulatory functions with the general functions available under competition law.

Regarding market developments, for many years, Telstra was the monopoly. In 1992 Australia deregulated the value-added sector of the market. In basic carriage services we allowed a second entrant called Optus. In other words, there was a regulated duopoly from 1991-1997. That restriction has been removed and others can now enter the market.

Probably the most interesting development in that market is that Optus has decided to roll out a cable network, initially for the whole of Australia, but, having spent several billion dollars, it was then matched, door-to-door, by the incumbent monopolist. There is now a roll-out covering half of the country by these two telecommunications operators. However, they have both decided that this is an expensive form of competition and have both slowed down their roll-out.

Decisions will have to be made concerning access terms and conditions. In order to provide a complete telephone system in competition with the monopolist the new entrant is seeking access to the network of the incumbent. The ACCC will have to arbitrate the price of that access agreement at some point.

These companies are also heavily involved in pay television, because there was no pay television in Australia until recently. The original idea of the new entrant was that it would be able to offer a cheap telephone service and a pay television service. The incumbent monopolist, Telstra also decided to go into the television industry and started to buy up sports rights, and films from Hollywood and so on. There is also a battle going on to gain control of satellite communications.

On mobile phones, up until recently there have been licenses granted to three operators. Now there is open entry into that part of the industry. Going back to local telephony, Optus has had profound technical difficulties getting its new telephone service going. As a result, although there is a cable passed everyone's house, the local telephone service is not working for technical reasons. It is imagined that it will start working fairly soon.

In regard to spectrum access for mobile services, around 1991 sufficient frequency was made available for three operators to provide a full-line mobile service in Australia. There are now three fully-fledged mobile operators. From 1997, it was decided that unrestricted entry should apply to mobile services. At the same time, an auction of further mobile spectrum, is being held. The government is still struggling with decisions as to what additional spectrum shall be made available because there are other conflicting uses of the space. The government also probably has financial motives in regards to the rules for this auction of spectrum. At the moment, the government has made a preliminary decision, but there have been some concerns expressed and it has backed off. It will now take a few more months over its decision. It looks like there will be room for one more full-line operator and, as well, there will be opportunities for people to operate services in some areas of Australia, while having the opportunity of providing the customer full-service through the access laws.

To date having three mobile operators has not produced as competitive a market as anticipated. They have all been doing very well in profit terms. That might be an indication that there could be more competition than there seems to be at present.

Japan was then given an opportunity to present developments in Japan. This past June a package of telecommunications deregulation measures was passed by the Diet. The legislation includes, among other things, the following three changes. First, NTT will be divided into a holding company (including R&D activities), two regional service companies (which are supposed to provide universal service in Japan) and a long distance company. Second, the provisions of the laws that have restricted international service will be abolished. Third, amendments to the telecommunications law in order to secure fair competition between NTT and new entrants to the market (including access to the existing network of NTT) will be implemented as soon as possible.

Regarding the evaluation of these changes from the viewpoint of the competition, it is noted that if the holding company controls all the activities of its subsidiaries, nothing will change. However, although there is a need for a further review in order to bring about further deregulation of pricing, it is hoped that this legislation goes some distance to promote competition in the telecommunications sector in Japan.

Regarding mobile services, currently NTT has a subsidiary which provides mobile telephone services. A reduction of the shareholding of NTT in this subsidiary is being discussed in Japan.

The UK delegate then updated the Working Group on three developments in Britain. The first is that, because of the level of competition, the retail price cap which previously applied to all BT's services has been offset so that it now only covers prices paid by residential customers - in fact the 80% lowest spending residential customers. In the case of businesses and larger residential customers there is sufficient competition to BT from a large number of operators. Large customers now have a choice, for example, of Mercury, a company called Energis (which uses the national grid infrastructure to lay out to its network), high-capacity broadband operators (particularly operating in the city of London), cable operators, radio fixed access plus a range of indirect-access operators. It was decided that it is no longer appropriate, for these large customers, that BT should remain price-capped.

Another development has been in international facilities. There was previously an international telecommunications duopoly, restricting provision of international services over a company's own facilities, to BT and Mercury. The government announced in July 96 that it was planning to end this duopoly and it has now done so. Today there have been 58 licenses awarded for the provision of international services over facilities which are owned and managed by the licensee. In doing that, the international market for telecommunications in the UK has been liberalised, 12 months ahead of the deadline set for competition in Europe.

Third, the introduction of the Fair Trading Condition in licenses. It had already been incorporated into BT's license and the international facilities licenses that have been introduced. It will now be introduced into other operator's licenses. Basically, it prohibits the licensee from engaging in anticompetitive practices, including abuse of a dominant position, and any concerted practices, where there is an appreciable effect on competition. It works in much the same way as competition law, but will be written directly into the license.

The US delegate reported that the biggest development in the US has been the passage, in February 96, of the new Telecommunications Act. In that Act, Congress determined that changes in the marketplace and new technological innovations have made competition possible in local markets and expressed its preference for competition over regulation in those markets. At the time of the passage of that the Act many long distance and cable companies misjudged how quickly they would be able to get into the local markets. They raised expectations that have not been met. There were hearings last month in Congress on this matter. It is the position of the Justice Department that there is not a need for changes in the law at this time. In fact, this transition from decades of regulated monopolies will take a long time. It will take a long time, for example, to get the interconnection charges precisely right.

The Act foresees three possibilities for local competition. First, the creation of new facilities. This would involve a need for new entrants to interconnect their networks to have calls completed, since the vast majority of the subscribers would at the outset remain on the network of the incumbent and be using its local loops. For the foreseeable future, until we get new technology which allows new competition to enter, this local loop will remain the single means of obtaining access to residential customers. For this reason there is a lot of blustering and litigation relating to access charges. The second means of getting into local competition is through unbundling of existing services that the incumbents are providing. Incumbents are required to unbundle these services and provide them individually so that new entrants can re-package them and provide new packages of services that did not previously exist. The third method of entering the local markets is through resale of the existing facilities.

We foresee that there will be three major steps needed for getting competition in local markets into effect, which are already underway but are not completed. The first is establishing new rules for the transition to competition. The Act requires incumbent local carriers to provide interconnection, unbundle their networks and lease the unbundled elements at cost-based rates, and resell their retail services at wholesale rates. The FCC issued rules for pricing of interconnection, unbundled elements and resale, but these rules were challenged in the courts, and the Eighth Circuit decided that the state Public Utility Commissions had the responsibility for setting these pricing rules to implement the Telecommunications Act, rather than the FCC. The FCC did, however, uphold many of the FCC's rules for local competition in areas other than pricing. The DOJ was disappointed that the court ruled as it did, since the DOJ had supported the basic economic concepts in the FCC's cost rules for efficient pricing. Many states have now come up with similar cost rules on their own, but a significant minority have yet to develop any rules or have acted inconsistently with the FCC's and DOJ's positions. The United States has asked the Supreme Court to consider the Eighth Circuit's decision on the pricing rules.

The second step is ensuring compliance with the rules. Here, one of the critical factors was section 271 of the Act, which is the part of the Act which spells out how the Bells can enter into long distance competition. There is a 14-point checklist that they are required to meet, to show that there is, in fact, local competition existing or the possibility of local competition, to allow them into long distance competition. It the strong belief of the DOJ that they should not be allowed to enter long distance competition until there is a permanent demonstration that local competition is either occurring or can occur, that is, that the local market is fully and irreversibly open to competition. The Justice Department has a critical role in advising the FCC in this area. There have been four applications as of December 1997 by the Bells to enter long-distance markets, in the states of Oklahoma (by SBC), Michigan (by Ameritech), and South Carolina and Louisiana (both by BellSouth). The DOJ has opposed all four applications because the local markets in those states, for a variety of reasons, are not yet fully and irreversibly open to competition and the statutory competitive checklist has not been met; in addition, in Oklahoma the DOJ opposed the application on the ground that the SBC had not met the legal preconditions of having an operational business and residential facilities-based competitor, or the absence of any request for interconnection by such a potential competitor. The FCC has denied the Oklahoma and Michigan applications, on the grounds urged by the DOJ, and has yet to act on South Carolina (due Dec 29, 1997) or Lousiana (due Feb 4, 1998). The Ameritech Michigan application was the closest to complying, and there was the most local competition in that state, although overall it was still quite small even there, with aggregate market shares of competitors only about 2%. Nationwide, there are few states with any residential facilities-based competition (Michigan did have some), and the aggregate market shares of competitors are still small. There are over $100 billion in revenues in local markets in the U.S., but competitors of the Bells and other incumbent carriers have only about $2 billion of those revenues. There are now hundred of interconnection agreements reached between potential competitors and the Bells and other incumbent carriers, and requests for agreements have been made in all states. Significant investments are being made by potential entrants in a number of states, and we expect that, once the Telecommunications Act's requirements are fully complied with, the local market will open up in many areas of the country.

The last step is the continued enforcement of the antitrust laws, after these rules are in place and the incumbents are complying with them. In that connection, the DoJ experience has been with a couple of mergers, one of which was very controversial - the Bell Atlantic and NYNEX merger. This was a merger involving to competitors which were right next to reach other. In fact, the line separating them went through metropolitan New York City. It was believed by many people that these were two companies that would be significant potential competitors. It was the conclusion of the DOJ that because of the number of other potential competitors, including long distance carriers with established brand names and recognition, that were seeking to enter these very lucrative markets, there would be great difficulty in winning a case challenging these mergers. Therefore, the DOJ allowed the merger to proceed. The FCC had greater concerns about the merger but found that these concerns could be addressed by imposing a number of conditions on Bell Atlantic/NYNEX to ensure that they did, in fact, open their local markets to the other potential competitors, so it did not block the merger either.

The Spanish delegate was then invited to make several comments concerning developments in telecommunications in Spain which are summarised as follows. First, Spain will liberalise this sector starting from 1 December 1998. Second, there is a new entrant providing basic telecommunications services. Third, there are two GSM operators. Another licence will be granted next year to operate a DCS-1800 service. Fourth, licenses have been issued for cable communications. Fifth, communication by satellite has already been liberalised and the public service conditions have been removed. Sixth, a new general telecommunications law has been introduced into Parliament to completely adapt the EC Directive into Spanish law, (i.e., non-discriminatory interconnection, transitional numbering standards and so on). Access to the Internet has been entirely liberalised. Data transmission services were liberalised several years ago. Finally, Spain has established an independent regulatory body called the Telecommunications Market Commission.

The Finnish delegate reported that since November 1995, Finnish telecommunications legislation has undergone many changes. The first amendment came into force in August 1996., when the telecommunications Act was revised. Following the revision, the owners of all the telecommunications network are required to provide access to each other. At the same time, Â'needs testingÂ' for operating licenses were abolished. Customer fees were no longer provided for in the telecommunications Act. The potentially restrictive effect of customer fees on competition are now controlled by the general competition law. In mid-1997, the Telecommunications Market Act, which cancelled the previous Act, became effective. It contains some very significant changes. The possibility for telecommunications companies to profitably lease each other's telecommunications connections were improved. The construction of mobile telecommunications networks remains licensed. The construction of other than mobile telecommunications networks only requires a notice to the Ministry of Transport and Communications. Telecommunications companies are under an obligation to separate telecommunication network and service operations. This is in order to improve the control of cross-subsidisation. An unofficial English translation of the current telecommunications legislation is available on the Internet page of the Finnish Ministry of Transport and Communications.

The delegate went on to say a few words about changes in market structure. The purpose of the revisions to the legislation has been to improve competition conditions in the Finnish markets. Most problematic has been the extending of competition in local telecommunications operations to small customers. Service operators also have had some initial problems, mainly due to the pricing of the network employed by the network operators. The penetration of mobile services in Finland is the highest in the world at around 33%-35%, according to some estimates. Mobile telecommunications services provided by several operators using the GSM 1800 technology will be in general use in the beginning of 1998. New operators (mainly catering for business customers) have entered the market. The market share of the new operators is so far, rather modest, but the resulting competitive pressure is considerable. Several well-known international alliances and foreign operators operate in Finland, including Global One, Unisource and RSL Com. TeleNordia. In addition, Swedish Telia has, at the beginning of October, purchased the entire capital stock of Telivo. Prior to the acquisition, Telia owned 75% of Telivo's shares; the remaining 25% was held by Imatran Voima, the Finnish state-owned energy company.

The Korean delegate then introduced the recent competition developments in the field of telecommunications in Korea. First, since 1996 new entrants to the telecommunications service markets were selected and the Telecommunications Business Act was revised, based on the three major policy directions. Korea has revised the Telecommunications Business Act to include a new licensing system that provides potential entrants opportunities to enter the telecommunications industry once per year. The Act also regulates fees and the scope of activities and has also strengthened the organisation and function of the Korean Communications Commission. The Telecommunications Business Act was also revised to reflect the content of the WTO Negotiations on Basic Telecommunications. The revised Act allows a package of new services, including tele-marketing, call-back services and Internet. Moreover, the revised Act permits entry to the market, if the new entrants satisfy certain conditions. Finally, the Act has raised the limits on foreign shareholdings in Korean enterprises other than the Korean Telecommunications Company to 45% by the year 2001. In June 1996, the selection of the new entrants was distinctive in that it was conducted on a large-scale and that it included for the first time considerable new services such as Personal Communications Services, cordless telephone and radio data communications, etc. Selection of the new entrants in June 1997 was notable for the new entrants in the field of private leased-line communications, trunk radio systems and paging, as well as in local telephony.

The Norwegian delegate reported that Norway has experienced much the same developments in the telecommunications as other European countries. As a member of the EEA, Norway is following the EC directives on competition in telecommunications sector. It has thus introduced competition into all telecommunications services except infrastructure and public switched voice telephony. They are preparing for competition in these areas from 1 January 1998. The Ministry of Transport and Communications has just released for comment the necessary changes in telecommunication law. When the whole market is open to competition, we expect competition on alternative infrastructures including, amongst others, the private networks of the electricity companies.

During the on-going consultations over the changes in the telecommunications law the competition authorities have raised questions about the organisation and supervision of this market. Today the Post and Telecommunications Authority handles both technical and competition issues, in accordance with the Telecommunications Law. At the same time the Norwegian competition authority regulates competition in the sector according to the Competition Act. In other words, both Authorities have responsibilities for the supervision of competition in this sector. There is, for instance, overlapping competence on the issue of access fees and other economic questions. This situation might be confusing for the telecommunications companies and creates a need for considerable co-ordination between the two authorities. The Norwegian competition authority and the Ministry of National Planning and Co-ordination have expressed the opinion that competition issues should be the responsibility of the Competition Authority alone. This will not be the result from day one of the new regime but we will continue this discussion.

Some steps were taken on the first of March this year. At that time the Ministry of Planning and Co-ordination (which is the Ministry in charge of competition policy in Norway) was given responsibility for handling complaints on actions taken by the Post and Telecommunication Authority in matters of competition. Before the first of March this was the responsibility of the Ministry of Transport and Communication. The reason responsibility was transferred was that the Ministry of Transport and Communication is the owner of the incumbent TeleNord. It is likely that TeleNord will be one of the parties in most competition cases and it would be invidious that the owner of the incumbent should take decisions in these cases. There is not much experience with this new arrangement, but the belief is that the Ministry of Planning and Co-ordination will handle these cases in a more competition-minded away than the Ministry of Transport and Communications.

At this point Mexico asked two questions. Mexico is also implementing a process of opening the telecommunications sector to competition. This process covers not only long distance services but also local basic telephony. These questions are particularly for the Australian delegate. In Australia, special regulation on the incumbent company was applied in 1991. Mexico would like to know if, after six years of duopoly, whether this regulation is still necessary to guarantee competition. In what sense has this regulation proved to be efficient? Second, as regards interconnection charges, Mexico would like to know if Australia has applied interconnection charges on a equal basis to all services seeking to interconnect to the local network, or if there is a differentiation of the interconnection tariffs for each different kind of service.

The French delegate then explained the latest developments in the telecommunications sector in France. The opening to competition of the monopoly, already underway, will be complete as from 1 January 1998. In 1996, Parliament adopted a new law on the regulation of telecommunications. This law created an independent administrative authority, the Â'Telecommunications Regulatory AuthorityÂ'. This authority is particularly responsible for regulation of the terms and conditions of interconnection and with resolving any related disputes. In addition, the jurisdiction of the French Competition Authority (the Conseil de la Concurrence) over competition issues in the telecommunications sector was confirmed.

The first agreements relating to the development of alternative network infrastructures have been reached. The public authorities are encouraging the development of several of these competing networks. Finally, in the mobile telephony sector, competition has intensified following the licensing of a third operator. In addition, France Telecom, who before 1990 was an Â'administrationÂ', followed by a Â'public establishment (Â'établissement publiqueÂ'), and finally converted into a limited liability company (a Â'société anonymeÂ') was recently partially privatised.

The Canadian delegate then noted one or two developments in Canada. At the last Working Group discussion of telecommunications Canada gave a presentation on developments up until 1995. At that time Canada referred to a decision of their regulator (the Canadian Radio and Television Communications Commission) which, in 1992, allowed facilities-based competition on long distance communications services. We think that, on balance, that has been a success and that the benefits of long distance competition have provided an impetus for the government to encourage competition and to reduce regulation across the full range of communications services. This transition to competitive markets is being facilitated by reform of the regulatory framework: Rate of return regulation for telecommunications carriers has been eliminated in favour of price caps for monopoly services. There has been a substantial rebalancing of local and long distance telecommunications rates and, in addition, a framework for regulatory forbearance based on competition policy principles has been adopted for telecommunications and the distribution of broadcasting services. Although the transition to fully competitive markets is not yet complete, it is well on its way. Virtually all the sectors of the telecommunications and distribution of broadcasting services are open, or are in the process of being opened to competition.

The delegate continued with one or two developments specific to the telecommunications area. First, in terms of long distance, Canada now has a long distance sector characterised by an open-entry regulatory model based on equal access and a state of competitive entry that includes firms aligned with large U.S. carriers such as Sprint and AT&T, the development of alternative facilities and an active resale markets, substantial price reductions for consumers, significant market share gains by new entrants from the incumbent telephone companies and growth in the overall market with improved customer services. The competition bureau is of the view that the market for long distance services is now sufficiently competitive for the CRTC to consider forbearing from regulation of the services and the rates of incumbent telephone companies. A hearing was recently held by the CRTC at which the competition tribunal argued in this direction. They are awaiting a decision of the commission, sometime in November and December.

In the area of local services, a significant decision was issued 1 May 1997. The CRTC issued a framework for introducing competition into local telecommunication services. The decision encourages the development of facilities-based competition amongst wireless, cable, competitive access providers and telephone companies. This decision contains a number of key elements including number portability and equal access; mandated interconnection of service providers; unbundling of certain essential facilities and some other facilities deemed Â'near facilitiesÂ'; resale, on commercial terms, with no mandated discounts; and finally, a creation of a portable subsidy for residential services and high-cost areas. As the present time, the Commission is in the process of approving tariffs associated with the local competition decision and it is attempting to resolve technical issues, including the number portability question, standards and administration. The target date for completing much of this process is January 1998. Observers expect that initial entry into local telecommunications will occur in business markets and that it will take at least two years, and perhaps longer, for effective facilities-based competition to develop in residential, rural, local markets. However, they have been a number of positive developments. New entrants have installed facilities and registered with the Commission as competitive local exchange carriers. These potential competitors include wireless service providers, cable companies, long distance carriers and grass-roots local exchange entrants.

Replying to Mexico, Australia made the following comments. First, one of the main lessons of 1991-97 was that to let one new entrant into the market and to have a duopoly produced limited effects on competition. There was a tendency for the second entrant to price just a little below the prices of the incumbent and so there wasn't as much competition as would have been liked. From now on, there is unrestricted entry and open competition. On the question of asymmetric regulation, the first thing top note is that there is an access law, designed to have competitive effects. The approach to pricing is based on a long run incremental cost. In general, the aim of the new law is to have a general competition law that is applicable easily and evenly to all players. However, where a player, and especially an incumbent, is found to have market power, there are restrictions on its use of market power, which are very similar to the restrictions you find under any system of regulation of monopolies. There is a law about the abuse of dominance. There are also some price restrictions in monopoly areas. However, the aim is to put these rules into a general competition policy framework. Regarding interconnection, there are differences for different kinds of services. The ACCC has published certain decisions in this area, most of which are on the Internet.

Germany also responded to Mexico's question concerning interconnection prices. First, the delegate noted that a new telecommunications act in Germany was put into effect on 1 January 1997 as was as described in the last report of Germany. There is a movement towards the opening of competition in the field of telecommunications, especially for voice telephony which will start on 1 January 1998. The regulator will be established from that date. At the moment, the tasks of the regulator are carried out by the Ministry of Post and Telecommunications. One of the first decisions of the interim regulator will relate to interconnection prices for those companies which want to start with voice telephony on 1 January 1998. Of course, they will have to rely upon the local loop of the incumbent (German Telecom). They already have long distance cables of their own, (as part of the electricity network, or the telecommunications network of the German railway system, both of whom are establishing businesses in the telecommunications market).

The problem is to develop strategies and prices for those newcomers with regard to voice telephony from 1 January 1998. German Telecom insisted upon an average access price of about six or 7 pfennigs per minute. This was an average price which was, in practice, differentiated for distance, for time schedule and so on. This was alleged to be excessively high for the newcomers. They appealed to the regulator who tried to determine what is the proper price. As German Telecom wasn't able to present a reasonable cost accounting system to prove their costs, to demonstrate that the costs are justified, the regulator went back to a concept that has been developed in antitrust procedures, the concept of the comparison market. Here, the regulator took into account the prices of 10 other national companies offering telecommunication services. They took the average of the price of those 10 companies, ending up with the price of 2.8 pfennigs, with necessary differentiation between time and distance - less than half the price claimed by German Telecom. The Cartel Office was asked for an opinion on this price (such consultation is required under the Telecommunications Act to keep a form of unity between the sector-specific and general competition law). The Cartel Office regarded the appropriate price as the average of the cheapest three suppliers of telecommunications services. This produced a price of 1.7 pfennigs, even lower than the price decided by the regulator. There are obviously many ways to come up with a price for interconnection services. This was not a cost-based approach, but a price determined on the basis of international comparisons. The decision was appealed to the courts, but, the decision has application immediately, so new entrants can start operating, although there is a risk that, in a couple of years, the courts will determine that the price should be higher or lower. There is, therefore, a certain amount of insecurity for the newcomers, but this risk is almost inevitable.


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