Telcos pressured to split up - European banks, governments pressuring telecommunications - operators to sell or share infrastructure assets

CommunicationsWeek International, Oct 8, 2001 by Michelle Donegan

Governments and banks, anxious that a lack of competition is stifling business prospects, are pressuring Europe's leading national telecoms operators to sell or share network assets.

The Italian government is investigating the possible separation of Telecom Italia's fixed line network into an independent company (see p. 12). And bankers are currently coming back to British Telecom with an offer to buy out the operator's network in the united Kingdom.

Italy would be the first European country to mandate structural separation as a means to foster a competitive telecoms market.

A report from the Organization for Economic Cooperation and Development (OECD) of Paris indicated that separating infrastructure from services is beneficial for some networked industries, such as gas and electricity. But the OECD's communications policy unit is adamantly opposed to applying this to the telecoms sector. "We don't support structural separation," said Dimitri Ypsilanti, principal administrator at the OECD's information, computer and communications policy division. "The regulator is better off trying to stimulate other infrastructure development and market entry."

To date, structural separation has been a business decision made by the incumbent operators themselves, not governments or regulators. The main example is Telia's Skanova, which is a pure wholesale network provider in Sweden.

But BT has recently fended off two offers--one for its U.K. fixed line business for [pound]18 billion, from German bank West-deutsche Landesbank (West LB), and one for its local access network from the Earthlease consortium for [pound]8 billion. But analysts expect both bidders to return with higher offers. WestLB is now reported to be ready to offer as much as [pound]25 billion for the BT network.

In April, the Italian competition authority fined Telecom Italia 115 billion lire ([euro]59 million) for abusing its market dominance in the broadband access market. In its report, the authority recommended a clear separation between the network operator and the service provider as the way to prevent discrimination.

But Telecom Italia's acquisition by telecoms equipment manufacturer Pirelli SpA has forced the minister of communications to open an inquiry into the combined group's control of telecoms networks in Italy. "It's too early to tell what power the government has to do it," said Marco Fiorentino, managing director for KPNQwest Italy. "But there seems to be growing support that the fixed line business must be split off."

But the issue is extremely political, say several Italian market observers. One said, "Many people would want to be CEO of the company that manages the network."

Analysts say Telecom Italia has become "immune" to discussions about structural separation, but admit that there is more of a need for it in Italy.