A New Chance to Organize the E.U. Telecommunications Industry

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BERLIN -- Imagine that the U.S. market for telecommunications was carved up by 200 operators owned by 45 rival companies, each able to sell phone and broadband Internet service only in individual states or, at best, small regions.

Consumers could face arbitrarily high costs just to call a neighboring state or town. Businesses wanting to sell service nationally through mergers or network-sharing arrangements could be impeded by a patchwork of conflicting market rules.

That, with a few exceptions, is the status quo in the European Union, a trading bloc of 500 million consumers and 27 countries whose fragmented legal systems and competing national agendas have largely thwarted a single Continental market in telecommunications.

For nearly 20 years, European lawmakers have tinkered on the edges, but because of national objections, they have been able to exert only limited control from Brussels, except in rare cases, like the 2007 law capping mobile roaming prices.

But with economic growth in the bloc near the top of policy makers' agenda, the Continent's balkanized telecommunications industry is coming under new scrutiny, which may create an opportunity to dismantle some of the structural obstacles to a single market.

Signs of those changes are beginning to appear.

In December, Joaquín Almunia, the European competition commissioner, allowed 3, an operator based in Hong Kong, to buy a rival, Orange Austria, from France Télécom, in a $1.7 billion fusion that reduced the number of national network operators in the country to three from four. Mr. Almunia had met last year privately with the chief executives of Europe's largest operators -- Deutsche Telekom, Vodafone, Telefónica, France Télécom and others -- who urged him to set lower hurdles to takeovers.

This year, Neelie Kroes, the European commissioner for the digital agenda, plans a series of measures to lower national barriers to consolidation and network sharing. The most far-reaching would require operators to lease networks to competitors on fair terms, but crucial details like pricing and sanctions for noncompliance have yet to be resolved.

She also wants to refine existing regulations on universal service obligations and net neutrality to prohibit operators from favoring the data traffic of better-paying customers at the expense of the masses. By limiting an operator's ability to exploit the existing national oligopolies, Ms. Kroes hopes to goad operators to cooperate.

"I have long said that cross-border consolidation amongst telecom operators would help reduce fragmentation in Europe," she wrote in an e-mail message.

But Ms. Kroes, a Dutch economist who dislikes heavy-handed regulation, prefers to promote change by offering incentives to the industry. A panel of telecommunications chief executives serves as advisers, and she has no plan to mandate change from Brussels by giving real power to the Body of European Regulators of Electronic Communications, or Berec. The panel of the 27 national regulatory chiefs set up in 2011 only advises the commission and cannot set policy in individual countries.

In 2009, when Ms. Kroes's predecessor, Viviane Reding, proposed to set up Berec, she tried to invest the agency with the power to veto national decisions. But Ms. Reding, now the European justice commissioner, was blocked by E.U. countries, which feared a veto could be used to penalize former national phone monopolies, most of them still major employers.

But without clear lines of authority, E.U. policy tinkering alone may not be enough to untangle the national barriers to a single telecommunications market and create conditions for regional, head-to-head competition among big operators.

Even the concept of regional operators is controversial. Smaller operators generally oppose letting their big rivals get bigger, arguing they could then use their clout to squelch competitors across regions, not just nationally.

And some big operators, while lobbying for easier terms for cross-border mergers, are not above trying to block those same unions when they may be to their disadvantage. In December, Deutsche Telekom, for example, filed a lawsuit in Austria to delay the 3-Orange merger, which created a bigger challenger to T-Mobile Austria, its subsidiary.

But a Vienna appeals court, the Oberverwaltungsgericht, rejected the German operator's argument and the fusion, possibly the first of many in the sector, began on Jan. 3.

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This article originally appeared in The New York Times.


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