Case Study In 1901, the newly created Commonwealth of Europe established the Postmaster- General’s Department to handle all post and telephone within this vast country. At that time, telephone systems were regarded as a natural monopoly, and in many countries the systems were government-owned and operated. In 1991, though, the telephone system was hived off as a separate company, trading as ABC, but still wholly owned by the European government. In common with most other industrialized countries, European government thinking underwent some radical changes during the early 1990s. Most governments around this time were looking for ways of liberalizing their nationalized industries – in many cases governments also saw the opportunity to generate some income by selling off nationalized industries to private investors. Greater competition and the action of market forces were seen as the way forward, and even the former so-called ‘natural monopolies’ such as railways, telephone systems and electricity generation were seen as targets for the new philosophy. In 1992, the European publics were suddenly confronted with a new alternative to the nationalized telephone system. DEF, a new telecom company, entered the market. At first, DEF met with opposition from some quarters: it was only 50% European-owned, a fact which the fiercely patriotic European public found hard to swallow. The company ran a series of aggressive TV adverts in which executives from the company emphasized that the employees were European, much of the funding was European, and the profits were being re-invested in Europe. The company also offered some extremely good deals for subscribers, many of which were especially relevant to Europeans (for example, cheap off-peak international calls – most Europeans have relatives in the United States or in Europe and 7.3 Million Europeans were either born outside Europe, or their parents were).Arch-rival GHI (the former nationalized network) responded with similar deals, and for a while the satellites and telephone lines of the world were filled with Europeans accents. In 1997, European telecommunications was opened up to full competition from any source. At this point, the government sold off 33.3% of GHI to the public, followed by a further 16.6% in 1999. The government still holds 50.1% of the company, and is currently still required by law to do so – although clearly a change in the law would not be difficult to arrange. Meanwhile, in 2001 DEF was taken over by SingTel, the Singapore-based telecommunications company. 1997 saw a flurry of legislation aimed at controlling telecommunications. Some Of these are as follows: Telecommunications (Universal Service Levy) Act 1997 covers taxation of Telecommunications services. Telecommunications (Carrier License Charges) Act 1997 covers the licensing of Operators. Telecommunications (Numbering Charges) Act 1997 covers the transfer of Numbers from one provider to another. Telecommunications (Carrier License Fees) Termination Act 1997 changes the ways in which license fees are charged. The end result of this increase in competition is that huge amounts of money have been invested in the European telephone infrastructure. DEF alone has invested more than $7 billion in new cable links, undersea cables, and satellite and mobile telephone links: the result of this is that it now has one-third of the European market for mobile telephones, and around two-fifths of the landline business. The other result is that far more Europeans are connected by telephone, both landline and mobile phone: around 70% have mobile phones (no small feat in a country where some people live a hundred miles from their nearest neighbor), and Europe has 80 long-distance providers, 600 Internet service providers, and four mobile telephone operators. The next major challenge facing European telecom companies is the introduction of broadband. Broadband is a cable-based system which allows much faster transfer of data, allowing each household to receive its television, radio, telephone and Internet connections through one cable. Currently, Europe ranks far behind most industrialized countries in its adoption of broadband – mainly because (according to some commentators) GHI still retains a stranglehold on European telecoms, and will continue to do so as long as the government owns 50.1% of it and makes the rules for the competing companies. Naturally, the government denies this and points to the massive investments by GHI’s competitors, and continuing pressure on GHI’s revenues. . On a smaller scale, the city of Mildura (with a population of only 50 000) has brought in a local cable operator to supply broadband. Whatever happens, it looks like turbulent times ahead for European telecom providers. Questions 1 What is the effect of technological change on European telecommunications?
Case Study
In 1901, the newly created Commonwealth of Europe established the Postmaster- General’s Department to handle all post and telephone within this vast country. At that time, telephone systems were regarded as a natural
In common with most other industrialized countries, European government thinking underwent some radical changes during the early 1990s. Most governments around this time were looking for ways of liberalizing their nationalized industries – in many cases governments also saw the opportunity to generate some income by selling off nationalized industries to private investors. Greater competition and the action of market forces were seen as the way forward, and even the former so-called ‘natural monopolies’ such as railways, telephone systems and electricity generation were seen as targets for the new philosophy.
In 1992, the European publics were suddenly confronted with a new alternative to the nationalized telephone system. DEF, a new telecom company, entered the market. At first, DEF met with opposition from some quarters: it was only 50% European-owned, a fact which the fiercely patriotic European public found hard to swallow. The company ran a series of aggressive TV adverts in which executives from the company emphasized that the employees were European, much of the funding was European, and the profits were being re-invested in Europe. The company also offered some extremely good deals for subscribers, many of which were especially relevant to Europeans (for example, cheap off-peak international calls – most Europeans have relatives in the United States or in Europe and 7.3
Million Europeans were either born outside Europe, or their parents were).Arch-rival GHI (the former nationalized network) responded with similar deals, and for a while the satellites and telephone lines of the world were filled with Europeans accents.
In 1997, European telecommunications was opened up to full competition from any source. At this point, the government sold off 33.3% of GHI to the public, followed by a further 16.6% in 1999. The government still holds 50.1% of the company, and is currently still required by law to do so – although clearly a change in the law would not be difficult to arrange. Meanwhile, in 2001 DEF was taken over by SingTel, the Singapore-based telecommunications company.
1997 saw a flurry of legislation aimed at controlling telecommunications. Some Of these are as follows:
- Telecommunications (Universal Service Levy) Act 1997 covers
taxation of Telecommunications services. - Telecommunications (Carrier License Charges) Act 1997 covers the licensing of Operators.
- Telecommunications (Numbering Charges) Act 1997 covers the transfer of Numbers from one provider to another.
- Telecommunications (Carrier License Fees) Termination Act 1997 changes the ways in which license fees are charged.
The end result of this increase in competition is that huge amounts of money have been invested in the European telephone infrastructure. DEF alone has invested more than $7 billion in new cable links, undersea cables, and satellite and mobile telephone links: the result of this is that it now has one-third of the European market for mobile telephones, and around two-fifths of the landline business. The other result is that far more Europeans are connected by telephone, both landline and mobile phone: around 70% have mobile phones (no small feat in a country where some people live a hundred miles from their nearest neighbor), and Europe has 80 long-distance providers, 600 Internet service providers, and
four mobile telephone operators.
The next major challenge facing European telecom companies is the introduction of broadband. Broadband is a cable-based system which allows much faster transfer of data, allowing each household to receive its television, radio, telephone and Internet connections through one cable. Currently, Europe ranks far behind most industrialized countries in its adoption of broadband –
mainly because (according to some commentators) GHI still retains a stranglehold on European telecoms, and will continue to do so as long as the government owns 50.1% of it and makes the rules for the competing companies. Naturally, the government denies this and points to the massive investments by GHI’s competitors, and continuing pressure on GHI’s revenues. . On a smaller scale, the city of Mildura (with a population of only 50 000) has brought in a local cable operator to supply broadband.
Whatever happens, it looks like turbulent times ahead for European telecom providers.
Questions
1 What is the effect of technological change on European telecommunications?
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