Telecoms operators prepare for next big battle

Smooth operators: a new type of telephone exchange. www.astrosurf.org

Telecoms operator Swisscom suffered a double blow this month, with both parliament and the federal watchdog ruling against its monopoly on the "last mile".

However, some observers say the battle over access to the copper-cable infrastructure connecting households to the nearest exchange distracts attention from the real issues of the future.

In an interview with swissinfo, Professor Matthias Finger of Lausanne’s Federal Institute of Technology says the debate over “unbundling” the last mile is “outdated” and “backward-looking”.

Finger, who specialises in the management of network (infrastructure) industries, says future market battles will centre not only on completely new technologies, but on the key issue of access rights to distribution content.

swissinfo: What do you think the “unbundling” of the last mile will mean for market competition?

Matthias Finger: I think that, ultimately, it is more a matter of principle than of price. In international terms, Swisscom’s interconnection tariffs are at the high end, but not excessively so. The real difference is that the last mile has already been unbundled in other European countries, so it would be difficult not to go the same way.

[More fundamentally], you have to distinguish between two types of competition. On the one hand, operators can already compete directly for end customers. The other type of competition involves infrastructure. Unbundling will help competition on the last mile, but the question is whether it will do so across the sector as a whole.

swissinfo: Where will the future battles be played out in technological terms?

M.F.: I am concerned by this focus on the last mile, which is an outdated technology to begin with. I understand that the competitors want access to Swisscom’s network – that is logical business strategy – and the same is true of Swisscom’s [delaying tactics]. But the future of the telecoms sector is not here; it lies with completely new technologies and infrastructures, such as wireless access and broadband.

Internet telephony, while still in its infancy, will also certainly develop, as internet access – particularly wireless-based – increases. This will make the last mile debate even more out-dated.

swissinfo: How does Switzerland compare internationally in terms of what it offers customers?

M.F.: There have been several studies and they show that both penetration and quality are at the high end, when it is not the leader. Also, Switzerland is often where a lot of these [new technologies and services] are tried out by companies before they extend them to other countries.

[As that implies], profit margins here are higher, but the differences are comparable to other sectors – they relate to the Swiss standard of living and purchasing power.

swissinfo: Have other countries taken a different approach to liberalisation?

M.F.: Switzerland tends to follow other countries – particularly the European Union. The big driver there is the European Commission, which no longer thinks in terms of telecoms alone, but of the information society, ubiquitous access and what they call “e-Europe”.

Europe today is already beyond market liberalisation – telecoms now is only an infrastructure that allows the information society to happen. This is an area where Switzerland could catch up, for instance in fields like e-government or e-services.

swissinfo: Moving beyond technology, what about the relation between infrastructure and content – is there a need to regulate there?

M.F.: This is probably the next big debate. As infrastructure competition grows, how will distributors – telecoms or cable TV operators – differentiate themselves? Their competitive advantage in future will lie in forward integration, in the content they distribute via their infrastructure.

We have seen, for instance, the move by Swisscom to buy CineTrade, a content “aggregator”. I think there will be a need for more regulation here, to prevent [uncontrolled] further integration across this boundary.

A [more general] question is: what will be the future role of regulation? Will we intervene only if things get out of hand, or will we try to actively shape market evolution through regulation? The problem is, if we have learned one thing from this debate on the last mile, it is that when regulators intervene it is generally too late.

swissinfo: What will the sector look like in five or ten years?

M.F.: I think people will have high-quality network access everywhere. In urban areas, at least, people will be able to choose among different networks, even different wireless networks. Access itself will no longer be an issue.

Prices will therefore go down, so the question then will be: what are people getting over these networks and what use are they making of it? Will it, for instance, be used for the development of society, or only for commercial purposes?

swissinfo–interview: Chris Lewis

Key facts

Parliament voted this month to end Swisscom’s virtual monopoly on the “last mile”.
Both houses agreed in principle, but final details will be resolved later this year.
A week later, the federal Communications Commission said network access tariffs charged by Swisscom to rivals should be reduced by up to a third – retroactively for 2000-2003.

In brief

Finger says “unbundling” will increase competition on the last mile, but risks discouraging investment in new infrastructure.

He says it is important for regulators to offer operators incentives for future investment, particularly in new technologies.

He also sees a need for regulation to prevent operators monopolising distribution content.