PART V: LEARNING TO DEAL WITH DEMANDS FOR PARTICIPATION
IV. TELECOMS LIBERALIZATION
of liberalization to force the pace of liberalization. Thus,the commission may point to,and even exaggerate,the high economic stakes in a sector and the urgency of the need for a European-level regulatory response in order to employ distinctly coercive delegated powers even when certain member states may feel strongly that this is inappropriate. Globalization pressures will also have an important bearing on EU-level negotiated transfer. Where global- ization pressures are strong,and particularly where technological change is involved as in the communications sector,there is more likely to be strong pressure on the member states to adopt a pragmatic,technocratic problem solving rather than a politicized bargaining approach to negotiation,and consensual decisions become more probable. However,this also depends on the political salience of the sector and of the particular issue; the political salience of broadcasting or of a controversial issue such as media concentra- tion is much higher,and therefore much less amenable to technocratic problem solving,than are most issues in the telecoms sector,which are generally more technical in quality.
an added spur by the perception that liberalization was crucially important for national competitiveness in the emergent global information society (Commission of the European Communities,1994).
The key element of regulatory competition is clear. Globalization pressures in telecoms were unleashed by reform in the world’s largest telecoms market,the United States. The divestiture of AT&T demonstrated to the world that telecoms was no longer a natural monopoly and that introducing competition brought gains in terms of efficiency,innovation,consumer choice,better service quality,and reduced prices. Telecoms deregulation in the United States triggered a process of global regulatory competition as states sought to maintain the competitiveness of their telecoms industries by adopting liberalization,albeit a‘‘domesticated’’variant thereof. Protected national champion telecoms manufacturers such as Siemens (Germany) and Alcatel (France),dependent on world markets to recoup their high tech- nological investments,were sensitive to U.S. demands for reciprocal liberal- ization from countries with which it ran a telecoms deficit,and came to see the opportunities of open European markets. Incumbent operators,too,reori- entated their corporate strategies,imitating the international expansion and alliance strategies of the likes of AT&T and British Telecom (BT). Thus, under the pressures of globalization and new technology,opposition to libe- ralization eroded steadily even in protectionist countries (Humphreys and Simpson,1996).
The EU response to the globalization pressure was relatively prompt and,upon first inspection,might be taken to represent a clear case of Euro- peanization by‘‘coercive,obligated policy transfer.’’The actual‘‘institution- al trigger’’for telecoms reform in Europe (comparable to the famous AT&T court ruling that unleashed liberalization in the United States) was the 1985 ruling of the European Court of Justice in the British Telecom case,which established that telecommunication was subject to the competition rules of the EC Treaty. This ruling was immediately exploited by the European Com- mission progressively to liberalize European telecoms through competition policy,namely repeated use of Article 86 (ex 90). This particular competition article empowered the commission to act unilaterally to remove dominant commercial positions of public undertakings that could be deemed anticom- petitive and,crucially,it gave the commission the authority to bypass the Council of Ministers (i.e.,intergovernmental decision making) to enact its own (supranational) liberalization directives. Early usage of this article—first to liberalize telecoms equipment,then to liberalize advanced services—led to appeals by certain national governments to the ECJ against what was per- ceived to be the commission’s high-handed exceeding of its competence in telecoms policy. However,in 1991 and 1992,the ECJ upheld the commission’s use of Article 86. Moreover,European competition authority rulings take
direct effect and could be employed to push the reforms forward at critical junctures. As will be seen,a particularly important such ruling occurred in 1993 (making the FT/DT alliance contingent on France and Germany’s accepting further liberalization). Finally,once,in 2000,a Commission Regulation (also with direct effect) was employed (to mandate the unbundling of the local loop). However,the degree of EU coercive,obligated policy transfer should not be exaggerated. Different patterns of national institu- tional structures and vested interests produced very different cross-national
‘‘reform capacities’’among the member states (Grande and Schneider,1991).
The need to overcome this national politics hurdle explains the incremental pace and timing of EU reform,stretching over 10 years from the publication of the 1987 European Commission Green Paper reform blueprint to the full liberalization of infrastructure and services in 1998.
Faced with this political reality,the commission preferred to proceed consensually. The‘‘coercive’’competition Article 86 (ex 90),was certainly employed to liberalize particular telecoms markets (i.e.,negative integration), starting with the terminal equipment directive (1988) and value-added services directive (1990),followed by a directive liberalizing the provision of satellite services and equipment in 1994,a mobile telephony directive in 1996, and the full competition directive in 1996 providing for the liberalization of alternative telecoms networks by mid-1996 and full liberalization from January 1,1998. However,the accompanying directives that prescribed the detailed harmonized procompetitive regulation (i.e.,positive integration) were all negotiated intergovernmentally under Article 95 (ex 100a,internal market) and Article 55 (ex 66,freedom to provide services) and enacted by the council and parliament.
Nonetheless,the‘‘technocratic’’nature of the sector and the incremen- tal liberalization timetable facilitated the relatively smooth agreement of a series of directives [Open Network Provision (ONP) Framework Directive in 1990,the application of ONP leased lines directive in 1992,application of ONP to voice telephony in 1995,interconnection directive in 1997,licensing directive in 1997,and universal service directive in 1998],with most of the details worked out in the council’s working groups (Interview in the German Economics Ministry,March 2001). Moreover,this important element of negotiated policy transfer was accompanied by an important measure of
‘‘voluntary transfer’’that was facilitated by the commission’s‘‘policy entre- preneurship’’ in promoting policy networks and epistemic communities through which member states would learn about the new realities in the sector. The commission sought to achieve this voluntary transfer by means of establishing networks and working groups,and reviews and consultations, involving the telecoms policy community at large. It established a comitol- ogy—an‘‘epistemic community’’—of EU telecoms regulation,in the shape
of the high-level regulators group and the ONP Committee and Licensing Committee,and it encouraged the activity of the Independent Regulatory Group (IRG) of national telecoms regulators. In this process,the apparent success of the UK model was helpful to the commission’s cause,as indeed were the UK expertise and personnel that the commission was able to draw upon (interviews in the commission,2000; interview in the French telecoms regulatory authority).The UK’s influence exerted itself through a‘‘kind of osmosis’’; UK consultancy firms were influential and UK officials were very present in DG XIII,the Information Society directorate general of the Commission (interview in the French industry ministry,May 2001).
The UK clearly served as a helpful policy model for the move from the
‘‘interventionist state’’ to the new ‘‘regulatory state’’ paradigm (Majone, 1997),and it also provided an important degree of stimulus to a‘‘regulatory competition’’leading toward liberalization. Within the EU,Britain was the first mover in telecoms liberalization. During 1982–1984,the Thatcher Government licensed Mercury as a competitor network to BT,which was privatized. Value-added services were liberalized and,to supervise this new competition,a national regulatory authority (NRA) was established as an independent regulator of the telecoms sector,the Office of Telecommunica- tions (Oftel),the first to be established within Europe. Together with the Federal Communications Commission (FCC) in the United States,Oftel provided the general model for the new regulatory paradigm—of active procompetitive asymmetric regulation by agencies independent of the indus- try—that was now being strongly promoted by the commission. Moreover, the UK soon had the lowest business call charges in Europe and many foreign multinationals (including telecoms firms such as Mitel,NEC,Northern Telecom,and Rolm) chose the UK as their chief location in Europe.
Consequently,west European countries started ‘‘looking closely at the British’’(Morgan and Webber,1986,p. 62). Thus,the UK reinforced,or imported into Europe,the global pressure of regulatory competition that was emanating from the United States (Humphreys and Simpson,1996,pp. 107–
108). Continental European policy makers and industry players‘‘learned’’
from both of the Anglo-Saxon first movers that telecoms liberalization contributed to national economic competitiveness,attracted investment, stimulated innovation,and increased quality of service and consumer choice while lowering prices. The global expansion of BT and AT&T demonstrated also to entrenched incumbent operators on the continent that—at least in the context of dynamic telecoms markets—liberalization did not pose a threat, rather,that it offered an interesting commercial opportunity to expand internationally (Humphreys,2002,p. 58).
In fact,this particular‘‘policy lesson’’proved crucial for the achieve- ment of the critical mass that was necessary for agreement of the key
intergovernmental Council Resolutions of 1993 and 1994 in favor of the full liberalization by 1998 of telecoms services and infrastructures. Agreement was only possible because two pivotal large and influential member states (Germany and France) were prepared to sign up to full telecommunications liberalization,albeit with a deferred deadline (1998),to suit the interests of their national champion incumbents. This deadline gave them a period of reprieve in which to forge their internationalization strategy (including a joint venture between them) and prepare themselves for full competition (Hum- phreys,2002,p. 63; Waesche,2003). That the reformers within these two key countries were now prepared to push forward toward full liberalization, against significant internal domestic opposition,can be explained by a mix of the regulatory competition dynamics and,again,the commission’s judicious resort to its coercive competition powers. The part played by the liberalizing dynamics of international competition is clear from the way that the French and German incumbent operators (crucial veto actors) came to accept privatization and liberalization as the price to be paid for their ambitious internationalization strategy,itself a means of maintaining competitiveness with their Anglo-Saxon rivals. The commission’s 1992 review of telecoms sevices exerted the soft institutional pressure for voluntary transfer,providing the locus for mutual learning and agreement about this further important step toward reform.3At the same time,the commission forced the pace of French and German—and as a result European—telecoms liberalization at this critical juncture through a strategically timed element of ‘‘coercive’’
policy transfer pressure,exploiting France Te´le´com and Deutsche Telekom’s internationalization strategies. In 1995,the EU Competition Commissioner made approval of the Atlas international alliance between DT and FT,the focal point for their international strategies,conditional upon French and German support for further liberalization. In pushing this liberalization through against domestic opposition,policy makers—mostly already per- suaded of the need for reform—could point to Europe as an‘‘alibi’’(Schmidt, 1997,p. 17; Bartle,1999,p. 172; Schneider and Vedel,1999).
Therefore,in telecoms,EU policy transfer was achieved through the whole gamut of EU institutional transfer mechanisms:‘‘coercive,’’ ‘‘negoti- ated,’’and‘‘voluntary.’’The outcome was a mixed‘‘pluralist/hierarchical’’
regime of new telecoms governance (Bulmer and Padgett,2001). As Levi- Faur (1999,p. 189) has argued,there was a striking degree of supranationality in the new regulatory framework. The‘‘technocratic’’nature of the sector led to the relatively straightforward agreement of some detailed harmonized rules for the application of the principal of ONP; in other words,open access to public telephone networks and services. A prescriptive regime for intercon- nection was developed based on cost-oriented tariffs. The cost structures of players with significant market power had to be transparent,with clear
accounting of different market segments,to reveal any cross subsidies. Rather than‘‘eliminate rules,’’the new European regulatory regime‘‘extended the rules.’’So extensive and wide-ranging were the powers that were actually enshrined in the EU’s‘‘regulation-for-competition’’regime that Levi-Faur (1999,p. 189) argued that‘‘if these regulations do not suggest a supranational structure,it is doubtful if such an ‘animal’ exists at all.’’
On the other hand,‘‘pluralism’’was reflected in the fact that,rather than create a supranational EU regulatory agency,the EU regulatory package placed regulation firmly in the hands of NRAs,albeit monitored and coordinated by the commission. The commission accepted that the member states would not relinquish control over telecommunications to a centralized European agency (interview in the commission,2000). Directives allowed the member states a degree of discretion in their transposition into national legislation. As a result,the national regulatory authorities were diverse in their design,constitution,and working practices (Thatcher,2002).
Eyre and Sitter (1999,pp. 64–65) have provided a taxonomy of regulatory practice: the administrative British system favored negotiation with the regulated interests,the German system was legalistic,and the French system was more orientated toservice public. Reflecting the national institutional
‘‘refraction’’ effect (Waesche,2003,p. 17),the member states’ regulatory structures achieved by the beginning of the new century could,in fact,be ranked on ane´tatisteliberal scale (Levi-Faur,1999).
The UK was clearly in the‘‘liberal’’vanguard from the outset. Germany started off as a comparative laggard but moved over the course of the 1990s into the vanguard of the‘‘liberal’’camp,transposing key features of the EU regime ahead of the deadlines and actually leading the way (far ahead of the UK) in unbundling the local loop (Bulmer et al.,2003). France’s regulatory regime retained significantlye´tatiste features,notably in retaining a heavy licensing regime and a strong orientation towardservice public. However,the French soon conceded that the heavy licensing regime was a mistake (interview in the French Industry Ministry,May 2001) and accepted the lighter regime mandated by a‘‘2002 package’’of one liberalization and five harmonization directives that streamlined the numerous directives of the
‘‘1998 package’’and now opened the way for a reduction in the regulatory burden in the sector (see Section VII).
The technocratic nature of the sector led to a considerable amount of policy learning in the special regulatory committees—the Licensing Commit- tee and the ONP Committee—and,above all,the Independent Regulators Group,which met beyond the oversight of the ministries (interviews in the commission,July 2000; interview in the French Regulatory Authority,May 2001; interview in the Swedish Regulatory Authority,June 2001; interview in
the German Regulatory Authority,March 2001). Successive Commission implementation reports charted steady progress toward competitive markets.
The Commission’s eighth such report stated that‘‘after four and a half years of liberalization of telecoms services,the regulation put in place at national level [was] very substantially compliant with the EU framework. Licensing and interconnection regimes ha[d] permitted large-scale market entry. . .’’
(Commission of the European Communities,2002,p. 6). The regular imple- mentation reports,produced by a special unit in DG XIII,had themselves served as a mechanism of policy transfer,in that they subtly‘‘named and shamed’’poor performers and transferred knowledge about the best regula- tory practice (Humphreys,2002,p. 72).