Ringing the telecom changes: Andrew Marshall concludes his study of European Union competition policy

IN making 'the information society' its top priority for the next decade, the European Union has pitted some highly entrenched interests against each other.

The EU's key objective is the dismantling of existing national fiefdoms and the building of pan- European networks. So its first, and most important, task is to clarify how it will deal with over-regulated national markets.

It has started with a date - last year, national ministers established 1998 as the target for liberalising nearly all telecommunications services.

But the most controversial aspect will be freeing-up the provision of telecommunications infrastructure, for which - as yet - no date has been set. The European Commission is likely to argue that existing plans make this essential, probably also in 1998.

Second, a regulatory and policy structure has to emerge. This is a complex matter, involving pricing, licensing, network access and interconnection and radio-frequency allocation, plus standardisation for equipment and services. More broadly, it will include protection of intellectual property, privacy, electronic and legal protection, and media ownership.

Third, the Commission is going to have to police the emergence of new corporate link-ups as European telecommunications operators seek alliances. The first, between BT and MCI, was agreed last month. France Telecom, Deutsche Telekom and Sprint have also announced their intention to link, and more deals will follow.

With their combination of technology-sharing, market agreements and corporate control, these deals pose huge problems to the competition authorities.

The corporate sector is in favour of swift action to free up telecommunications, and has urged faster action.

Governments, however, are less certain about the pace and style of change. Britain leads the pack, since most of the groundwork in deregulating the British network has already been done. British advisers and experts are highly influential in Brussels.

France, Italy and Germany are more reluctant, fearing the dismantling of their national champions and new entrants to their markets. In some of the more backward operators, in Spain and Belgium, for instance, there is still greater trepidation.

The weight of all this work will put extraordinary pressure on the Commission, and could lead to knotty political problems. It is in the process of forming a new telecommunications unit in Directorate-General IV, which deals with competition policy.

That brings together two separate teams of people: those dealing with competition issues directed at particular companies, and those who dealt with attempts to open up markets. It will be under Herbert Ungerer, a brilliant German who has served in the industry directorate for 10 years. 'He is the guy with all the big ideas,' an industry insider said.

But the creation of this new team may not avoid - indeed, may exacerbate - the traditional rivalry between DGIV and DGXIII, Mr Ungerer's old stamping ground. The competition directorate is full of steely-eyed lawyers intent on opening markets and policing regulation. The industry directorate's economists and technicians are keener on building sectors able to hold their own in world markets.

The private sector shares some of the industry directorate's suspicions. 'There is a concern that competition policy may obstruct the establishment of uniform standards and necessary co-operation between suppliers,' the European Round Table of industrialists notes. Last month, when the Commission cleared a strategic alliance between BT and MCI, it also issued a more general statement on corporate tie-ups. 'The policy of the Commission remains that of ensuring a balance between co-operation and competition,' Karel Van Miert, the commissioner for competition, said.

Much depends on the commissioners the two outfits end up with. Martin Bangemann, the German industry commissioner, had been on the point of retirement but the German government recently announced it intended to reappoint him.

Mr Van Miert, the Belgian who holds the job, could retain it. But France is strongly rumoured to want the competition dossier, and the name of Edith Cresson, the former prime minister, has been frequently whispered.

The slogan for the Commission over the next six months is likely to be consultation. It remains to be seen how it opens up Europe to competition, if not when. The Commission has shown its predilection for getting a broader constituency for change by setting up a group of experts under Mr Bangemann to discuss information technology. It reported to the Corfu summit in June, setting out an ambitious list of ideas.

If the work of demolishing what is there already is controversial, more tricky still will be deciding what to put in its place. The Bangemann group's report says that 'an authority should be established at European level whose terms of reference will require prompt attention'.

The prospect of a European equivalent of the Federal Communications Commission, the US watchdog, might seem the logical outcome to Brussels; but the private sector and member states will be wary of the creation of a new Euro-body able to wield authority over them.

(Photographs omitted)