Telecoms link needs new approval

Date: 15/10/1998

By Peter Chapman

FRENCH and German telecoms giants will have to seek fresh regulatory clearance from the European Commission after unveiling plans to strengthen their alliance.

France Télécom and Deutsche Telekom have announced that they intend to work together to build a new pan-European network with the capacity to carry massive amounts of data and voice calls.

The 20,000-kilometre fibre-optic 'core network', which would link up 40 points in 16 European countries, would be one of the most advanced in the EU and would allow the firms involved to offer state of the art voice and data transmission services to their customers.

At the same time, the two partially privatised companies plan to cement their relationship by exchanging 2&percent; of each other's share capital.

But the deal means the two operators will once more have to jump through the same kinds of regulatory hoops they faced three years ago when they sought clearance for their multi-billion-ecu alliance with American firm Sprint to form Global One.

That alliance was cleared by Competition Commissioner Karel van Miert on condition that the German and French markets were opened to competition ahead of the general liberalisation of EU telecoms markets on 1 January this year.

The two companies say the network investment is a vital part of their Global One strategy to market services jointly to businesses in the EU, US and further afield.

However, a spokesman for Van Miert confirmed that officials would now analyse the latest deal to assess the extent to which it goes beyond the original Global One venture and offers the French and German operators extra scope to dominate the market at the expense of their EU rivals.

“Much of the deal seems to be covered by Global One. But if parts of it are going to be used by France Télécom and Deutsche Telekom as their own network as such - apart from Global One - then it would not be,” he said.

Neither operator wants to antagonise the Commission by presenting the latest plan as a fait accompli and both acknowledge that regulatory clearance for the venture is unlikely before the end of this year.

But company sources said this week that they hoped to be given an indication “before Christmas” of any concerns within the Commission's Directorate-General for competition (DGIV) about the deal. “It is a very complex issue of different areas of cooperation. We are now in a phase of intensive talks with DGIV about what is being done,” said one.

The firms' lawyers will have to work out with the Commission which section of the EU's competition rules covers their deal and decide whether it should be notified under the Union's general anti-trust regulations or as a separate merger.

However, sources claim that the Commission is unlikely to be concerned by the exchange of shares between the firms since this would not add to the two operators' market power.

If the venture is cleared by anti-trust authorities, parts of the network will enter into service next year, with the rest of the technology put in place by the year 2000.

Regulatory headaches over the joint venture add to the uncertainty dogging both France Télécom and Deutsche Telekom's prospects for further privatisation.

The French government is poised to reduce its stake in France Télécom from 75&percent; to 63&percent; through a secondary offer of its shares, coupled with a capital increase for the company. This had been expected to take place either this month or in November, but the plan to dispose of 7.1 billion ecu worth of shares looks likely to be postponed because of the current volatility of stock markets and low investor confidence.

Deutsche Telekom said in August it was keeping open the option of offloading more of its capital, worth up to 8 billion ecu, before the end of this year. The company was partially privatised in 1996, when 714 million shares (26&percent; of the share capital) were sold in an initial public offering.