Spanish phones create headaches

Date: 15/05/1997

By Chris Johnstone

SPAIN'S telecoms market is set for fresh turbulence in the wake of the seismic shift of its dominant local phone company out of one global alliance and into another.

Telefónica ditched its European partners and the American company AT&T in the Unisource joint venture to join the British Telecom/MCI global alliance as part of a broader set of agreements.

Those within the new alliances say three deals are likely to be probed separately by the European Commission after the latest moves: the grouping of BT, MCI and Portugal Telecom; that between BT, MCI and Telefónica; and a third involving Telefónica and Portugal Telecom.

Pressure will mount on rivals to seal their global connections if this series of deals wins regulatory clearance without too much blood being spilled or too many promises made in the process.

Approval for BT's effective take-over of MCI to form Concert and the creation of rival constellation Unisource, minus Telefónica, was given by the Commission this week.

The era of the global telecoms company is on the horizon, with only the main Asian Pacific players waiting to be bound by marriage vows.

Unisource says it will not play the role of rejected partner eager for revenge after Telefónica's desertion. However, it is likely to be keen to do what it can in Brussels, Washington and wherever else to slow down a rival partnership which is well on the way to being the world's first global telecoms alliance.

Telefónica's change of allegiance is all the more galling for Unisource since its own empire-building was bogged down for months by Commission negotiations with the Spanish government (read Telefónica) over the deadline for opening up its market to full competition.

Even though Telefónica is the bane of Commission competition officials' lives, it is BT's Spanish activities which are likely to come under most scrutiny from watchdogs as they examine the new relationships.

Industry experts say BT is likely to pay a price for its switch from local challenger to partner of Telefónica by coming under pressure to offload some of its Iberian assets. The new friendship is being cemented by BT taking a 2&percent; stake in Telefónica and the Spanish phone company getting a 1&percent; stake in BT.

Competition Commissioner Karel van Miert recently acknowledged that BT's Spanish holdings would have to be examined. However, his top telecoms officials are still working out where and on what grounds the new alliances can be attacked.

Ironically, the two rivals are still haunted by aspects of their past: BT has an outstanding court case against Telefónica for making life difficult in granting leased lines and connections for its business network.

BT has two significant operations in Spain. BT Telecommunicaciones, a wholly owned subsidiary providing data transmission and closed-network services to business customers, is one of Telefónica's main rivals in that market segment. BT recently raised its stake in the company by buying out the 50&percent; share held by local bank Banco Santander.

Its second main asset is a stake of almost 16&percent; in Spain's second mobile phone company Airtel.

Until a recent Commission-imposed settlement, Airtel provided the focus for BT's fiercest verbal attacks on the Spanish government and its new partner as it raged against having to pay an entry fee to get into the mobile market when Telefónica could set up its operations free.

In a more dynamic telecoms market than Spain, a forward-looking competition regulator might possibly overlook the problem of BT's stakes.

But the problem appears more acute since Spain has dragged its feet in developing rivals to Telefónica and alternative telephone infrastructures such as cable.

On the first point, three groups of telecoms giants are currently squaring up for a fight over who takes a majority stake in Spain's monopoly television signals transmission company Retevision, earmarked to become the main challenger to Telefónica for basic phone services. France Télécom, Deutsche Telekom, Italy's Stet, and Germany's Mannesmann have all entered the fray.

On the second, Spain is one of Europe's last untapped cable television markets, with only around 200,000 households subscribing out of a population of some 40 million.

Cable companies should, under the Commission's cable directive, be able to compete head-on with established telephone companies by offering their own phone services from 1 January 1998.

Boosting cable company involvement in telephone and data transmission business is a cornerstone of the Commission's forward-looking strategy to use competition between existing phone companies, cable operators, and soon-to-be satellite phone companies to force down prices and improve services in Europe's telecoms sector.

The Commission has been waging what appears to be an interminable war on various fronts to prevent the lucrative Spanish cable market from being dominated by one company or alliance.

Last year it blocked Telefónica and Sogecable SA, which belongs to French cable television company Canal Plus and Spain's Promotora de Informaciones SA, from pooling their know-how to offer services to audio-visual and cable television operators. Van Miert said that the deal risked serious anti-competitive consequences by allowing them to establish a dominant position in the market.

Commission competition officials are currently plugged into a new television battle, which yet again features Telefónica as one of the main actors.

The Spanish government has passed a decree blatantly favouring a television consortium including Telefónica, state broadcaster TVE and newspaper El Mundo.

The decree makes the digital system proposed by the new consortium the standard for Spain, in a move which clearly amounts to a severe body-blow to its rival Canal Satélite Digital.

The constant Commission scrutiny of Telefónica will probably not allow it to escape totally unscathed from the latest probe into its new alliance. In the same way that the Commission forced BT/MCI to make concessions over its dominance of transatlantic telephone connections, the Spanish phone company could well be pushed into a near identical climb-down over its Latin American links.

Telefónica says there is no need for its undersea cable networks from Spain via the Canary Islands to Latin America, or its links via the Hyspasoc satellite, to come under scrutiny.

It points out that the first joint venture to come out of its new liaison with MCI, a 50-50 joint venture called Tisa, will handle north-south telecoms traffic through the Americas. “We cannot say at the moment what the second, third or fourth stages will be,” said a Telefónica spokesman.