The countries in this category can be viewed as a progression of the Eastern European category. The PTO remains in a monopoly position, often heavily influenced by government and, as with many monopolies, typically is not as lean and mean as it might be. However, it at least has been able to meet demand, unlike the PTOs in the Eastern European category. Its service is disliked by many, and its charges are somewhat higher than could be achieved by a competing operator.
The main way that the government can change this situation is to introduce competition. Two forms of competition have been identified:
competition in the trunk network and competition in the access network.
Competition in the trunk network often is the means whereby competition is introduced first. To compete in the trunk network, an operator merely has to interconnect key cities with high-bandwidth links.
That can be achieved using buried cable, cables run along power lines, or
cables sunk in places like canals and rivers. However, it does not take the PTO much to overcome such competition. By charging a high fee for access from the trunk network to the customers via the local network, a PTO can ensure that the effects of competition are minimal. Even despite strict regulation in the United Kingdom, trunk network competition from Mercury to BT failed to make any significant difference in prices and services. Trunk network competition, then, is unlikely to achieve governmental aims.
Competition in the local loop can provide significant stimulus to the PTO. It allows competitors to remove customers entirely from the PTO, a prospect that will stimulate most PTOs or simply result in competitors being able to take over the majority of their marketplace.
The government is likely to be eager to introduce competition into the local loop, and that represents an opportunity for the WLL operator.
With only the inefficient PTO for competition, attracting consumers should be relatively easy.
Competition could come from a second wireline network or a wireless network. For the government, a wireless network is more attractive. New wireline networks cause massive disruption as streets are dug up, traffic disrupted, and environmental damage caused (e.g., the cutting of tree roots). Wireline networks take many tens of years to develop for the whole country, so the competitive pressures are slow to emerge. Governments, therefore, will want to encourage WLL op- erators by providing spectrum and licenses on favorable terms and generally helping when and where possible.
Although the government may be keen to encourage WLL operators, there is one key concern for the prospective operator, namely, that the competitive pressure will result in significant improvements to the PTO.
That will allow the PTO to reduce prices and increase services, attracting customers back from the wireless operator to the PTO. The PTO may be able to introduce ISDN or xDSL services where needed, thus providing a better service than the WLL operator can. The WLL operator will want to recoup its investment costs over a relatively short period to reduce the risk that its network may become obsolete in the medium term. Given the high spending on telecommunications in these countries, that may be possible.
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An example of such a market is Germany, where the government is only just starting to introduce competition. In Germany, the main threat to the PTO, Deutsche Telekom, comes from alliances between German industrial giants and outside telecom operators, the operators often having experience of competing in liberalized environments. Although Germany has a relatively high cable penetration, most of the cable network is owned by Deutsche Telekom; hence, there will not be competition between cable and twisted-pair operators in the same man- ner there is in other countries (e.g., the United Kingdom). The German trunked network market already is relatively competitive, so the govern- ment is concentrating on the provision of competition in the access network.
The first step toward such competition was taken in 1995, when the German government said it would grant 28 regional licenses to operate WLL networks using DECT technology. Governments generally get it wrong when they specify technologies, and this was no exception. Al- though DECT had the advantage that the frequencies were already available, and hence no long migration of the existing users of the radio frequency band was required, prospective operators were concerned that DECT might not be able to provide sufficient capacity, especially where there was more than one operator in the same area. Some of the higher capacity proprietary technologies were preferred. The government is now in the process of reconsidering how to issue the licenses, but the net result has been a significant delay in the introduction of competition.
There also still is concern over the regulatory environment. New operators are concerned that the regulator will not be sufficiently aggres- sive to prevent anticompetitive behavior by Deutsche Telekom. Already, Deutsche Telekom has provided discounts to some businesses that appear to be subsidized by other customers and designed to prevent “cream- skimming” by the new operators.
Overall, this represents a fertile area for new operators with only one main competitor. However, strategies need to be designed that will not allow cross-subsidization to work. For example, if the majority of resi- dential subscribers are targeted, there will be nowhere for Deutsche Telekom to look for subsidy.