IP/99/873
Brussels, 24 November 1999
Leased lines: Commission acts to bring down cost of communications in Europe
The European Commission has adopted a Recommendation on the pricing of short-distance leased lines. The Recommendation sets price ceilings for short distance leased lines that incumbent telecommunication operators charge. Leased lines are short distance communications links that incumbent telecommunications companies rent to other network operators. These short distance circuits constitute essential building blocks for the internal communications networks of European businesses. Leased lines are increasingly used also by small and medium sized enterprises (SMEs) to have a permanent high speed access to the Internet. The sector of leased lines, data networks and business communications is becoming increasingly important in particular with the emergence of e-commerce, and already represents about 25% of the total telecommunications market in some Member States. The Recommendation also encourages unbundling of the local loop and other measures to stimulate competition in the local access networks.
“The high price of leased lines in Europe has been detrimental to the competitiveness of European companies and has hampered the spread of the Internet in Europe”, said Mr. Erkki Liikanen, Commissioner responsible for Enterprise Policy and the Information Society. “This recommendationwill be of benefit to all Internet users, and in particular to SMEs.”
Leased lines can carry high volumes of voice and data and multimedia traffic. In particular Internet Service Providers rely extensively on the availability of leased lines to connect to the world-wide Internet backbone.
Competition in the leased lines market has been slow to develop, and new investment in competing communications infrastructure is concentrated in the profitable high capacity routes between big cities. Incumbent telecommunications operators remain the dominant suppliers for all types of leased lines, and especially for short distance local leased lines, where they face little competition. Consequently, prices remain high in most Member States.
The recommended price ceilings are based on the prices in the three lowest cost Member States in the EU (see annex). This approach follows a previous Commission Recommendation, that addressed the price of interconnection to switched networks, and which has been instrumental in making interconnection charges in Europe to converge and be among the most competitive in the world.
The Recommendation on leased lines interconnection sets the following price ceilings for the monthly rental of a leased transmission circuit, of length 5 km, provided by an incumbent telecommunications operator to another operator so that can competitively link a user into its backbone network. These recommended price ceilings provide guidance to the National Regulatory Authorities to assess whether the prices are cost-oriented as required by Community legislation.
64 Kilobit/s capacity circuit: 80 Euro/month (excl VAT)
2 Megabit/s capacity circuit: 350 Euro/month (excl VAT)
34 Megabit/s capacity circuit:2600 Euro/month (excl VAT)
These price ceilings are comparable to the prices that are found in other competitive markets, like the USA.
Where an incumbent operator is charging more than the recommended price for a leased line part circuit, it is for the operator to convince the independent National Regulatory Authority in the Member State that the higher costs are justified. The burden of proof rests with the operator. Under Community law, the regulator can oblige an operator to reduce its prices to a competitive cost oriented level.
Finally, the Recommendation also calls on Member States to implement other complementary measures to stimulate competition and technological innovation in the local access network that constitutes a bottleneck in particular for the deployment of high-speed services by alternative providers. Such measures may include:
-Mandating unbundled access to the local loop of the incumbent,
-Encouraging the rapid deployment of emerging access technologies such as Digital Subscriber Loops (DSL) in particular for high-speed internet and data services, and
-Allocating spectrum for Wireless Local Loops (WLL).
All of these measures will serve to increase competition in the local access network and thereby provide users with more choice and innovative services.
ANNEX
Background
Incumbent telecommunications operators still own and operate most of the installed base of communications circuits in Europe, in the form of copper and fibre buried in the ground.
For business users, leased lines offer advantages in terms of price, security and reliability compared to using the public switched telephone network. Similarly, until a new entrant installs its own communications infrastructure, it must rely on leased lines rented from the incumbent telecommunications operators. Leased line charges paid to the incumbent can represent up to 40% of the total costs of market entry for a new network operator.
The Leased Lines Directive 92/44/EC requires Member States to ensure that the tariffs of leased line tariffs provided by incumbent network operators follow the principles of transparency, non-discrimination, and cost orientation.
The Interconnection Directive 97/33/EC requires Member States to ensure that incumbent operators interconnect their leased line part circuits to the circuits of other operators, under conditions of transparency, non discrimination and cost-orientation.
The International Telecommunications Users Association (INTUG) has provided regular price comparisons of the leased lines tariffs of incumbent operators across the EU ( ). This survey indicates that cross-border tariffs are at more than 120% of national tariffs in all Member States and in some cases are as much as 500% of the national tariff.
Figure 1 provides an indication of the high cost of leased lines in Europe compared with USA. Indeed, Figures 2, 3 and 4 show high differences in the cost of short distance leased lines of typical capacities provided by incumbent operators in Member States. These short distance leased lines are representative of the ‘bottleneck’ constituted by the incumbent operators’ local access network.
Figure 1 - Price ratios for a 300km 2Mbit/s circuit in USA and Europe, after discounts (Source: Reuters, end of 1998).
Figure 2 - Retail prices for 64 Kbit/s leased lines
(Source: Commission and NRAs, Oct 99)
Figure 3 - Published retail prices for 2 Mbit/s leased lines
(Source: Commission and NRAs, Oct 99)
Figure 4 – Retail prices for 34 Mbit/s leased lines
(Source: Commission and NRAs, Oct 99)
(*) published prices not available, provided only on a case by case basis.
This Recommendation is placed in the context of the policies recently adopted in the Commission’s 1999 Communications Review: ‘Towards a new framework for Electronic Communications infrastructure and associated services’ (see Press release IP/99/825, Brussels, 10 November 1999). There it is stated that, Community measures, to which this Recommendation belongs, should be put in place to effectively promote and sustain an open and competitive European market for communications infrastructure and associated services that benefit the European citizen and enterprises and help to consolidate the internal market
This Recommendation complements the sectoral inquiry into leased line tariffs being undertaken by the Commission (see Press release IP/99/786, Brussels, 22 October 1999). The aim of the Commission's inquiry is to establish whether current commercial practices and prices infringe the EU competition rules, in particular the prohibition of restrictive practices and abuses of dominant position (Articles 81, 82, and/or 86 of the EC Treaty).
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