Reporrs

Telecommunications shall ensure

that the approval procedure is

simple as regards the administra-

tive requirements, the time re-

quired for tests and the costs.

Structural impact on the DBP

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

The sovereign tasks shall be sepa-

rated from the entrepreneurial

tasks as far as organization is

concerned.

The Federal Ministry of Posts and

Telecommunications shall per-

form the sovereign tasks as an

independent ministry.

The Federal Minister of Posts and

Telecommunications shall super-

vise the performance of the en-

trepreneurial tasks.

Telekom’s budget/economic plan

shall be subject to approval by the

Federal Minister of Posts and

Telecommunications in consulta-

tion with the Federal Minister of

Finance.

Posts and telecommunications

shall be separate as far as orga-

nization is concerned.

To promote the development of

telecommunications, the sub-

sidies paid by Telekom to the

postal sector shall be reduced step

by step over a period of five

years. In any case they shall be

recorded separately in Telekom’s

budget.

The telecommunications sector of

the Deutsche Bundespost shall

remain a public enterprise and its

funds part of the special funds of

the Federation.

The official relationship of the

members of the Board of Mana-

gers of the enterprise to the Fed-

eration shall be governed by pub-

lic law. This shall also apply to the

second management level.

The network, the monopoly ser-

vices, the regulated and unreg-

ulated services and the terminal

equipment area shall be managed

as separate divisions of Telekom

with separate budgets/economic

plans and separate annual

accounts. Any cross-subsidies

shall be identifiable as such.

From the point of view of orga-

nization and accounting, the divi-

40. Telekom may set up subsidiaries

under private law for the provi-

sion of unregulated services and

for any complementary business

activities to be able to compete on

the market without the con-

straints of the public budget and

service law. Joint ventures of

Telekom and private enterprises

should also be considered.

After the change-over from the

levy payable to the Federation to

value added tax. Telekom shall

be liable to pay all other taxes like

any other corporation.

Concerning the appropriation of

profits, the application of com-

pany law is considered conve-

nient.

15

46

41. Private law shall apply to the legal

relations between Telekom and

its customers.

42. To prevent competition distor-

tions, Telekom should be made

liable to pay value added tax

instead of the levy payable to the

Federation. Initially, this

arrangement shall at least be ap-

plied to the regulated and unreg-

ulated services provided in com-

petition with others and to the

terminal equipment area. After

an adequate transition period. it

47

Pension reserves shall only be set

up for pension obligations en-

tered into after I January 1987.

The regulation concerning the

maximum number of staff posi-

tions, the incentive systems, the

payment of bonuses for particu-

larly difficult work and the finan-

cial conditions applicable to the

recruitment of staff shall be made

more flexible and more closely

related to performance.

The budgeting of personnel costs

for the different divisions and

decentralized organizational units

will give Telekom greater flexibil-

ity in the deployment of staff.

Eberhard Witte Universitat Miinchen

lnstitut fiir Organisation Munich, West Germany

A comment on the Witte Report

sions responsible for unregulated

services and terminal equipment

shall be treated in a way effective-

ly preventing the transfer of

monopoly profits to the divisions

exposed to competition. An au-

diting company shall determine

and certify every year whether or

not this requirement has been

met.

43

4-l

shall also be applied to monopoly

services.

The West German government’s

Commission on Telecommunications

met for two years and submitted on 16

September 1987 its 161-page final

report’ to the Chancellor Helmut

Kohl. In the German press the report

is often referred to as the Witte- Bericht- the Witte Report - after the

Commission’s chairman, Professor

Eberhard Witte. The Commission

worked independently to develop its

assessments and recommendations.

The report was supported by the

Commission members by nine votes to

two, with one abstention.

As Professor Witte’s article indi-

cates, the report lists 40 recommenda-

tions. Among the major items addres-

sed are: separating the telephone-

related operations from the Deutsche

Bundespost; taking additional initia-

tives in prying loose the Bundespost’s

literal monopoly on customer premis-

es equipment; and making possible

the connection between the public

network and private leased-line net-

works.

The report states that:

This will have far-reaching consequences for the whole telecommunications sector and for the competitiveness of the Federal Republic. Everything points to a dramatic increase in the importance of telecoms for the entire economy.

In addition, the drafters are ‘con-

vinced that only the replacement of

the monopoly with competition at all

levels can lead to a market capable of

withstanding the future’.

The meaning of this report can

186 TELECOMMUNICATIONS POLICY June 1988

probably be best understood in the

context of similar telecommunications

restructuring efforts of other indus-

trialized nations. In February 1988 the

Commission for the European Com-

munities accelerated by as much as

three years key portions of its plan to

open Europe’s telecommunications

market to competition. There is some

speculation that such a market-

opening effort could spread easily also

beyond the 12 EC member nations,

including more than 25 European

nations. These efforts can be seen as

the EC’s first steps in its campaign to

open Europe’s heavily regulated tele-

communications markets to greater

competition. The Commission is plan-

ning to stick to a strict timetable for

the implementation of its proposals.

There will be full liberalization of the

equipment market (telephones. office

switchboards, computer modems and

most other terminal equipment that

connects to phone lines) by 3 1 Decem-

ber 1990, with a transition period for

the first telephone handsets. A prog-

ressive liberalization of the service

market, except for voice telephony

services will start in 1989. Full liber-

alization of receive-only satellite dis-

hes will be achieved by 1989.

In addition, the Commission is in-

sisting that tariffs be closely related to

costs. If this is not achieved by 1992,

the EC will review the situation. A

number of additional provisions

covering fair processes for equipment

approval throughout Europe, the

creation of the European Telecom-

munications Standards Institute (or

ETSI) in April 1988. and agreement

on the principles of open network

provisions (addressing access to leased

lines and eventually ISDN) are also

included. The Commission also re-

leased a directive aimed at opening

telecommunications administrations’

public procurement in March 1988.

Currently, all European countries

limit private sales of some ot these

products, giving the national tele-

phone companies a monopoly or near

monopoly in some segments of the $21

bn European communcations equip

ment market. However, this measure

by the Commission leaves the remain-

der of Europe’s $110 bn market for

telecommunications services and

equipment under strict government

control. Even in the terminal equip-

ment segment at which the order aims.

a thicket of varying technical stan-

dards, import restrictions and other

regulations will continue impeding

competition in most European coun-

tries. One may view this effort as a first

shot in what is likely to be a noisy.

five-year campaign by the Commis-

sion to allow more competition in

Europe’s long-regulated phone mar-

kets. It will take stabs at liberalizing

broad segments of the phone market.

including computer-communications

services. telex, satellite services, as

well as sales of switches, cables and

other gear from which the ‘phone

network is built.

Myth

One Should note also the generally

perceived myth that US deregulation

has caused an invasion of the US

market by European telecommunica-

tions products, with no equivalent

opening of the major European mar-

kets to the USA. The statistics,

however, do not support this position.

While the EC nations are net expor-

ters of telecommunications equipment

with a total surplus of $1.2 bn in 1986,

shipments to the USA totalled merely

$368 m and exports to Japan only $39

m. The EC, however, has imported

telecommunications equipment from

the USA to a total value of $988 m and

from Japan to $724 m.

Even PTT monopolies - with their

unwilling support of their govern-

ments - are not immune to competi-

tive forces. As the world is continuing

to shrink electronically due to over-

expanding networks and electronic

messaging, as business is increasingly

globalized and as international tele-

communications traffic increases

much faster than domestic traffic,

PlTs that do not address and are

unresponsive to user needs have suf-

fered and may continue to suffer

significant competitive inroads into

their revenue growth. West Germany

may serve as a case in point. Looking

at the telex rate structure in the 1970s

telex rates in West Germany and in

some other European countries were

TELECOMMUNICATIONS POLICY June 1988

very expensive in comparison with

some other European countries. For

example, sending a telex message

from West Germany to the UK for

forwarding to Hong Kong was con-

siderably less expensive than sending

the same telex directly from West

Germany to Hong Kong. Consequent-

ly, an entirely new business service

(telex refiling, a form of arbitrage)

was created to take advantage of this

situation. In the long run, however.

European PITS found it necessary to

lower telex prices quickly for long-

distance messages, which in turn

brought telex pricing back in line with

underlying costs for providing this

service.

A newly published survey’ of tele-

phone charges in Western nations

rates West Germany as the most

expensive nation surveyed overall, in-

cluding domestic long distance calls.

When analysing cost trends in Ger-

many over seveal years, it becomes

apparent that this nation has remained

stable and expensive. The USA scored

among the cheapest in all categories

(local, long distance, international

telephone, including telex). Belgium

has dropped its position in 1987 as

Europe’s most expensive country

overall. British Telecommunications

PLc’s local telephone rates have con-

tinued to be the highest of all major

Western countries over a period of

four years. France reduced local call

charges while most other countries

either froze or increased them.

Domestic long-distance calls in France

also fell by 23.3%. France is now also

the cheapest country for international

call charges due to an impressive

41.7% drop in the cost of international

telephone calls. Changes in value-

added tax laws in France imply that

consumers can now reclaim some of

their telephone costs.

There are some signs that the ultra-

monopolistic Deutsche Bundespost is

to some degree opening the West

German telecommunications market.

The USA and the EC have been

pressuring for more access to the

German market, the third largest in

the world after the USA and Japan.

Fairly recently the West German gov-

ernment has given MCI International

Inc of Rye Brook, New York, the

187

opportunity to establish an indepen-

dent gateway for telecommunications

services to and from the USA in

competition with AT&T’s internation-

al services. A future, additional gate-

way operator. US Sprint International

Inc of Kansas City, Missouri, is said to

be favoured by the Germans.

Similarly, US trade negotiators and

the Commission for the European

Communities pried loose another fin-

ger in the grip of the Deutsche Bun-

despost in 1986 when the Bundespost

agreed to end its monopoly on the

provision of modems connected to the

public network. Only after the first

terminal is connected can private firms

provide extensions. Under this ruling

the Bundespost now allows stand-

alone modems and those incorporated

into terminals to be supplied directly

by private suppliers. One should note

that Commission spokesmen stated

that, prior to this ruling, users of the

public telephone network could not

always obtain the type of modem best

suited to their needs, and only the

market for modems to be used in

private networks was open. One might

view such an event as a merely symbo-

lic effort of the Bundespost, but it was

one of several pointing to an opening

of the German market.

Reviewing discussions, opinions

and reactions of the Witte Report in

the German press does not suggest in

any way major chances for significant

change in West Germany’s telecom-

munications market. One can prob-

ably expect something of an increase

in competition, but it is not to be

viewed as a major increase. Most

individuals interviewed - especially

those with ties to the German tele-

communications industry - see the

Commission’s report as a conservative

proposal, and many had higher ex-

pectations with regard to the Bundes-

post’s opening for competition.

The powerful Deutsche Post-

gewerkschaft (the Deutsche Budes-

post’s labour union) has already criti-

cized the recommendations, as this

organization views the effort as a

threat to the Budespost’s monopolistic

positon. It is precisely from the quar-

ters of the trade unions that the

strongest objections originate. They

claim that if the recommendations

188

were implemented. IO 000 of the cur-

rent 500 otlo postal and telecom-

munications jobs would be lost. The

Socialist Party opposes the recom-

mendation to separate the highly pro-

fitable telecommunications operation

from the Budespost’s unprofitable tra-

ditional postal services, as the result-

ing post office’s losses would have to

be absorbed by the Finance Ministry,

the postal service would have to be

reduced, or postal rates for services

would have to be greatly increased.

The various political factions in

West Germany most certainly reflect

the entire spectrum of positions possi-

ble in their opinions of the Witte

Report. Free market and procompeti-

tion political factions such as the Free

Democratic Party oppose the recom-

mendations for not going far enough.

At the other end of the spectrum

one encounters politicians from the

influential and highly conservative

state of Bavaria who oppose the Witte

Report for going too far. One must

expect intensive political debate be-

fore Chancellor Kohl’s cabinet will

make a decision on whether to accept

the Commission’s recommendations.

West Germany’s PTT Minister.

Christian Schwarz-Schilling, has

stated on several occassions that priva-

tization of the P’IT is out of the

question. Such a position may be

based on the Deutsche Postgewerk-

schaft’s campaign against selling out

the PTT, and probably also that West

Germany’s constitution would pro-

hibit a turnabout of the existing state

monopoly. It is interesting to note also that as

recently as 1986, high Bundespost

officials stated that there is no real

possibility that the PIT will be split

into separate enterprises for post and

telecommunications. Just such a

separation is now a recommendation

of the Witte Commission.

Commenting on the Witte Report’s

provision that tariffs would be set by

the Minister for Posts and Telecom-

munications in conjunction with the

Economics Ministry. Mr Schwarz-

Schilling said that he wanted to intro-

duce significant cuts in volume tariffs

on lines leased to major customers by

the Bundespost. Such tariffs, howev-

er, are controversial because they

would apply after the leased line had

been used for only 80 hours a month,

making leasing lines roughly four

times more expensive than in the UK.

The Witte Report is presently being

analysed and reviewed by the minis-

tries of post. finance, economics, jus-

tice and the interior. After such

efforts, recommendations will be

made to the cabinet. With subsequent

parliamentary debate, deliberations

may move well into the current year.

Actual restructuring of the Deutsche

Bundespost, if any is to occur, is not

likely until 1989 at the earliest.

Professor Rolf T. Wigand Program in Information Management

Arizona State University Tempe. AZ, USA

‘Eberhard Witte, Neuordung der Telekom- munikation: Bericht der Regierungskom- mission Femmeldewesen, Heidelberg, Germany, 1987. *The International Telecoms Price Survey, National Utility Services. Croydon, UK, and Park Ridge, NJ, USA, 1988.

Conference reports Debating regulation issues

First International Telecommunications Regulations Conference, Amsterdam, The Netherlands, 12-13 November 1987

More than 125 senior decisionmakers ternational Telecommunications Reg-

in telecommunications from Europe, ulations Conference, cosponsored by

Japan and the USA met in Amster- the PA Consulting Group and IBC

dam in November 1987 to debate the Technical Services. focused on the

latest regulations issues. The first In- impact of the European Commission

TELECOMMUNICATIONS POLICY June 1988