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Press release

Additional regulation impedes investment in telecoms networks

12 May 2005

There is no evidence that further regulation is needed. Switzerland is already one of the European leaders for broadband Internet usage due to the existing infrastructure competition in the telecommunications industry. Over 40% of households already have high-speed Internet access via the telephone or cable television network. The Swiss information society benefits from a good cost-benefit ratio compared with other European countries and extremely high coverage (e.g. ADSL is available to over 98% of households). This, together with the combination of high quality and low prices, is particularly beneficial for outlying regions as well.

The positive trend over the last few years is chiefly attributable to the intense competition between Swisscom and the cable operators in the infrastructure area. Attractive flat-rate alternatives to broadband Internet access via the fixed-line network are already available, for example via the UMTS mobile network and Wireless LAN (Hotspots). Given this competitive environment, additional state intervention is not only unnecessary but also damaging, because it distorts the market and provides false incentives.


Negative experiences in the USA - unbundling hampers investment

In many European countries, the desired positive effects of unbundling regulation have still not materialized even years after it was implemented. Furthermore, developments in the USA over the ten or so years since its far-reaching unbundling regime came into effect have seen the country fall back from its former leading position in the telecommunications industry to become a mere backwater as regards the distribution of modern broadband technologies.

The decline in investment by providers as a result of the comprehensive regulatory regime has compelled the US regulator to completely change tack: in respect of the last mile, the original comprehensive, technology-neutral access regulation was restricted to the unbundling of the copper wire (full access). Technology neutrality and bitstream access are no longer on the agenda, and the USA sees the reduction in regulation as a kind of liberalisation.


Investment risk is borne by network providers - competitors get a free ride and reap the benefits

Unbundling reduces the incentive for infrastructure providers to invest, as the providers alone bear the full investment risk, but nevertheless face the prospect of competitors getting a free ride and benefiting from state-regulated prices if the investment proves to be a success. Essentially this amounts to a free option on a successful investment. In addition to creating legal uncertainty, a technology-neutral access obligation, which under the terms of the proposal by the Committee of the Council of States could still be imposed by the Federal Assembly as it saw fit, would also mean that networks which do not yet even exist or have only recently been constructed could be regulated at any time; in other words, such networks would then have to be made available to third parties at legally prescribed conditions. The regulation would apply to both fixed-line and mobile networks. Under these circumstances, it would no longer be possible to amortise networks at market conditions.

Investors will be correspondingly cautious when it comes to constructing new networks. Even the third parties that would stand to benefit from the regulation will not be in any rush to invest, given that they can use existing networks at state-regulated conditions. Rather than encouraging network competition, such a regulation will in fact weaken it. And the option passed by the Committee of the Council of States of imposing investment obligations on fast bitstream access following a transition period of three years will also not serve to change this situation. During this transition period the parties benefiting from the regulation will not be obliged to invest in new networks and - if experience abroad is anything to go by - will indeed refrain from doing so. Weaker infrastructure competition reduces the level of innovation for new services (e.g. television via the telephone line), and the negative impact on market participants has a correspondingly negative impact both on the market as a whole and on the development of the information society. Switzerland will therefore lose its present leading global position in telecommunications infrastructure.

The Council of States will discuss amendments to the Telecommunications Act in the June session.

Berne, 12 May 2005


Swisscom AG
Media Relations
3050 Bern