Lessons in befuddling from the Swiss

The Swiss are legendary for their efficiency, but straightening out their telecommunications competition rules has been - and continues to be - a lengthy and complicated process.

The Government first took steps to unbundle the telephone network of incumbent Swisscom in 2002, but the move has been repeatedly delayed and is not expected to happen until early next year.

Different Government bodies have disagreed on how to do it, while Swisscom has objected - and continues to object - about the need for it. Consequently, the company has fought unbundling every step of the way.

"Our argument is that you don't need to unbundle something that is no longer a monopoly," says Bart Morselt, head of investor relations at Swisscom. The company maintains that because Switzerland has a number of cable television providers offering internet and phone services, competition is alive and well.

The competition regulator, on the other hand, does not see it that way.

"They have objected, but finally the objection has not been [found to be] fundamental," says Patrik Ducrey, vice-director of infrastructure for the Competition Commission. "We are of the opinion that the last mile [of the copper network] should be open for competition so you can have competition not only between Swisscom's copper network and the cable networks, but you could also have competition [on] Swisscom's network."
With the unbundling process taking nearly five years, Switzerland is a case study of how legislative wrangling and lobbying can befuddle regulators. With the New Zealand Government expected to institute the unbundling of Telecom's network in the next month and the company expected to oppose the move, Switzerland's experience could prove to have resonance here.

In 2002, Switzerland's Communications Commission tried to initiate unbundling but found it could not do so because it was not explicitly written into the country's Telecommunications Act.

The commission asked that the act be changed. The Cabinet drafted an amendment and submitted it to Parliament in November 2003.

The amendment went to the Communications and Transport Commission, which is the parliamentary committee that reviews changes in law before they are submitted for a full vote. But the commission rejected the amendment in early 2004 after lobbying by Swisscom. The commission voted 17 to five against and accepted Swisscom's argument that the move would have jeopardised its ability to plan and make investments.

In March 2004, the National Council disagreed and voted to amend the act. The bill was then sent to a committee for a more detailed review.

The National Council finally voted in favour of modifying the act in November 2004. But the situation was further muddied when the Council of States, the other half of Switzerland's Parliament, disagreed with the National Council. The two parliamentary bodies differed on how far the liberalisation should go, and the debate continued.

It wasn't until last month that the two sides agreed to a compromise: a two-pronged form of unbundling. One will allow competitors to resell Swisscom's data services (internet access, in other words) or a bitstream product similar to that which Telecom resells to other providers in New Zealand.

The other is full unbundling, which will allow Swisscom's competitors to install their own equipment in the company's telephone exchanges and thus offer their own voice and internet services.

The compromises between the two parliamentary houses include a four-year limitation on unbundling and requirements on Swisscom's competitors to actually invest in equipment.

The company insisted on the clause being included to prevent "freeloaders" from using its network.

"That's to make sure that it's not just Swisscom who has to make the investment," Morselt says.

Parliament also scrapped its previous technology-neutral approach and decided that unbundling would apply only to Swisscom's copper-line network and not to the cable TV or mobile networks.

The reasoning there, Morselt says, revolved around whether the network was a monopoly or not. Since Swisscom's copper is available in every single household, Parliament considered it a natural monopoly that needed to be broken. Cable and mobile networks, however, were not.

Now, under Swiss law the people have a three-month period during which they can oppose the proposed legislation and force a referendum.

The public is not expected to object, and the parliamentary amendment will probably come into effect in October, with unbundling proceeding early next year.

But the story isn't likely to end there. Swisscom's competitors must then negotiate what rent they will pay the company under unbundling. If the companies can't come to commercial agreements, the competition regulator will probably be called on to set a price.

That could further slow the implementation of unbundling, which has led to some criticism that the four-year limitation could be too short to properly pay off for Swisscom's competitors.

Despite its convoluted route toward unbundling, Switzerland hasn't exactly suffered for it. The country is one of the world leaders in broadband, which marks it in stark contrast with New Zealand and its similarly complicated path to unbundling.

The secret to Switzerland's broadband success has been the existence of competing infrastructure. While Swisscom owns all the copper phone lines and is thus the only provider of DSL broadband, several cable television operators have stimulated competition with their networks. Cable TV is available to about 80 per cent of the population, and the networks account for about one-third of Switzerland's broadband subscribers. That fact was one of Swisscom's main arguments against unbundling.

Swisscom's Morselt says phone companies elsewhere are now trying to find ways around unbundling. Incumbents in the United States, for example, are starting to invest in fibre - which is superior to copper for broadband delivery - in exchange for regulatory holidays on the new networks.

Swiss cheese
 
* Population: 7.2 million

* Broadband subscribers: 1.7 million, or about 50 per cent of households. With 23.1 subscribers per 100 people, the country ranks fifth in uptake out of 30 OECD countries.

* Subscriber breakdown: 63 per cent on DSL, 34 per cent on cable (Swisscom has a million DSL subscribers).

* Swisscom profit: €2.35 billion ($4.65 billion) last year on revenue of €9.7 billion.