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Agreement between OPTA and KPN: Removal of barriers will allow greater pricing discretion

KPN will be removing a large number of barriers which are impeding its competitors’ access to the telecommunications market. Based on this, OPTA will relax the strict restrictions to which KPN’s tariffs for fixed telephone services are subject at present.

As of 1 July 2002, KPN will be allowed to increase its tariffs by no more than the rate of inflation. Whether or not these tariffs increase will depend on the competition which KPN experiences in the market.

It will also be possible for its competitors to offer profitable local telephone services as of 1 August. Consumers will also have a realistic choice in this respect. In the event that charges are increased, KPN’s customers may switch to another provider, if they choose to do so. Nevertheless, KPN’s pricing discretion will be subject to a ceiling: charges may not be raised above the rate of inflation. KPN may endeavour to increase its profit margins within the confines of its discretion by reducing its expenditure.

Many barriers to competition removed

The price ceiling which was introduced for KPN in 1999 is due to expire on 1 July. It was stipulated that tariffs were required to drop by a certain percentage each year, because KPN was still earning excessive profits on services in respect of which there was not enough competition. In recent months OPTA has done a great deal to secure substantially improved access to KPN’s network. In particular, the potential for competition at the local level has improved greatly.

OPTA has adopted the following measures to improve access to this network:

  • upgraded local interconnection facilities – KPN has introduced upgraded interconnection facilities into the market at the level of the local exchange. This means that other providers can now plug into KPN’s network at a lower level, thereby reducing their interconnection tariffs;
  • more carrier preselection alternatives – KPN is making it easier for carrier preselection providers to register new customers. In addition, it will be possible to use carrier preselection to make local calls. Users will be able to switch to another provider for all of their local calls as of 1 August;
  • reduced tariffs for using KPN’s network – in order to create a level playing field, KPN is required to procure its own services subject to the same conditions and at the same tariffs as its competitors. This means that KPN must make a proportionate contribution to the expenditure of that part of its organisation which sells wholesale services to market parties;
  • new range of wholesale leased lines – leased lines are used as building blocks in other providers’ networks and to connect customers directly to a network. Now KPN is offering a new range of wholesale leased lines to other market parties for a reduced tariff.

These improved opportunities for access to KPN’s network will give considerable impetus to competition in the telecommunications market. Other providers will have more alternatives available to present end users with appealing offers in their efforts to compete with KPN. Consumers will therefore have greater choice. Consequently, there will no longer be a need for far-reaching intervention in relation to KPN’s telephone charges and a tariff ceiling will suffice to prevent the occurrence of excessive price increases. What this amounts to is that KPN will be allowed to pass on the annual increase in expenditure as part of its telephone charges subject to a maximum equivalent to the rate of inflation, but no more than this.

By taking this decision, OPTA is acting in anticipation of European legislation, which has to be introduced in the EU Member States by no later than July next year. EU rules determine how telephone charges are to be regulated in the years ahead. The regulatory authorities are required to focus as closely as possible on those wholesale services which the former monopolist’s competitors have purchased from it.