Energy versus Telecommunications score 1-0
A comparison between the Telecommunications and Energy sector in Greece demonstrates the impressive evolution of the energy market in contrast with the telecommunications market in the last decade. In the energy market, the separation (unbundling) of networks from production, according to the European Union's Third Energy Package, and in combination with a set of privatisations of energy infrastructure assets, has had a catalytic effect on the market. The weakening of the Public Power Corporation (“PPC”) and the Public Gas Corporation (“DEPA”), two vertically integrated companies with dominant market positions, which have now lost significant market shares in their respective markets, has allowed for higher levels of competition, significant infrastructure investments (in natural gas and in electricity as well) and the creation of a future with good potential in a country with few growth sectors.
In the telecommunications space, however, the situation is completely different. The Hellenic Telecommunications Organisation (“OTE”) maintains a very large market share in fixed line, while Vodafone and Wind Hellas are rather weak. Investments in networks are relatively limited, especially by the second and third provider as they are becoming weaker and weaker. Providers are generally committed to maintaining the status quo, their current structures and practices. Admittedly, the services of all providers suffer, as this market has not evolved adequately in Greece. In recent months, we have seen the government advocating more and cheaper data packages, while regulators, the competition versus the telecoms regulator, disagree over the level of the absence of competition in the market. In substance, little has changed.
In the 1990s, it was the opposite: The energy sector was in the hands of the state and competition was non-existent. In contrast, the telecommunications sector was evolving rapidly at the time. Mobile telephony licenses were issued, significant amounts were invested in technology, in mobile networks, and competition was actually thriving. Attempts were also made to give alternative providers access to the fixed network owned by OTE, but infrastructure and services were not separated. Theoretically, the models of the energy and telecommunications market should have been similar as both markets have similar structures with infrastructure used by all service providers.
In the energy sector, European policymakers were adamant about putting the foundations of a competitive market in the last 10 years. With the Third Energy Package, Europe set a strict framework for the separation of networks and commercial activities. In the energy space, there are separated operators of national, regulated networks that are completely separated from the energy service providers. The networks are not developed by energy service providers. Instead, the network operator has an incentive to build networks and infrastructure as it is compensated with a regulated return. The network operator is paid to invest as it receives regulated revenue, depending on the investment it has made, and is paid by all users through a regulated tariff. This is how the market avoids underinvestment and non-competitive practices. A characteristic example is the capacity upgrade of the Revythousa LNG terminal which was completed in 2019. Revythousa was operating at a 20% capacity only for several years before its upgrade and many wondered why it had to make the investment to increase its capacity when it was not being fully used. It did not take long before the new upgraded Revythousa operated at 100% capacity, thus, proving that those in favour of the upgrade were right and insightful. The right incentives allow the development of important infrastructure that everyone benefits from, and commercial activity follows enabling further development. No commercial enterprise uses the network to its own benefit or makes investment decisions which serve it and may not serve the entire market.
In the telecommunications space and, more specifically, in the fixed line networks, there is no separation of networks and commercial activity. This has led to a lower quality of service. Have you tried to subscribe for broadband lately? The technicians can come for the equipment installation several times due to miscommunication between the service provider and the network owned by OTE. Weeks pass without the customer being connected and with the various parties blaming each other. Any investments are made by the providers based on their own investment criteria, while often the Regulator unofficially "distributes" the investment obligations to the service providers. The competition works to some extent but not to satisfactory level. In addition, OTE owns both the majority of the customers and the network and can invest more than the other providers.
In mobile telephony, each provider basically has its own network and the quality of the service depends to a large extent on each provider and their desirable level of investment. This model is the opposite of having a separate network for all providers managed by one network operator as in the case of the energy market. Developing multiple networks is probably not effective as some providers may not be able to invest in their own network at a satisfactory level and may therefore not be able to compete with good service.
The weaker telecommunications service providers have realised that this model is not effective. They have independently chosen the separation of networks and services. They started this process by setting up joint mobile network management companies with other providers. They are now selling their networks to infrastructure funds or network management companies that are being set up. A characteristic example is Vodafone, that is creating a pan-European company for mobile telephony towers (a “TowerCo”), with a separate management, some management independence and potentially plenty funding opportunities from third parties. Tower management companies do not put their network in use with one provider only but rather with several providers creating synergies and efficiency for all. These initiatives resemble the Energy model applied by the policymakers of the European Commission and it is actually initiated privately. Even better! The telecommunications market is independently adopting a model that has been imposed by regulation in the energy market. In fixed line telephony, an initiative of the providers to separate the networks may not have the same impact because a large part of the fixed network remains under OTE’s ownership. The regulator also seems to have apportioned urban areas to each of the operators to develop fibre networks. Do we perhaps need the same model in fixed telephony like the one used in energy sector? If we don’t, we need to find new, alternative solutions for substantial fibre deployment and fast data in Greece. If we want to upgrade our telecoms and make Greece more competitive, there is a clear need to alter the sector structure.
During the Greek crisis, the institutions were relentless on the issues of the Energy market indicating the importance they attach to the sector. We could say that energy issues were an obsession for the European Institutions but also admit that the solutions finally promoted were effective. These solutions could be adopted in whole or in part also in other sectors that do not seem to have received of the same attention and perseverance from Europe but are just as important for the Greek economy.
Modified translation from Business Energy published in Greek In July 2020