The role of the regulatory authorities in the process of liberalisation of the telecommunications markets in Austria can be best understood if the fundamental problems involved in opening the telecommunications markets are pointed out. In many EU Member States, just like in Austria, the provision of telecommunications services and the operation of telecommunications networks was reserved to state-owned telecommunications organisations (PTTs). With the Green Paper of 1987 (COM(87)290) the European Union started a highly ambitious programme which declared full liberalisation of the telecommunications sector in all Member States and the creation of a common European telecommunications market to be its stated objectives. Moreover, telecommunications is a so-called network industry. This means that all providers need parts or the entire network of competitors to be able to provide their telecommunications service. If a customer of network A wants to call a customer of network B, both networks but perhaps also other networks will be involved in providing this service.

This fact is of particular importance because, at least in fixed network telephony, the former monopolist had access to all end-users and thus significant market power at the time the market was opened. Full liberalisation and an end to the predominantly state-held monopolies in the telecommunications sector was to be achieved by 01.01.1998. Individual sectors like the terminal equipment market (end of the 80ies) and the mobile telecommunications market (mid-90ies) had already been transformed into competitive markets earlier. The last step was the liberalisation of fixed telecommunications networks and fixed network voice telephony which, as "reserved services", had been under the control of the state-owned PTTs as monopolists in many countries and in Austria as well.

The technological background for the liberalisation of the markets and the forceful encouragement of competition lies in the rapid advances in the switching and transmission technologies (digitisation and fibre optics, respectively) as well as in the conviction that the monopoly in fixed network telephony was no longer a natural one. The positive practical experiences other countries like the USA and UK had made in liberalising the telecommunications sectors were equally important. Finally, practical experience with state monopolies and their distinct deficits with regard to innovation and customer-orientation and the resulting inefficiencies played a significant role. Also, the view gained acceptance that, in future, telecommunications as cross-section technology would be of decisive, strategic importance for the long-term development of the economies in the European Union.

The decision by the EU for full liberalisation and thus to give up previously prevailing monopolised control was and has been radical and required complete rethinking by the institutions which were to be entrusted with opening up the telecommunications markets. This change in the way of thinking manifested itself in totally abandoning traditional monopoly supervision authorities usually based at "Post Ministries" (for the development in Austria see section II.2) in favour of largely independent regulatory authorities for the telecommunications sector.
Independence of both the (former) monopolist and the owner was to be guaranteed. These regulatory authorities were originally not conceived as competition authorities in the classic sense but rather as institutions vested with the necessary legal powers which were to pursue the opening of the market actively. Only later, after having achieved a sufficient degree of intensity of competition, was the character as sectoral competition authority to be focused more strongly.

For many EU Member States it was an absolute novelty and a great legislative challenge to establish an independent regulatory authority having the clear mandate to open up the markets and to provide, by way of intensified competition, an improved range of services, higher quality and not least significantly lower prices for the benefit of the people and the economy.

This new quality of the regulatory authorities to be newly established is also reflected in the European regulatory framework which is designed to support these regulatory authorities in pursuing and encouraging the opening of the market. Essentially, this regulatory framework is based on the idea that specific restrictions and obligations are imposed ex ante on organisations with significant market power (within the meaning of the Telecommunications Act). Contrary to EU competition law, it is not required that market power be abused for these obligations and restrictions to apply. In a number of EU Directives, i.e. the so-called ONP Directives (Open Network Provision), the Interconnection Directive and the Voice Telephony Directive, as well as the Licensing Directive and the Harmonisation Directive (for official titles see section VII.2), Member States were requested to transpose this regulatory framework into national law. In addition, there exist a number of recommendations of the European Commission and some major documents of the ONP Committee which explain in closer detail the contents of the Directives without being part of the existing legislation directly. In Austria this European regulatory framework was implemented in the Telecommunications Act (TKG).

With regard to the issues to be dealt with, several major subareas can be isolated: regulation of the market entry (licensing), opening of the networks of the former monopolist, prevention of abuse of significant market power, provision of universal service, economical management of limited resources, e.g. radio frequencies, and administration of the numbering plan, as well as functions in the field of consumer protection. From the liberalisation perspective, at first, the market has to be opened to new providers.

The Telecommunications Act provides that, by means of non-discriminatory procedures, licences be granted for the public provision of mobile and fixed network voice telephony services or other public mobile services as well as for the public provision of leased lines (by means of self-operated networks) (see section III.1.2). It must be mentioned that specific services are only notifiable (e.g. in Austria the provision of Internet services, section III.1.1) or completely free anyway (e.g. in Austria the resale of telecommunications services). As a whole, the licensing procedures for fixed network licences are very reasonably priced and fast and do not make high demands on existing or planned infrastructure, which also has found favour with the EU. Although in the meantime a large number of licences have been awarded, it has to be stated that not all licences have taken up service already.

The award of licences for mobile telephone services takes quite a different course. As the frequencies required for the provision of mobile telephone services constitute scarce public resources, the number of possible licences is restricted from the very beginning. Therefore, it is necessary to award these frequencies to the companies which are likely to use the frequencies efficiently. TKG stipulates that an auction process be used for the allocation of frequencies (see section III.1.3.1). In the period under review the fourth GSM licence as well as a TETRA licence were awarded by means of auctions.

The second major area of functions is to provide the new market entrants with the conditions they require to be able to actually offer their services on the market. Here again, the fact must be taken into account that telecommunications is a network industry. Starting out from a de facto monopoly in the fixed network, it has to be ensured that the new providers can use the network parts of the former monopolist required for the provision of the planned services. As it is unlikely that the former monopolist will allow shared use of the required network components on a voluntary basis at reasonable conditions, this will be made possible only if ex ante obligations are imposed by means of asymmetrical regulation. In the European regulatory framework such obligations are related to positions of significant market power (SMP).

Since such obligations of operators with significant market power (and the associated rights of the new providers) have far-reaching implications, significant market power has to be determined in lengthy proceedings (see section III.2.1).

The proceedings carried out in Austria in 1998 and 1999 established that Telekom Austria has significant market power in the fixed network (voice telephony, leased lines), that Mobilkom and max.mobil have significant market power in the mobile markets and that Telekom Austria and Mobilkom additionally have significant market power in the interconnection market.

The major obligation of fixed network operators with significant market power is the obligation for Open Network Provision (ONP) at cost oriented tariffs. This includes interconnection of networks and other forms of network access, e.g. unbundled access to local loops. Interconnection of networks is a highly complex matter, comprising technological interconnection, the services to be enabled by interconnection as well as the charges for interconnection services. The European regulatory framework imposes an extensive interconnection obligation on operators with significant market power, the final formulation of which is left to national legislation. Of particular importance is the stipulation that interconnection services shall be offered according to the principle of cost orientation, with the "Forward Looking Long Run Average Incremental Costs" approach (FL-LRAIC) having turned out as the best suited cost model.

According to this approach, a new provider shall pay only for the services directly attributable to interconnection in addition to the costs for the provision of efficient service rather than for the fully distributed costs based on historic costs of the SMP operator (see section III.2.2.2.2).
Apart from the scope of interconnection services, calculation of the charges for the interconnection services is the main point in dispute in the proceedings before TKK. Already in spring 1998, TKK took a first landmark decision in which the interconnection charges were lowered to the European level. TKK adhered to this decision practice in all proceedings so that the interconnection charges in Austria are European average. In proceedings between UTA and Mobilkom TKK, however, fixed the termination charges in the Mobilkom network at the lower end of the European price band.

The decisions of TKK on interconnection have paved the way for market entry of new telecom providers, in particular so-called carrier network operators. At the end of 1998 and especially in spring 1999, the intensity of competition in the fixed network increased significantly, which became apparent in rapidly falling prices and a reduction of Telekom Austria's market share, with telecom sales growing in total. The strategy of TKK to quickly open up the markets by pursuing a liberal licensing policy and by fast decisions and to encourage competition by determining interconnection charges according to the FL-LRAIC worked perfectly well in the two years under review. The new competitors targeted in particular the markets for international and national long-distance calls.

With regard to local competition, the situation needs to be analysed in a somewhat different way. Local competition involves the connection of customers to the operators' own networks. Contrary to carrier network operators whose customers are connected to the Telekom Austria network, access network operators connect their customers to their own access networks. This can be done in different ways. The network operator might invest in his own infrastructure and establish an access network. Usually, this would lead to inefficient duplication of infrastructure and it is only used for major customers. It is also possible to adapt other already existing infrastructure for telecommunications purposes.

This applies mainly to cable TV networks which are gradually redesigned, at least in urban areas. Finally, Wireless Local Loop (WLL) technology and perhaps also the power supply network using powerline technology might be employed. In addition, a highly interesting variant is provided by unbundled access to the local loop. For this purpose a new telecom or Internet provider leases the copper pair connecting the subscriber's premises to the main distribution frame of Telekom Austria and carries his services over it. Pursuant to TKG, the SMP operator is obliged to use also FL-LRAIC as cost model. In autumn 1999 (see section III.2.2.3.2), TKK took a relevant decision in which the use of the local loop was not restricted. Accordingly, a new provider may also carry broadband services over the local loop. So far, the number of unbundled local loops is still small but a more widespread use of this option is seen to emerge with the further spreading of the Internet and the wish of the consumers for faster Internet access.

The area of safeguards against abuse of market power, i.e. regulation of competition (see section III.2), is equally wide. Here, too, the concept of market actor with significant market power (SMP operator) plays an important role. Mainly fixed network operators with significant market power are affected by a number of obligations. In this context, the obligation to provide cost oriented end-user tariffs shall be specifically stressed (see section III.2.3.3). It shall protect the end-user from monopolised power exercised by the SMP operator but also the competitors from practices restricting competition, preventing in particular predatory competition by means of predatory pricing by the SMP operator.

The same area of tasks also includes non-discrimination. SMP operators are obliged to act in a non-discriminatory way, i.e. they have to treat all market players equally. This obligation also covers services they provide for themselves or for affiliated companies under their control. If an SMP operator provides an intra-company service at a specific transfer price which should be cost oriented, he is also obliged to provide the same service to all competitors at the same conditions. For enforcement of these obligations it is required that SMP operators report regularly to the regulatory authorities which, in turn, have far-reaching rights of inspection.

To ensure that new operators have equal and future-proof access to the "bottleneck" resource of subscriber numbers, on the one hand, and to create clear and transparent rules also for consumers for the services and costs associated with calling specific numbers, on the other, in many countries the numbering plane is being restructured in the course of liberalisation. For this purpose the Numbering Ordinance was enacted in Austria on the basis of which TKC is to ensure efficient administration of the number range (see section III.3).

Universal service represents a special complex of problems (see section III.4). The European regulatory framework stipulates the provision of universal service, i.e. the provision of a minimum of telecommunications services for everybody in line with certain quality standards at affordable prices and without any geographical and social discrimination. As a rule, universal service shall be provided by the former monopolist. It is clear that this might place a financial burden on the former monopolist. The Regulatory authorities shall guarantee/ensure the provision of universal service but, on the other hand, shall compensate the organisation obliged to provide universal service for any additional financial burden.

Finally, review and, with SMP operators, approval of the general terms and conditions serve for the protection of consumers (see section III.2.3.3). In this respect, the most important step was the approval of the tariff scheme of Telekom Austria which has been in force since 01.09.1999. There the network access charge was raised to the level of costs of the local loop and the call charges were in part drastically reduced. Thus, it was possible to establish cost oriented tariffs and abolish market distortions. Another important function of Telekom-Control GmbH is the settlement of disputes between customers and providers of telecommunications services (see section III.5).