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July 8, 2002
VIENNA and LONDON -- Heinz Sundt, CEO of Telekom Austria AG, (VSE: TKA, NYSE: TKA) said today that the failure of current regulation to encourage innovation and investment in broadband infrastructure is a barrier to economic progress in the member states and to the EU's objective of becoming the world's most competitive economy by 2010, as stated at Lisbon in 2001. He asserted that in its current review of telecoms regulation the EU must take the opportunity to lift the barrier to investment and to close the gap on the USA which invested 1% of its GDP in new media between 1995-2000 compared to Europe's 0.5%. Sundt is supported in his views by consultancy Ernst & Young and the Austrian Institute of Economic Research. "President Bush has recently committed US53bn to communications technology, one of the States' biggest ever investments in IT. If the EU doesn't encourage broadband investment, we will trail behind America's infrastructure development. The result will be that Europe will become a less attractive place for foreign investment," he said. "Europe needs harmonized regulation set up with the clear objective of catalysing broadband infrastructure innovation and investment, both in the fixed and wireless sectors. "This will lead to better and cheaper services for businesses and consumers, will improve the competitiveness of national economies and the entire EU region, and will encourage foreign investment. "To achieve this the EU's strategy should be to regulate those markets where competition does not exist and phase-out regulation where competition works well." Specifically Sundt believes that regulation governing interconnection charges -- FL-LRAIC pricing rule (Forward Looking Long Run Average Incremental Costs) -- in Austria and some other EU countries is stifling infrastructure investment. "The requirement for incumbents to set interconnection charges by bottom up cost-based price rules enables new competitors to offer the same services without having to make their own investments and with considerably less risk," he said. "This means there are no incentives to innovate or to invest in infrastructure. And this pricing model is fundamentally problematic as it leaves wide room for interpretation and is not based on actual costs." On 18 June the EU published draft guidelines to help national telecoms watchdogs define which markets within the telecoms sector need further regulation. The guidelines are currently under consultation with the industry and will be finalized around September 2002. A study by the Austrian Institute of Economic Research, WIFO, (http://www.wifo.ac.at), April 2002, agrees that additional regulation would inhibit innovation. Dr. Hannes Leo, author of the study, warns that the positive effect of regulation, which succeeded in opening up the telecoms market, has now run dry. Dr Leo said: "European liberalization strategy has so far favoured the rise of competition at the price of infrastructure investment. Europe must now revise its regulatorary approach to enable it to at least reach the levels of investment in the US."
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