Switzerland

Author: | Published: 2 Feb 2000
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Adrian Dorig of Lenz & Staehelin, Zurich

With the entry into force of the Swiss Federal Telecommunications Law on January 1 1998, the system of a state-owned telecom enterprise providing telecoms services as a monopolist was replaced by a competitive market concept. The regulatory reform is largely in line with the relevant directives of the EU requiring the member states to establish fair and effective competition in their telecoms markets. Since the liberalization of the Swiss telecoms market more than 200 telecommunications service providers have been registered with the Federal Office for Communications (OFCOM). OFCOM is responsible for the implementation of the new legislation. The liberalization has resulted in a diverse range of telecoms services and falling prices. For fixed line voice services, the market entrants offer prices which undercut the 1997 prices of the former monopolist Swisscom on average by 40% to 60%. Competition among internet service providers is intensifying as well. Swisscom's competitors which were granted a Global Satellite Mobile GSM licence in April 1998 entered the market late (December 1998 and June 1999). The pressure from the two new providers on Swisscom led to price reductions and a wider range of services, but consumers can still expect more favourable prices and services from competition in the mobile sector, which continues to grow substantially.

Interconnection remains to be crucial for further market liberalization. In the past the Federal Communications Commission (ComCom), the regulatory authority which is independent of the federal government and the federal administration, showed its willingness to promote additional competition in the market by opening up the infrastructure of dominant telecommunications service providers (ie Swisscom) to competitors. The providing of services by mere resellers in the mobile market is not specifically addressed in the legislation but increasingly discussed by interested parties.

For the future, analysts expect continuing market growth in the mobile sector, a substantial displacement of voice communications from the fixed to the mobile networks and increasing use of the internet for private and business purposes. In spite of a considerable price decrease, this development has led to an aggregate annual turnover generated by the Swiss telecoms industry of $12.1 billion in 1998 (11.2% increase of 1997 figure). In 1999 the Swiss telecoms industry employed approximately 40,000 people, half of whom are employees of Swisscom. Market entrants still depend largely on resources from their foreign partners.

Fixed Line
Licensing and registration

Independent telecoms service providers, ie those who in technical or economic terms quantitatively or qualitatively operate essential parts of the transmission infrastructure (switching or transmission equipment), are subject to compulsory registration and licensing. On the other hand, the provision of telecoms services is merely subject to compulsory registration if the provider itself operates only a few or non-essential parts of the transmission infrastructure or uses a transmission infrastructure which is already covered by a licence. Roughly 40% of all telecoms service providers registered with OFCOM hold a license granted by OFCOM.

A party wishing to offer telecoms services in Switzerland is required to submit the official registration form available to OFCOM. OFCOM then examines whether the provider is subject to licensing or only registration. The provider subject to licensing is required to submit a licence application to OFCOM. OFCOM grants a licence usually within one to three months. An administrative fee based on the time spent at an hourly rate of $130 (CHF 200) is charged. For a transitional period until 2003, no licensing fees are charged.

Special licensing rules apply to the universal service (eg public voice services, access to emergency call services, adequate network of public call boxes). Until the end of 2002 the former monopolist Swisscom is required to adequately and equally provide the universal service at affordable prices nationwide. After this date the award of the license(s) for universal service will periodically be the subject of a public invitation to tender. The opening of the first public tender procedure is scheduled for the second half of 2001.

Interconnection

Swisscom presently controls lines to more than 3 million households. As a result of this monopoly in the local loop (in the future, potential last-mile competitors will be wireless local loop (WLL) licensees, cable TV operators and low-voltage power lines suppliers), market entrants that lack their own infrastructure are required to conclude an interconnection agreement with Swisscom. Close to 40 interconnection agreements are currently in force.

Based on the primacy of negotiations, the terms of the agreement must first be negotiated. If, after a three-month period, the negotiations are unsuccessful, the parties may appeal to ComCom which, on the basis of an OFCOM proposal, will resolve the dispute. Two procedures for interconnection price were resolved in early 1999 after such conciliation negotiations. They led to price reductions for all parties to an interconnection agreement with Swisscom. Until the end of 1999 interconnection prices were calculated according to actual historic full costs from operation accounting. From 2000, these prices will be based on the long-run incremental cost method of calculation which is also being applied in the majority of European countries. In November 1999 Swisscom announced that as a result of the new concept interconnection prices will be cut by 12%, putting Swisscom's prices 25% below the European average. The reduction will be the fifth since 1998. Nevertheless, the new interconnection prices are expected to be challenged by certain telecoms service providers demanding interconnection.

As interconnection is the main instrument allowing successful liberalization of the telecoms market, the unbundling of the last mile has been requested by the competitors of Swisscom early on. ComCom is asked to grant unbundling between services and networks within the infrastructure of Swisscom, allowing new operators direct access to the households of end users at prices based on the costs incurred by Swisscom. ComCom, in a provisional measure of June 30 1999, approved in principle the unbundled access of alternative operators to the last mile of Swisscom's lines. A final decision of ComCom is still outstanding.

Addressing resources

From 2000 telephone number portability between the telecoms service providers will allow end users to keep their number when they change their service provider. Uniform nine-digit numbers are scheduled to be introduced throughout Switzerland on March 29 2002.

Mobile
Licensing

When frequencies are to be used to provide telecoms services, a public invitation to tender is organized if insufficient frequencies are available for all interested parties. The mobile licence is granted by ComCom based on either specified criteria or an auction.

GSM

Three companies holding GSM (900/1,800 MHz) licences are competing in the Swiss mobile market. Swisscom was granted a licence by virtue of the Telecommunications Law until the end of 2007. The two additional GSM licences were awarded in a beauty contest to diAx and Orange Communications.

Swisscom, which is 65.5% owned by the federal government, is the strongest and most successful competitor in the mobile industry. With more than 2.1 million customers, a 98% coverage of the population in Switzerland and roaming agreements in place in more than 100 foreign countries the mobile sector is currently the most dynamic and by far the most profitable business of Swisscom (close to 50% of net turnover in first quarter of 1999). With the acquisition of a majority stake in the German telecoms services provider debitel in summer 1999 Swisscom, making its largest investment in another company ever, refocused its "heart of Europe" strategy by doubling its customer base in Europe to around 7 million.

diAx is a joint-venture between Switzerland's largest electricity companies, the Swiss insurance companies SwissRe and Winterthur Life (60% interest) and SBC Communications, one of the major telecom companies in the US (40% interest). The diAx mobile network is supplying more than 360,000 customers and offers roaming in over 58 different foreign countries. Due to delays in obtaining construction permits for the new base stations from the local authorities, diAx was not able to meet the coverage requirement as set forth in its licence. OFCOM's respective investigation is expected to be completed in December with the submission of a proposal to ComCom. diAx anticipates to have a coverage of more than 90% of the population in Switzerland at the end of 1999.

Orange Communications is also a joint-venture: Orange plc and Viag own 42.5% each. The remaining shares are held by the Cantonal Bank of Vaud (10%) and Swissphone Engineering (5%). With the take-over of Orange plc by the German mobile enterprise Mannesmann one of the two major shareholders in Orange Communications is expected to sell its interest as Mannesmann and Viag are competitors in Germany. Three months after the market entry, Orange's number of customers increased to more than 160,000. Its international roaming includes 45 countries. From day one, Orange offered 90% coverage of the population in Switzerland. At launch on June 29 1999 Orange's own network covered only approximately 50% of the population. The national roaming agreement with Swisscom (which had also been offered to diAx) allows Orange to reach 90% of the population. ComCom approved of the collaboration between the two mobile operators. It held that national roaming is merely a temporary solution and confirmed that three independent mobile networks must be set up. By the end of 1999, Orange expects to cover 75% of the population with its own infrastructure reducing the size of national roaming accordingly.

UMTS

ComCom has decided to grant four licences through auctions for the third generation Universal Mobile Telecommunications System (UMTS; 1,900-2,025 MHz/2,110-2,200 MHz) designed to reinforce competition in the mobile sector and afford at the same time new services (eg multimedia services) to end users. The opening of the licensing procedure is scheduled for the first half of 2000. Commercial launch is — in accordance with the plans of the EU — scheduled for January 1 2002.

WLL

The development of the wireless local loop (3.4 GHz and 26 GHz) as an alternative to a fixed line telephone connection is supposed to increase competition on the last mile. The public invitation to tender regarding 48 WLL licences (three national and 45 regional licences) was taken up by 21 interested parties. The WLL licences will be awarded for a 10-year period to the highest bidder applying the English auction procedure. The auction will take place on the internet starting on February 9 2000. The start of the commercial operation is expected for the second quarter of 2000.

Radiation hazards

Resistance to the installation of new mobile base stations by many communities is the main reason why the market entries of diAx and Orange were delayed. Aside from esthetical concerns the residents at the particular locations fear radiation emanating from the antennas. Switzerland already recommends the application of the 1998 exposure limits of the World Health Organization/International Commission of Non-ionizing Radiation Protection (WHO/ICNIRP). The federal administration is currently preparing a regulation in which these limits will be implemented. In addition, the competent federal agency is contemplating to integrate into the new regulation limits applicable to new installations located in the vicinity of sensitive areas, which are 10 times more restrictive than the value of the WHO/ICNIRP limits. This proposal has led to strong objections from the three mobile carriers which fear substantial additional costs. Together with Nokia and Ericsson they have recently launched a round table on mobile communications inviting all relevant interest groups. The increased awareness of radiation hazards has led to an obligation for the new holders of WLL and UMTS licences to make joint use of installations and transmitters.

Cable/TV
Convergence

Convergence describes the merging of broadcasting, telecoms and the IT sector (internet). OFCOM is already experiencing convergence in that this same administrative authority handles telecoms and electronic media in Switzerland. However, broadcasting (radio and television) is still dealt with separately from the Telecommunications Law in the Federal Radio and Television Law. It is increasingly argued that the two statutes which are distinguished by vague legal definitions would be better replaced by one regulatory regime.

Cable network

Approximately 270 cable network enterprises operate 1,900 cable networks for more than 2.5 million households in Switzerland. Cablecom Holding, by far the largest supplier servicing 1.25 million customers resulting in a market share of close to 52%, is to be sold in an auction process by the end of 1999. Present shareholders of Cablecom are Swisscom, Siemens Schweiz and VEBA Telecom with an interest of 32% each and Cablecom Holding (4% own shares). Cablecom is investing strongly in the digitization of its network to allow for the provision of multimedia services.

In June 1999 the Swiss Federal Competition Commission rendered an injunction against Cablecom ordering Cablecom to:

  • provide access to its facilities to a Swiss pay-TV company in order to allow such company to switch from analogue to digital technology; and
  • to refrain from interfering with the carrying of the signal of the pay-TV company.

The Competition Commission regarded the disputed behaviour of Cablecom as an abuse of a dominant market position because the technological development was hindered to the detriment of the customers. This decision was overturned by the Appeals Commission for Competition Matters. However, the pending antitrust investigation against Cablecom is not affected by this decision. Further, the competent federal department ruled in November 1999 that the pay-TV company is not allowed to employ the d-box as receiving device for digital TV programs in Switzerland. The d-box is based on simulcrypt technology. According to the ruling, a set top box is admissible in Switzerland only if it provides for a common interface and uses the encryption and decryption system multicrypt. The ruling is in contradiction to EU Directive on the Use of Standards for the Transmission of Television Signals of October 24 1995 which accepts both simulcrypt and multicrypt as equivalent standards. An appeal challenging the ruling is pending.

Pending Legislation

Various implementing regulations to the Telecommunications Law are currently being revised. The scheduled effective date of these revisions is April 1 2000. The changes generally supplement and specify the legislation in the light of recent experiences. The revised Federal Regulation on Telecommunications Services will make the procedure for the resolution of interconnection disputes more flexible and broaden the scope of universal service. The Federal Regulation on Telecommunications Equipment will be adjusted in accordance with the European Union's Directive on Radio Equipment and Telecommunications Terminal Equipment and the Mutual Recognition of their Conformity of March 9 1999.

Further, the following legislation projects are pending:

  • The new Federal Regulation on Protection from Non-ionizing Radiation (see above) is expected to enter into force on January 1 2000.
  • OFCOM is currently carrying out preparatory work on a revision of the Radio and Television Law which will give particular emphasis to convergence and digitization. The revision is expected to take three to four years.
  • Under OFCOM's leadership a regulation to be passed by the Federal Council on Swiss public key infrastructure is envisaged to enter into force on January 1 2000. The regulation allows certification service providers to be recognized if they fulfil certain essential requirements. The aim of the regulation is to increase confidence and encourage the use of the digital signature whenever civil law does not require the written form.

    Contact Details:

    Lenz & Staehelin

    58 Bleicherweg

    Zurich CH-8027

    Switzerland

    Tel: +41 1 204 1212

    Fax: +41 1 204 1200