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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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
- 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.
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.
Lenz & Staehelin
Tel: +41 1 204 1212
Fax: +41 1 204 1200