TELEPHONE TARIFFS (Advisory opinion)
PRESS RELEASE
The Authority has submitted an advisory opinion to the Government with regards to the recent move aimed at reorganising the telephone tariffs which was subsequently reversed by the Government itself.
The Authority agrees completely on the need to proceed to a fast review of the telecommunications services tariffs, but it believes that this move must be made taking careful consideration of the effects that the new tariff structure will have on competition. In this view, the tariffs should neither impose unjustified charges on users of services in a monopoly regime; nor use revenues gained from such services in order to strengthen the position of the dominant firm in the services which are opened to competition; nor, in the final analysis, restrain the development of new hi-tech telecommunications services.
At the same time, the Authority feels that the Government has to proceed as quickly as possible with the liberalisation of existing alternative telecommunications infrastructures and the construction of new infrastructures; as well as, starting from January 1st 1997, with the deregulation of basic voice services. In fact, only the development of competition in the provision of telecommunications infrastructures and services can really accelerate the convergence between the tariffs and the costs for the infrastructure construction and management and the supply of voice services.
The Authority deems that the tariff reform submitted to Parliament by the Ministry of Post and Telecommunications Services on January 11th 1996 has been arranged without analytical information on the supply cost of the various services provided by the public carrier. From the data presented by Minister Gambino, it emerges that the proposed rate readjustment will greatly increase - in terms of percentage and expected revenues - the rates for local calls, over which Telecom Italia still has a monopoly, while it will reduce rates of international services and domestic long-distance calls, over which competition is being introduced. Indeed, the rate readjustment seems to be designed to allow the public carrier to redistribute its revenues (cross-subsidies), in a phase of deep structural market change which will follow the inevitable liberalisation. However, in presence of special and exclusive rights which continue to exist and of the consequent dominant position which is likely to persist, the rate reform has to consider the public interest of fostering competition.
The proposed move does not change substantially the current situation, with regards to the costs incurred by the public carrier's rivals, while reducing significantly the long-distance charges which are subject to the competitive pressure exerted by the liberalised services as such, in particular, data transmission and voice telephony for closed user groups. Furthermore, it is to be noted that the effect on the public carrier deriving from a significant tariff adjustment for the leased circuits would not be comparable to the one that could be produced by a long-distance tariff adjustment. The same local rates increases seem not to consider the notable cost reductions caused by the introduction of telephone numerical exchanges in the urban networks - which have raised the saturation threshold of the networks themselves - with subsequent negative effects on competition, since it hinders the development of new services.
In order to appraise the proposed move, the Authority notes that the development of effective competition in the services which are already liberalised such as data transmission and voice telephony for closed user groups, requires that circuits (over which Telecom Italia still has a legal monopoly) be leased at fair market prices. As the Authority has already ascertained in its fact-finding investigation into the data transmission sector, in Italy, the price for numerical leased circuits is higher up, to two times, compared to other European countries and, up to ten times, compared to the US. From the recent OECD data, it comes out that in Italy a phone call, both local and long-distance call, is considerably more expensive than in Germany, France, United Kingdom and the US. The following table makes a comparison between the current Italian rates, those proposed by the reform and the rates applied by the first British carrier, British Telecommunications Plc (BT).
| Italy before the move (2) | Italy after the move (2) | UK BT (3) | |
| Family monthly telephone rental (1) | 12,300 | 14,800 | 17,580 |
| Business monthly telephone rental (1) | 17,700 | 22,600 | 28,480 |
| Local call 60'' - peak time (4) | 127 | 127 | 84 |
| Local call 150'' - peak time (4) | 127 | 254 | 189 |
| Long-distance call 60'' - peak time/maximum distance (4) | 582 | 363 | 208 |
(1) In the Uk the telephone rental includes the issuing of a detailed bill. In Italy this service can be obtained upon payment of an additional fee of 500 Lira.
(2) All the rates are VAT (19%) excluded.
(3) All the rates are VAT (17%) excluded.
(4) Minute rate with rounding second.
Source: Telecom Italia and BT data elaboration. Exchange rate equal to 2,500 Lira/Pound sterling
The Authority points out that the monthly telephone rentals imposed by BT are higher than those imposed by Telecom Italia, while the local and long-distance call rates are significantly lower. However, it is to be noted that, in the case of BT home telephone rentals, it is possible to choose various alternatives by which users can obtain even substantial reductions of local and long-distance charges, with light increases of the monthly rental. Other tariff solutions on a lump sum basis, which allow hard reductions on the service costs, are offered to business users.