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Telekom faces e-probe
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February 19, 1999: 9:16 a.m. ET
AOL lodges EU complaint against German giant over Internet costs
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LONDON (CNNfn) - European competition chief Karel Van Miert has launched an investigation into allegations that Deutsche Telekom has crowded out rival Internet providers with its high call charges and marketing clout.
AOL Europe, a joint venture between America Online (AOL) and Germany's Bertelsmann (FBTG), lodged a complaint against the privatized German telecom giant last week. Competion lawyers believe the case could provide a crucial test of the Commission's ability to influence Internet charges in the EU, which remain up to five times higher than in the U.S.
Deutsche Telekom (FDTE) dominates its domestic Internet market which, with six million users, is the largest in Europe. Its own Internet unit T-Online has a 56 percent share of the German market and Telekom also leases lines to competitors and levies charges for Internet access to rivals' customers.
AOL charges that Telekom is unfairly supporting T-Online with lower phone access charges and therefore inflates rates it charges competitors.
"What the dominant telephone companies are doing is unacceptable both at a political level and a competition level," said AOL Europe president and chief executive officer in an interview with the Wall Street Journal.
While Van Miert's team has successfully cracked down on overcharging for fixed-line operations by pushing ahead with the liberalization of the European telecom sector, it faces two major challenges in using AOL Europe's allegations.
The charge that Deutsche Telekom's line rental prices are inflated comes just weeks after the German cartel office set the rates the company can charge competitors for local network connections. Though Telekom slashed its rates in the wake of the ruling, competitors remain incensed at what they view as continuing overcharging.
Deutsche Telekom refuted the allegations and pointed out that the cartel office prevents it from charging rivals more than prices levied by T-Online.
Diffusing the impact of Telekom's marketing clout is also tricky. Previous attempts to open up its customer databases have led to complaints from smaller competitors that they had to provide reciprocal access.
Commission officials said the investigation was at an early stage but confirmed there was concern about the dominance of national telecom operators in their own national Internet markets.
The Commission has yet to make any competition rulings in the Internet sector but is currently drafting a regulation to govern business transacted on the Net.
U.K. telecom regulators last week announced a review of its pricing framework which could spell the end of free access providers. Though users still have to pay for calls, the absence of user fees has led to a boom in U.K. Internet usage.
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