Resolution of price squeeze facilitates greater competition

Yesterday afternoon OPTA adopted measures in order to resolve the price squeeze. This will facilitate greater competition.

A price squeeze occurs when a telecommunications company finds itself squeezed between the tariffs which KPN charges it for using its network and the end-user tariffs for which it bills its own customers. Many market parties are finding themselves in the grip of such a price squeeze. Since the margin between their end-user charges and KPN’s interconnection tariffs is inadequate, it is almost impossible for other telecommunications companies to compete.

Measures

OPTA has adopted the following measures:

1. OPTA has lowered the interconnection tariffs. This will give telecommunications service providers added impetus to offer consumers and business users innovative, competitive services. Because of the anticipated reduction of KPN’s business tariffs, Internet service providers will need to amend their business plans to accommodate the new situation. They are encouraged to switch to a special access model. This will give rise to alternatives which will ultimately produce keenly priced Internet packages.
2. In addition to the reduction of interconnection tariffs, OPTA has asked KPN to adjust its end-user charges. Consequently, the originating charge for calls within a region will be reduced on 15 August 2001, while actual call charges will increase somewhat. The immediate result of this reduction of call originating charges will be that short calls within a region will become cheaper, while lengthy calls, such as those for the purposes of accessing the Internet, will become more expensive. The average consumer will not be advantaged or disadvantaged by this. The adjustment of these tariffs will create more scope for providers to compete with each other within a region, whereas in the past price squeeze constituted an obstacle to potential competition with KPN.