Dialectical Functionalism and European Community Telecommunications Policy. An Honors Thesis (HONRS 499) Michael Karpowicz

Transcription

1 Diaectica Functionaism and European Community Teecommunications Poicy An Honors Thesis (HONRS 499) by Michae Karpowicz ' I Thesis Advisor Dr. E. Gene Frankand ~~~~ Ba State University Muncie, Indiana Juy 1995 Graduation: Juy 1995

2 24 j 9.'):7. k,e 7 Abstract The renewa of interest in the European Community in the ast ten years has sparked a new round of poitica theorizing to expain European unification. Neofunctionaism, an eary and infuentia regiona integration theory which was discredited during the 1970s is coming back in modified form. One of these new theories which buids on neofunctionaism is diaectica functionaism" This paper reviews the tenets of neofunctionaism, as we as its shortcomings, then presents diaectica functionaism in reation to neofunctionaism. Next, a case study on the deveopment of European Community teecommunications poicy is presented, then the paper concudes with an appication of diaectica functionaism to EC teecommunications poicy. 1 This paper is dedicated to the memory of Dr. Vibeke Smensen, Professor of Internationa Organizations at the Rijksuniversiteit Groningen in the Netherands, whose guidance was invauabe in the competion of this paper. Her untimey death in January 1995 robbed the word of an outstanding schoar and person.

3 After more than a decade of stagnation, the European Community came back to ife in the mid-1980s. Previousy, this great experiment in poitica and economic integration had, with the end of its eary supranationa successes, come to be considered yet another intergovernmenta bargaining body on the order of the Organization for Economic Cooperation and Deveopment (OECD) or the Genera Agreement on Tariffs and Trade (GAIT). Poitica scientists, who had devoted a great dea of effort to examining and expaining the eary steps in European integration, reaized with the backsiding of the 1970s that their modes were fawed, and argey turned their attention esewhere. With its revitaization in the 1980s, the EC once again attracted the notice of poitica scientists, who dusted off the od theories in an attempt to expain the new round of integration. In recent years, journas devoted to internationa reations and European poitics have bristed with artices trying to ' I resuscitate the od theories and proposing new permutations to expain the seemingy iogica progress of European integration. The search for a new integration theory has at its foundation the confict between the two basic modes of the past: neofunctionaism, whose emphasis on supranationa power and increasing integration formed the predominant theory during the EC's successfu beginnings in the 196Os; and intergovernmentaism, which cast the EC as itte more than a negotiating forum for the governments of the member states - a rather accurate description of the years of "Euroscerosis" in the 1970s and eary 1980s. Though recent deveopments in EC poitics and poicymaking have discredited these two basic theories in their origina forms, students of the "new" European Community have seected eements from and added new considerations to these modes in order to construct new theories of European integration. Dorette Corbey (1995) has proposed one of the new modes, which she cas "diaectica functionaism," a theory 1 based on neofunctionaism, but with a different anaysis of the interactions of major actors to account for the stop-and-go nature of integration over the ast four decades.

4 2 '!' Diaectica functionaism wi be the framework for anaysis in this paper. The 1980s have seen a great expansion in the scope of European Community competence. For its first two decades the EC concerned itsef mosty with the negative integrative steps towards competing the customs union, a few substantive programs ike the Common Agricuture Poicy (CAP), and its attempts to increase or at east maintain its roe on the European poitica stage. By the mid-1980s, most member countries were wiing to accept that European soutions were needed for the probems faced by their economies in an increasingy gobaized marketpace. The 1985 White Paper on the Competion of the Interna Market and the subsequent Singe European Act (SEA) represented the emergence of a eading roe for the EC in restructuring the European economy to finay achieve the goas of the Treaty of Rome. Whie the EC had aways primariy been concerned with the European economy, the SEA pushed it much farther in the direction of economic union than coud have been envisioned ony a few years before. The White Paper proposed approximatey three hundred measures that woud be necessary to compete the interna market (Pinder, 1993: 53), and when the basic pan was codified in the SEA, the EC found itsef in a position to exert a great dea more infuence over economic poicy. One previousy untouched area to which the EC began to turn its attention was teecommunications. EC interest in teecommunications began to deveop in the eary 1980s -- actuaijy predating the 1985 White Paper -- after the divestment of AT&T in the United States and the iberaization of the teecommunications market in the United Kingdom. However these eary steps amounted to itte more than research on the state of the European teecommunications market. It was in 1987, concurrent with the adoption of the SEA, that the European Commission reeased its Green Paper on the Common Market for Teecommunications Services and Equipment, which set the framework for the EC's subsequent dramatic reforms of the European teecommunications market. Liberaization of teecommunications at tht~ hands of the

5 3...,..., EC is seen as an integra part of competing the interna market, but the achievement of the Commission's goas has not been without probems. Numerous actors have deveoped a keen interest in the sector, and there has been disagreement on the pace and necessity of change. This paper wi provide a detaied background of the deveopment of European Community teecommunications poicy and wi determine whether the assumption of this new responsibiity by the EC supports Corbey's mode of diaectica functionaism. After an outine of neofunctionaist theory and its shortcomings, the tenets of diaectica functionaism wi be expained, foowed by an examination of the history of the EC's invovement in the teecommunications fied, and finay the appication of diaectica functionaism to the European teecommunications experience. Neofunctionaism The experiences of the 1950s and the first haf of the 1960s with the European Coa and Stee Community (ECSC), and ater EURATOM and the European Economic Community (EEC) seemed to vaidate neofunctionaism, which became the prevaiing integration theory in those years. Its most important feature was the concept of spiover, whereby integrative steps at the supranationa eve woud create pressures for the integration of other reated poicy areas. This pressure was created when nationa interest groups, recognizing the superiority of transferring poicy competence to the supranationa eve, woud pressure the nationa governments to reinquish their sovereignty in those areas. The whoe process was fostered by supranationa eadership, embodied in the European Commission. Through such spiover, power and eite oyaty were increasingy transferred to the supranationa body in a zero-sum game. Significanty, neofunctionaism did not predict a specific end-state for Europe, but rather viewed integration as a process (Lodge, 1993: xx-xxi).

6 4 A major reason for the eary acceptance of neofunctionaism was its concern with the economic aspects of integration. The architects of the ECSC and the Treaty of Rome had envisioned economic integration as the means to the end of poitica integration. In the years foowing Word War II, many European eaders sought to tie West Germany and France together economicay so that a cose partnership woud deveop which woud precude future miitary aggression. The creation of the ECSC in the eary 1950s was the first step in this direction, creating a common market for stee and coa products -- industries which aso had a high poitica saience in the member states. Consistent with the spiover concept, the success of the supranationaization of the coa and stee markets showed business eites as we as domestic poitica eites the potentia advantages of integration in other areas. The creation of EURATOM and the EEC by the Treaty of Rome in 1957 institutionaized these spiover pressures and extended integration into nucear energy and the creation of a customs union, respectivey. According to neofunctionaism, these new organizations represented the recognition that economic efficiency woud be increased by coordinating actions and poicies above the nationa eve. So whie economics drove the integration process, there were inevitabe poitica externaities to this coective action. The surprising speed with which integration began to occur in the eary 1960s seemed to support neofunctionaism, but its theoretica tidiness was not a concern of Chares de Gaue, who fet that integration was going too far too fast. The 1965 crisis which de Gaue precipitated, foowed by the Luxembourg Compromise, substantiay changed the course of the EC' s deveopment and was an event which simpy had no pace within the construct of neofunctionaism. There was no room in the mode for regression, and the concerns of domestic governments about retaining sovereignty were much stronger than neofunctionaists had expected. According to neofunc:tionaism, the united forces of the Commission and the mobiized nationa interest groups shoud have overpowered the nationa governments, but in truth the poitica spiover pressures

7 5 "I' which came with the economic integration caused a backash on the nationa eve, and the fact that a singe nationa eader coud not ony hat but reverse the integration process proved fata to neofunctionaism. Athough Ernst Haas, the man credited with aunching neofunctionaism in the 1950s, had by 1975 recanted the theory as an inaccurate representation of European integration, neofunctionaism I s centra tenets have continued to inform anaysis of integration to the present day, and indeed some authors (George, 1991; Mutimer, 1989) have attempted to revive the theory in ight of the recent renewa of integration in the EC. However, even these supporters recognize the faws of neofunctionaism in its origina conception, and have proposed a variety of changes and extensions. The universa criticism of neofunctionaism is its negect of the roe of domestic governments. Neofunctionaism ignores the truism that no person or organization gives up power vountariy: the theory of spiover posits that under pressure from interest groups and the supranationa body, nationa governments reaize the benefits of ceding their power, and do so vountariy. The assumption is that efficiency is the utimate goa of a three actors, but it ignores the fact that efficiency may become ony a secondary goa if a nationa government fees its authority to decide the most efficient course of action is being chaenged. In any system where the member states retain the power, even if outside accepted channes, to uniateray bock the functioning of the supranationa body, nationa governments must be incuded as part of the equation of integration. Another criticism of neofunctionaism is that it assumes the process of integration occurs in a vacuum; the infuence of countries outside the integrating unit as we as the condition of the word economy is disregarded. George (1991) and Corbey (1995) both cast internationa factors as cataysts for both EC and member state actions. For exampe, the breakdown of the Bretton Woods system caused member nations to seek currency stabiity in the European Monetary System (EMS). Had the United

8 6 "'T' States not dismanted Bretton Woods, there woud have been itte impetus for the European nations to try to coordinate monetary poicy at the European eve. Simiary, the reative decine of Europe within a rapidy changing goba economic environment during the 1980s made the ambitious measures of the SEA appear necessary to the member governments. On the other hand, externa factors can aso impede integration. The powerfu infuence of the United States over Western Europe during the Cod War payed a arge part in convincing de Gaue to break with the North Atantic Treaty Organization (NATO) and sta European integration in order to maintain an independent position for France in word affairs. Thus, whie externa factors do not directy affect the process of integration, they do provide a stimuus for member governments, the Commission, and interest groups to tum their attention toward particuar issues and probems. A fina shortcoming of neofunctionaism identified by George (1991) and reated to the preceding point is that it is predicated on steady economic expansion within the member countries. As ong as economic fortunes continue to be favorabe, individua states wi be more wiing to experiment with the transfer of economic poicy power to the supranationa eve. In times of economic downturn, however, states tend to become more protectionist in order to sheter their own economies; in such times, nationa governments want to have as many options as possibe, so the transfer of power in a specific area to the supranationa body becomes anathema. The first two decades of the EC iustrate this probem quite we. The 1960s was a decade of growth for the Western European economies, which by then had argey recovered from Word War II. Those years aso coincided with the rapid deveopment of power in Brusses, and the EC's reversa of fortune in the ate 1960s was due to poitica, not economic considerations. The 1970s were, in contrast, a time of economic stagnation and were the time of acute Euroscerosis, when the EC was disregarded as member states pursued nationa soutions to their economic probems. The 1970s taught the

9 7,...,..., industriaized nations that sustained economic growth coud not be taken for granted, and thus one of the basic assumptions of neofunctionaism was erroneous. The intergovernmentaist schoars who dispaced the neofunctionaists In the 1970s based their mode of the Ee on the paramount importance of the member governments, assigning a secondary roe to nationa interest groups, and generay disregarding supranationa eadership. Like neofunctionaism in the 1960s, intergovernmenta ism accuratey expained the situation at the time, but ike neofunctionai sm, intergovernmentaism in its origina form became obsoete as the dynamics of European integration changed once again. This theoretica casting about highights a troubing methodoogica probem the Ee presents. The Ee as a supranationa organization with sovereign powers is unique. Poitica theorists, especiay those in the 1960s, had to base their theorizing on an organization barey a ' I decade od and without any equivaent. Deriving a parsimonious, generaizabe theory from the observation of one subject is risky business in any science, yet that is exacty what integration theorists have had to do. Now, as the Treaty of Rome approaches its fortieth birthday, comparative study is sti impossibe, but a chronoogica approach is becoming feasibe. Fostered both by the new iveihood of the Ee and by the benefit of increased hindsight, European integration is once again fertie ground for theorizing. Diaectica Functionasim Among the numerous new theories of European integration is a mode proposed by Dorette Corbey in the Spring 1995 issue of Internationa Organization, caed "diaectica functionaism." Expicity based on neofunctionaism, this new theory attempts to correct the faws of neofunctionaism, whie adding a onger time horizon to the spiover concept, aowing room for action (integration) and reaction (stagnation), hence the term "diaectica." As such, it constitutes a refinement of neofunctionaism made possibe by the Ee's advancing age. The diaectica process, as history shows,

10 8.'T' can take many years, and thus coud not be detected by researchers in the 196Os. Therefore, neofunctionaism was not wrong, according to diaectica functionaism, just naive, based on incompete information. The major differences from neofunctionaism are the foowing Diaectica functionaism rejects neofunctionaism I s widey criticized negect of the nationa governments in the integration process. Instead, it posits a significant roe for a three major actors -- supranationa institutions, nationa interest groups, and nationa governments -- and a new dynamic of interaction between them. In diaectica functionaism, the spiover process is not continuous, as In neofunctionaism. Each step of integration provokes a reaction in the nationa governments against the supranationa body, resuting in stagnation. In contrast to the neofunctionaist view, the cumuative transfer of sovereignty to 1 the supranationa entity does not make the nation-state obsoete, but rather increases its roe in mediating between competing interest groups. Corbey summarizes the diaectica process in six steps -- three reating to nationa government action: 1. Integration in one poicy area eads member states to safeguard adjacent poicy areas against EU impact and to protect forma nationa autonomy. 2. In adjacent areas, government intervention and, in time, poic:y competition Increase. 3. When state intervention (or poicy rivary) in these neighboring areas becomes counterproductive, poicy preferences converge and further integration is demanded by the member states, or they agree to integration suppied by the European Commission, or both. (p. 265) And three detaiing the roe of interest groups: 4. Interest groups finding their position impaired by integration direct their demands toward the European eve; since the same interests are affected in a member states, transnationa coaitions come about. 5. Integration stirs domestic power reations: interest groups that are or that become active in adjacent areas can improve their position. They direct

11 9 their demands at the nationa government. Where these groups defend opposing interests, nationa bargaining comes into pay. 6. The renewed participation of groups in adjacent areas wi resut in disturbing governments, as such participation eads to stagnation in the new poicy sectors. To promote change, governments turn toward the EU. (p. 268) An iustration from internationa trade demonstrates the reaction of governments to integration. When the GATT began to exert its power by mutiateray owering tariffs, nationa governments were deprived of a poicy instrument. So that they coud sti contro their foreign trade fows, even whie agreeing ideoogicay with the GAIT tariff reductions, many countries deveoped a variety of non-tariff barriers, which were not covered by the GAIT agreement. In such a situation, the gains from free trade are quicky nuified by uniatera action. According to diaectica functionaism, each country wi buid up a simiar non-tariff fortification so that no country wi utimatey gain from its own protectionist measures. At this point, states wi appea to the GAIT organization to make new rues eiminating non-tariff barriers, marking the return of supranationa integration. Yet, once again, individua countries have ost another poicy instrument, so the process begins again. This is the essence of diaectica functionaism, and this focus on the process of integration without determining an end-state is a characteristic it shares with neofunctionaism. Spiover does indeed occur in this exampe; however, it is not a steady, continuous process as neofunctionaism woud suggest. There is a ong period of stagnation before the next integrative step is taken. Furthermore, this exampe iustrates that the roe of the nationa governments does not diminish, since major poicy decisions continue to be made at the nationa eve in order to maximize movement within an increasingy restrictive set of mutiatera rues. Unike neofunctionaism, diaectica functionaism attaches importance to internationa factors. However, the roe of the goba environment is merey cataytic; it does not affect the process of integration. That is, changes in the goba environment

12 10 "I can, and often do highight the inefficiencies of foowing nationa strategies, and thus spur nationa governments or interest groups to ca for integration. So internationa factors can determine when, but not how integration wi occur. The roe of the supranationa actor in diaectica functionaism is more nuanced than in neofunctionaism. Whie in neofunctionaism the supranationa body takes a proactive approach to increasing its power by courting interest groups and being an initiator of the integration process, diaectica functionaism sees its roe as more of a forum for consensus-buiding. It makes its proposas based on a knowedge of the needs and wants of the other actors and aways remains prepared to take the reins of power when a stagnation period suddeny comes to an end and the ca for integration comes forth once again. Taken as a whoe, diaectica functionaism represents a new dynamic in actor interaction, offering an aternative to what is generay considered the weakest part of neofunctionaism. The nationa governments, interest groups, and supranationa organizations a pay an important roe in the process of integration. Diaectica functionaism aso embraces the concept of spiover, though the integration/stagnation diaectic impedes the smooth progress of integration. Finay, since the nation-state maintains an important pace within the system, the transfer of sovereignty to a supranationa body is not a zero-sum game, as it is in neofunctionaism. The next section wi discuss the deveopment of the Ee's teecommunications poicy from a historica perspective, after which diaectica functionaism wi be appied to the experience of teecom dereguation. The Deveopment of a European Teecommunications Poicy From the time of the invention of the teegraph and the teephone, the operation of teecommunications systems was considered a pubic utiity. Monopoy powers were given to state agencies or reguated companies for the provision of a aspects of

13 11 teecommunications services. The rationae was twofod: first, economic thought determined that the teecommunications infrastructure was a natura monopoy, so freemarket competition woud reduce efficiency and raise costs. Second, reguated monopoies aowed governments to provide the socia and poitica goa of universa service at affordabe prices. However, reguation was necessary, because it was recognized that Ita monopoy suppier wi have few incentives to minimise costs, to adapt rapidy to new technoogies or to set prices in such a way as to combine economic efficiency and socia equity" (Ergas, 1987). To counteract this tendency, reguatory bodies attempted to provide incentives for efficient operation of the infrastructure, to prevent the abuse of monopoy power, to imit poitica interference, and to aow the fexibiity to adapt to changes in the market. However, evidence suggests that reguation of monopoies had great difficuty in achieving these goas (Ergas, 1987). At the end of the 1970s, this mounting evidence prompted governments to reassess the roe of government contro of certain sectors of the economy. After the economic maaise of the previous decade, governments saw in privatization and dereguation the opportunity to raise the efficiency of their economies, enhance their goba competitiveness, reduce the size of the pubic sector, and thus provide budgetary reief (Stevens, 1992). In the teecommunications sector, the United States, Japan, and Great Britain instituted reforms in the eary 1980s which broke the historica monopoies of the institutions which had controed the communications infrastructures within their countries. These measures were enacted in recognition of the rapid growth of the teecommunications sector, whose revenues in 1991 were expanding at 10-15% per year (Moore, 1992); the importance to the nationa economies of deveoping a modem infrastructure; and the competitive advantages conferred on firms with access to advanced services, which the teecoms were sow to introduce (Sandhotz, 1993).

14 12 Recognizing the possibiity that Europe coud easiy be eft behind in the teecommunications race, the Commission of the EC began to take notice. A report pubished in 1983 on the state of teecommunications within the Community found its performance, especiay in open markets, to be reativey poor (Locksey, 1983). However, the European teecommunications market was inherenty different from those of the United States or Japan. Within the Community, there were tweve autonomous nationa systems which were technicay incompatibe, offered differing services and equipment, and had varying tariff structures. This was because in each member state (with the exception of Great Britain) a aspects of nationa teecommunications were sti controed by the entrenched teecoms. This meant that teecoms operated in cosed markets, where they were the excusive sources of termina equipment (any appiance, such as a teephone or facsimie machine, which is connected to the network) and purchased a their equipment from one or two nationa suppiers (Sandhotz, 1993). After the 1987 adoption of the SEA, the Commission began to take concrete action to break down the od system and introduce competition and compatibiity into the wider European market. This action was stimuated not ony by the necessity of a iberaized teecommunications structure for the proper functioning of the interna market, but aso by the benefits which were aready to be seen from the recent dereguation in the US, Japan and Britain, as we as the infuence of neocassica economics, which advocated a return to free-market principes (Knieps, 1989). The reative backwardness of the European market was iustrated by some striking statistics: - The per capita investment in teecommunications in the Community was ony 40% of that in the US. - Ony haf as many teephones were in use in European businesses as in US businesses.

15 13 T - In the eary 1980s, teecommunications equipment in Europe was 80%-100% more expensive than in the US (Ameida, 1987). Further impetus came from two major interest groups within the Community. The first were the major producers of teecoms equipment. Though they had been treated to assured markets under the od pubic procurement regimes, they were becoming increasingy aware that they needed access to Community-wide markets in order to remain gobay competitive, and thus desired a standardization of technica specifications. The second group was the users and providers of advanced teecommunications services. As a resut of dereguation in the US and Japan, companies there were now abe to make use of highy customized teecommunications systems, incuding cutting-edge technoogica deveopments, which put them at a distinct competitive advantage over European companies (Sandhotz, 1993). In 1987, as a resut of these pressures, the Commission issued its miestone "Green Paper on the Deveopment of the Common Market for Teecom Services and Equipment. " This document was to serve as the bueprint for the Commission r s teecom iberaization strategy. The Commission stated the overa goas of the Green Paper as foows: The aim of the Green Paper is to bring about a more coherent framework in the ongoing reguatory change to encourage the deveopment of new services in a more competitive framework, and to estabish (and utiize poiticay, for exampe in internationa trade negotiations) a wider European Market for teecommunications services. (Mueer, 1988) The major recommendations were sweepmg: the tota dereguation of the markets for termina equipment and II enhanced teecommunications services, II the iberaization of pubic procurement practices by the nationa teecoms, and a mutiatera effort towards technica standardization within the Community. Monopoies were to be kept, however, on the network infrastructures, and on basic services such as voice

16 14 "'1'" teephony, subject to periodic pubic interest investigations (Knieps, 1989, and Scherer, 1993). These recommendations served not ony the interests of the outside groups, but aso were seen as necessary by the Commission in achieving its own ong-range goas. First, the unavaiabiity of advanced teecommunications services across borders was an impediment to the successfu competion of the interna market and contrary to the free movement principes strongy advocated by the Commission. Second, the nationa markets for certain teecom sectors were too sma to support competition; the existence of a unified European teecommunications market woud aow for competition in a sectors. Third, a true and effective regiona market required universa standards, so that equipment and services woud be compatibe throughout the Community. And fourth, unified standards required joint research and panning for future integrated digita networks, as we as the adoption of new technoogies (Sandhotz, 1993). A of these probems needed to be surmounted as part of the Commission's interna market program. Since Community poicy making has historicay been an arduous affair consisting of dea-making, concessions, and utimatey "owest common denominator" poicy outputs, it is not surprising that these recommendations met with some initia resistance from the member states -- especiay considering that the proposas directy threatened the ong-estabished, powerfu teecoms. Yet by the ate 1980s, the rapid deveopment of information technoogies couped with the cear success of other dereguation schemes made even the teecoms reaize that change was necessary. Thus, member states vountariy transferred reguatory powers to the Commission, with the nationa teecoms agreeing to the consequent iberaization of their markets in return for the benefits they reaized coective action woud bring. Sandhotz (1993) identifies two conditions necessary for coective action of this type: adaptation on the nationa eve and internationa eadership. The nationa governments and teecoms had, even

17 15 """t'. before the Commission began impementing the recommendations, aready begun to discuss uniatera iberaization measures. With the entry of the Commission, the necessary intemationaeadership was introduced, and the Commission was abe to pu the teecoms through its own dereguation pan, which was generay more ambitious than anything which had been proposed at the nationa eve. However, in its Green Paper, the Commission stopped short of recommending the tota eimination of monopoy practices, aowing the teecoms to retain their contro of basic services, most significanty, voice teephony, which was narrowy defined by the Commission as "the commercia provision for the pubic of direct transmission of speech in rea time" (Dommering, 1993). This is argey attributabe to the continued confict between iberaization and universa service. In the words of Knieps (1989), the dereguation experiences in the US, Japan, and Britain had shown that "equity considerations in the form of sociay desired infrastructure objectives may strongy infuence the course of the dereguation process in the teecommunications sector." There was sti a arge degree of debate on reconciing these two seemingy contradictory goas. Universa service, as defined by the Commission, is the right for a customers to have a teephone connected, to be abe to utiize services meeting universay defined quaity standards, and to progressivey have access to a range of new services (I&T Ma.gazine News Review, 1993). The Commission's soution to the conundrum of assuring these rights in the face of unreguated competition was to retain the traditiona status of the teecoms as utiity providers in the area of basic services. Nevertheess, progress was made in restricting the teecoms' abuse of their dominant positions in these markets. The Commission promugated rues against restrictions on the provision of basic services, arrangements tying provision of monopoy services to 1 the suppy of equipment, and perhaps most importanty, the cross-subsidization of competitive services by revenues generated from monopoy services (Scherer, 1993).

18 16 "'1'. Like universa service, and intimatey connected with it, cross-subsidization is an issue which has perpexed reguatory bodies for years. It is the practice of overcharging for services on ong-distance and internationa service to make up for the osses incurred in providing inherenty unprofitabe oca service. Because of universa service objectives, reguatory bodies have mandated an equaization of oca phone rates regardess of geographica circumstances. Thus oca rates are often beow the cost of the service, especiay in rura or remote areas. In recent years cross-subsidization has increased because new technoogy has greaty reduced the cost of ong-distance and internationa cas, though the same technoogy has not heped oca service (Knieps, 1989). The scope of the practice is huge -- the Commission estimates that as much as sixteen biion Ecu per year is transferred by European teecoms from ong-distance services to cover the osses from oca services, as we as operator assistance, emergency services, and so forth (J&T Magazine News Review, 1993). Because the rates of ong-distance cas are so far above their costs, they are tremendousy profitabe, which can ead to the phenomenon of "cream skimming;" if competition is aowed in ong-distance whie the teecoms are sti obigated to oca service by universa service requirements, ong-distance revenue wi be ost to private ongdistance companies, putting the teecoms into a egay mandated oss situation. So that cream skimming does not occur -- as woud be possibe in the Community's rubric - some reguation continues to be necessary, especiay since tota dereguation woud ead to poiticay probematic price increases for oca service (Mueer, 1989). In proposing concrete soutions for the theoretica quagmires of universa service and cross-subsidization, the Commission estabished in its 1987 Green Paper a coherent reguatory framework for the European teecommunications market, a considerabe accompishment, in view of the fact that teecommunications poicy had not been an area of Community competence unti that time. And since 1987, the Commission has continued to be ahead of the nationa teecoms and the member states

19 17...,... in its drive towards iberaization (Sandhotz, 1993). There are now two main sources of authority for European Community invovement in teecommunications reguation. First, Artice 100a of the EC Treaty is the basis of Counci of Ministers directives, requiring quaified majority adoption, of Commission proposas to effect the approximation of nationa aws to hep estabish the interna market. Since teecom iberaization is centra to the Commission's overa interna market pan, a Community teecommunications poicy may be justified under Artice 100a. Furthermore, under Artice 90(3), the Commission has the power to address directives or decisions directy to member states to assure that nationa teecommunications aws do not confict with the EC Treaty. The Commission has used this procedure in the past, effectivey" forcing the Counci's hand," and meeting with great dispeasure from some member states (Scherer, 1993), who have chaenged the Commission's authority to issue specific directives on teecom iberaization. The European Court of Justice, however, has argey uphed the Commission's power in these cases (Scherer, 1993; Damton and Wuersch, 1992). Using its powers derived from the EC Treaty, the Commission has deveoped a four-point program which guides Community poicy. The Community now sponsors an extensive coordinated research program for new teecommunications technoogy, the common deveopment of a modem digita information infrastructure, the opening of markets in equipment and services, and the joint management of technica standardization and panning (Sandhotz, 1993). Within the ast three years, the Commission has pushed even further, creating an officia ist of "basic" network services (oca teephone, teex, and data transmission) which may remam monopoy-controed, working towards the universaization of tariff structures for private networks, and aboishing the practice of cross-subsidization between teecoms and posta services (Capeo and Nijkamp, 1992). And in 1993, the Commission reached an agreement with the member states to

20 18 competey open the market in voice teephony, incuding oca service, by 1998 (&T Magazine News Review, 1994). Ceary, the European teecommunications sector, which Capeo and Nijkamp (1992) say "is in the vanguard of the estabishment of an interna market," has been greaty affected in a short period of time by the institutions of the European Community. Whereas ony ten years ago nationa teecoms sti tighty controed their sacrosanct fiefdoms, the European market is now quicky regaining ground ost to the dereguated US and Japanese markets. Athough the reforms are not yet concuded, the speed and success of the changes in teecom reguation can be considered "a major poitica achievement of the Commission" (Sandhotz, 1993). Indeed, Sandhotz sums up the Commission's performance with audatory words: The core of the Commission's pan for iberaizing teecoms markets survived the battes intact. The Commission initiated the proposas for market opening, set the agenda for Community deiberations, and pushed for the approva of specific directives. In every instance, the Commission was ahead of the member states in its objectives for EC-Ieve reforms; in many instances Commission proposas had to overcome the resistance of major member states. The resut is that the Commission now has a more soid grasp than it began with on independent powers to open teecoms markets to competition. Thus, the success of European Community teecommunications poicy has not ony meant the improvement of services for network customers, it has aso become a feather in the Commission's cap. And in the ong term, it is ikey to hep keep European business and industry competitive in the goba market, as we as faciitate what is perhaps the Commission's utimate goa, the competion of the European interna market. Diaectica Functionaism and European Community Teecommunications Poicy integration. The iberaization of teecommunications in the EC is a cear case of economic Before 1983, teephone services were entirey the province of nationa

21 19 ""I. governments and their affiiated Posta, Teephone and Teegraph Administrations (PTTs); the EC had absoutey no competence in the area of teecommunications. In ony four years, the EC went from bystander to poicy eader and in the past eight years has argey transformed its bueprint aid out in the 1987 Green Paper into reaity. PITs which had been powerfu state monopoies were converted in under ten years into private corporations subject to competition from the ikes of AT&T. A compex interpay of factors and actors caused this shift of poicy making authority, in a process which refects the predictions of diaectica functionaism. The major departure from diaectica functionaism in the teecom case is the origin of the nationa protectionism. Teecommunications, as discussed in the previous section, had historicay been considered a natura monopoy, so the usua soution was to organize a state-run monopoy. In the European countries, the teecoms became "I..! arge, entrenched poitica entities, as we as business concerns, which governments saw as strategic for nationa security. For these reasons, the countries of the EC entered the 1980s with the od system intact and no intention of aowing competition, much ess contro over their teecoms by the Commission. With the progress of technoogy and the increasing competitiveness of the US and British teecommunications giants, nationa poicies were becoming counterproductive, as the diaectica functionaist mode woud indicate, but the nationa protection of teecoms was not a reaction to a previous integrative step. Nevertheess, many of the other forces depicted in the diaectica functionaist mode were present. The main catayst for change was externa factors. The mode says that outside infuences can revea the inefficiencies of the nationa systems, and in this case technoogica convergence and the opening of other markets to competition exposed the disadvantages of the fragmented European system. Had eectronic technoogy remained static and had the United States retained its reguated monopoy arrangement, there woud have been no impetus to change the European system that had successfuy

22 20 operated in such an environment for neary a century. But these important externa deveopments forced Europeans to start examining and questioning the appropriateness of the existing arrangement. The changing internationa environment caused a three sets of actors to take note of this new probem. The Commission, recognizing the importance of communication in the interna market, began coecting information on the state of the teecommunications market and drafting proposas on making Europe more competitive internationay through teecom iberaization. The Commission very quicky became an expert on teecommunications issues, and was abe to convert that expertise into poicy eadership when it was needed. As the mode woud predict, the Commission consuted the affected interest groups as we as the nationa governments in its preparation for the reease of the Green Paper. Some nationa governments aso began taking measures uniateray as in the radica reforms in Britain, or the studies on I' : iberaization in the Netherands. Finay, interest groups such as business associations and equipment producers began to obby for iberaization. Interest group competition was to be found on the nationa eve, as those groups which stood to benefit from ower prices and open markets competed with those interested in preserving the monopoies, consisting mainy of PTT empoyees and their poitica aies. Nationa governments caught in the crossfire were in a difficut position, recognizing the benefits nationa industry woud derive from the iberaization of the teecommunications market, but at the same time behoden to the arge eectora boc the teecom empoyees and their famiies represented. The entry of the EC into the fray in support of the business interests reieved the nationa governments of the need to decide which of the powerfu groups woud have to be forsaken; in this case the nationa governments actuay derived a benefit from reinquishing nationa contro over teecommunications poicy, which aowed them to drop a ong-standing but now counterproductive poicy with a

23 21...,..., minimum of poitica damage. This situation mirrors the portion of the diaectica functionaist mode concerned with interest group competition. In the end, the Commission forged a genera consensus around its iberaization proposas. Even in the European Court of Justice cases fied against the Commission for issuing directives on iberaization based on Artice 90 of the EC Treaty, the paintiffs chaenged not the content of the directives, but ony the Commission's ega authority to issue them (Darnton and Wuersch, 1992). And understandaby, in a sector whose traditiona structure has been greaty atered in such a short time, there has been some institutiona inertia in countries ike Begium and France. A actors invoved, incuding the PITs themseves, now recognize the need for change to accommodate the changing technoogy, as we as to permit European companies to compete on equa footing with their rivas in the United States and Japan. The disagreements come not over the necessity for change, but rather over questions of pace and scope. And these differences are acceptabe within diaectica functionaism; what is most important is that integration has occurred and the EC is now the primary poicy maker and interest aggregator in a sector that ony fifteen years ago was the soey the prerogative of nationa governments. The faiure of nationa teecommunications poicies was not a resut of the diaectica process; the orthodoxy of natura monopoy and universa service requirements had shaped the structure which had acceptaby governed the teecommunications industry in Europe unti ony recenty. These utimatey counterproductive nationa poicies were not a defensive reaction to prior integration, as diaectica functionaism woud predict. They were instead rendered counterproductive by changes in the goba environment. With the recognition of the need for change, the Commission began to deveop its competence in teecommunications poicy, interest groups competed at the nationa eve to further their individua goas, and nationa governments began to study and even act on iberaization pressures. Eventuay it

24 22...,...- became cear that the EC was the proper ocus for the most efficient soution, and member governments, seeking reief from the difficut coaitiona conficts at the nationa eve, granted the EC the authority it needed to coordinate the reforms. Thus, integration occurred in accordance with the predictions of diaectica functionaism. Concusion The deveopment of a European teecommunications poicy shoud be seen in the arger context of the interna market reforms embodied in the Singe European Act. It is unikey that the iberaization of the teecommunications market coud have occurred so quicky and decisivey if there had not been agreement on the genera goa of competing the interna market. The overa ideoogica shift in Europe towards iberaism has eevated economic efficiency to the top priority, and the interests of standardization and scae have made the European Community a natura ocation for economic poicymaking. Ironicay, the same nationa poitica eaders who strive for efficiency are often aso the strongest advocates of nationa sovereignty. Diaectica functionaism, in the tradition of neofunctionaism, sees these two principes as incompatibe in the ong term: economic integration occurs as a resut of the inefficiency of varying nationa poicies. The overa fragmentation of the European market came to be seen as a handicap to European economies in the 1980s vis-a-vis the arge integrated markets of the United States and Japan. The interna market reforms are intended to create out of the fifteen member states one homogeneous market, and the new teecommunications poicy is ony a part of the arger program. Nevertheess, teecommunications constitutes a unique case because of the history of state monopoy contro, and presents an exceent iustration of diaectica functionaism at work. Like neofunctionaism, diaectica functionaism identifies integration as an ongomg process. The integration of teecommunications poicy shoud then be expected to produce a reaction by member governments to protect their poicy power in

25 23 -r areas adjacent to teecommunications. The Commission has been thorough in the coverage of its reforms, so nationa governments may have difficuty finding reated areas to fortify against EC incursion. If the time eement of diaectica functionaism is correct, however, such a reaction must occur, in order to continue the integrative process. The next decade wi show whether the EC reforms have been successfu, and wi indicate whether the reaction/ stagnation phase predicted by diaectica functionaism wi in fact occur, for ony with the passage of time can theories of European integration be tested. Nevertheess, based on what is now known about the short history of European integration, diaectica functionaism hods considerabe promise. I' I

26 Bibiography Ameida, Luis Tadeu (1987) The EEC Teecommunications Industry: Competition, Concentration and Competitiveness (Luxembourg: Office for Offi(:ia Pubications of the European Communities). Amory, Bernard (1992) "Teecommunications in the European Communities". Europiische Zeitschrift fiir Wirtschaftsrecht, Heft 3, p Anderson, Jeffrey J. (1995) "The State of the (European) Union: From the Singe Market to Maastricht, from Singuar Events to Genera Theories". Word Poitics, Vo. 47, p Arnst, Catherine (1994) "The Goba Free-For-A". Business Week, 26 September, 1994, p Bangemann, Martin (1994) Europe and the Goba Information Society: Recommendations to the European CounciJ (Luxembourg: Office for Officia Pubications of the European Communities). 1 Barnard, Bruce (1994) "A Revoution in the Making". Europe, Vo. 340, p Broadman, Harry G. and Caro Baassa (1993) "Liberaizing Internationa Trade in Teecommunications Services". Coumbia Journa of Word Business, Winter 1993, p Capeo, R. and Nijkamp, P. (1992) "Teecommunications: Impications and Poicies for a Sector in Transition". Vrije Universiteit Amsterdam, Facuteit der Economische Wetenschappen en Econometrie, Research Memorandum Commission of the European Communities (1987) Competition Rues in the EEC and the ECSC Appicabe into State Aids (Luxembourg: Office for Officia Pubications of the European Communities). Corbey, Dorette (1995) "Diaectica Functiona1ism: Stagnation as a Booster of European Integration". Internationa Organization, Vo. 49, No.2, p Cowhey, Peter F. (1990) "The Internationa Teecommunications Regime: the Poitica Roots of Regimes for High Technoogy". InternationaJ Organization, Vo 44, No.2, p

27 Darnton, James E. and Wuersch, Danie A. (1992) "The European Commission's Progress Toward a New Approach for Competition in Teecommunications". Internationa Latry"er, Vo. 26, No.1, p Dehousse, Renaud (1992) "Integration v. Reguation? On the Dynamics of Reguation in the European Community". Journa of Common Market Studies, Vo. 30, No.4, p Dommering, E.J. (1993) "Artice 90 of the EEC Treaty and the Teecommunications, Broadcasting, and Posta Services Sectors". In Stuyck, J.H.V. and Vossestein, A.J. (eds.). Duch, Raymond M. (1991) Priv.:1tizitng the Economy: Teecommunications Poicy in Comparative Perspective (Ann Arbor: The University of Michigan Press). Economist (993a) "Party Line", 11 December, 1993, p. 76. Economist (1993b) "Ringing the Changes", 31 Juy, 1993, p. 65. Economist (993c) "Robbery by Teephone", 26 September, 1993, p Economist (1993d) "Sti Hoding", 13 March, 1993, p. 79. Edmondson, Gai (1994) "Brave Od Word". Business *ek: The Information Revoution 1994, p. 42. Ergas, H. (1987) "Reguation, Monopoy, and Competition in the Teecommunications Infrastructure". In OECD, Trends of Change in Teecommunications Poicy (Paris: Organization for Economic Cooperation and Deveopment). Pano, Daniee (1987) "Teecommunication Poicy Deveopments since 1982". In OECD, Trends of Change in Teecommunications Poicy (Paris: Organization for Economic Cooperation and Deveopment). George, Stephen (1991) Poitics and Poicy in the European Community (New York: Oxford University Press). Grande, Edgar (1994) "The New Roe of the State in Teecommunications: An Internationa Comparison". *st European Poitics, Vo. 17, No.3, p Gyseen, L. (1993) "Nationa Monopoies -- An Evoving State Action Doctrine Under Artice 90 EEC". In Stuyck, J.H. V. and Vossestein, A.J. (eds.).