A recent green paper tabled by the Commission of the European Communities has proposed significant liberalization of the satellite communications industry. Providers of final services can currently obtain space capacity only through their national post, telephone and telegraph (PTT) operators, so national markets are segmented, while restrictions on private operators' provision of some final services limit competition within countries. The Commission proposes substantially to facilitate entry into network operations, to allow service providers direct access to international cooperatives and `multiple access' to all European PTT operators, and to liberalize the remaining exclusive rights on some services currently enjoyed by the PTTs.

In Discussion Paper No. 813, Research Fellows Damien Neven and Lars-Hendrik Röller, with Len Waverman, argue that the proposed liberalization may have adverse effects if scale and learning economies are sufficient for deregulation to render existing players unprofitable and require some exit. Free entry may lead to an excessive number of firms, each operating on a sub-optimal scale. European producers are currently too small to compete with their US counterparts, but liberalization may raise demand enough to allow existing producers to operate at an efficient scale.

Neven, Röller and Waverman simulate the effect of full liberalization on demand and find that only four operators would break even and operate close to an efficient scale (about ten satellites) and existing satellite operators would make losses if there is no exit, while the European market could support at most two independent producers. Rationalization of production and operation is required, in which a supranational authority like the European Commission could play a major role, since most players are publicly owned. Moreover, since the US market is closed in the medium term and predation by US firms a matter of concern, the authors advocate firm implementation of EC antidumping policy.

The European Satellite Industry: Prospects for Liberalization
Damien J Neven, Lars-Hendrik Röller and Len Waverman

Discussion Paper No. 813, September 1993 (AM)