1. Introduction

The recent developments in the Portuguese telecommunications sector can only be explained through the examination of both international and national aspects. We have argued in Chapter III that the EC/EU telecommunications policies had not been developed to specifically address the needs of LFRs. The Commission, IT manufacturers, big business and TNCs were the main actors actively pushing for EU intervention in the sector. Manufacturers argued that a community-scale market was needed in order to compete with the US and Japan, and fought simultaneously for subsidies and for open markets; big business also maintained that without better communications, European companies would be at a disadvantage. The Commission took these arguments and seized the opportunity to foster economic and political integration.

The EU telecommunications policy has then been developed around two main fronts: subsidies for R&D programmes and market liberalisation. But Portugal has had neither the economic potential to develop its own electronic industry nor highly evolved telecommunications services. So, unlike the EU core countries, it has not fully benefited from the most important aspects of this policy. However, despite their relatively light weight in the Union, LFRs would not have accepted the opening up of their markets had not trade-offs been settled. In fact, the Commission realised soon enough that it did not have an alternative but to convince LFRs that their needs would not be forgotten. Consequently, programmes such as STAR and Telematique helped LFRs to modernise their basic infrastructure and to launch new services. In Portugal the introduction of mobile telephone, paging and videoconferencing, for example, would certainly have been slower if it were not for the EU's financial assistance.

In any case, when Portugal joined the EC in 1986, there were also well established national traditions and long-standing actors in the telecommunications sector (see Chapter V). Most actors and the government, in particular, were well aware of the acute deficiencies of national telecommunications. Main line penetration was just about half of the European average and the average waiting list for a telephone line was well over two years. Clearly, if Portugal wanted to catch with up its European partners 1, massive work had to be done. Investment figures (see below) demonstrate that, in practice, this sector was perceived as a priority by the national authorities. The pro-business Cavaco Silva governments held the view that communications were crucial to the economic development of the country. The 12th government programme initiated the communications section stating that 'Communications constitute one of the fundamental levers of national progress' (Assembleia da República, 1992:29).

Differently from what happened in the broadcasting sector (see Chapter VII), telecommunications have not been severely neglected by either regional or national actors. The EU core countries wanted basically open markets in order to be able to sell their products as freely as possible and Portugal wanted better national infrastructures and advanced services which implied financial assistance and the import of products and know-how. Therefore, the significant changes which had taken place in the telecommunications sector over the last ten years result from a combination of regional and national strategies.

In this chapter, we will start by analysing regional policies in order to understand the particular way in which the EU influenced the development of the telecommunications sector in the country. We will examine how Portugal has incorporated EU legislation and to what extent EU development programmes have been relevant. We will then move to the national level of analysis, as we will try to assess domestic political decisions concerning the re-organisation of the sector and the partial privatisation of the main operator, Portugal Telecom (PT).
 
 

2. Regional Policies

In 1986, the Community was still struggling for legitimacy to intervene in the most controversial areas of telecommunications policy. From the creation of the Task Force on Information Technology within DGIII in 1983 up until the publication of the 1987 Green Paper, the Task Force had to work extremely hard to develop a coalition of supporters for its future action and to co-ordinate different initiatives within the Commission by DGXIII, DGIII, DGIV and DGXII. Despite the lack of movement in the opening of markets, in November 1984, the Commission managed to gain agreement from the Council 2 to its five-pronged policy proposals designed to i) create a community market for telecommunications equipment and terminals via standardisation, mutual recognition of type approvals and the opening of access to public contracts; ii) improve the development of ISDN; iii) launch a development programme of advanced telecommunications services and networks, and implement infrastructure projects of common interest (RACE); iv) promote the development of advanced services for LFRs (STAR) and v) co-ordinate negotiating positions with regard to international bodies (Hills and Papathanassopoulos, 1991:134).

Although the Community was short in binding legislation (either directly or indirectly) until the publication of the 1987 Green Paper, several relevant Council documents were approved along the lines of the five-pronged policy proposals mentioned above (for more, see Chapter III). Indeed, the actual EC intervention in the telecommunications sector - when Portugal joined - revolved around industrial policy initiatives and R&D programmes. Programmes such as ESPRIT and RACE were showing some results and the development of ISDN was perceived as crucial to the competitiveness of the European industry. Wider liberalisation was already on the agenda but, because consensus was difficult, not much progress was made until the Green Paper was published.
 
 

2.1. The Legal Framework

When Portugal became an EC member state, there was no legal obligation to introduce any change in the structure of the Portuguese telecommunications, but the national authorities felt under pressure to modernise and to open up the telecommunications sector. On the one hand, they wanted to be seen as 'true Europeans' and, on the other hand, what they understood as the most successful countries (the US, UK and Japan) had already introduced changes in their telecommunications markets 3. In fact, these countries, then run by conservative governments, had already broken-up their PTT monopolies and privatised (partly at least) their public operators.

In this context, the 1987 Green Paper should not be seen as a policy initiator, once it rather builds on previous liberalising/restructuring arguments which had been put forward not only by the EU's most liberal member states but also by the US government and US lobbying groups in Brussels. With the development of a wider Common Market in perspective (the Single European Act was signed in 1986), the Commission argued for a common market in telecommunications terminal equipment, a common market in telecommunications services, and a common market in network equipment, supposedly to ensure the Community's future position in large-scale information technology (COM (87) 290, 30.06.87). The liberalisation of equipment and services would also require the separation of regulators and operators. The provisions of the network infrastructure and basic services were to remain unchallenged, under the control of national PTTs.

Being a consultation document, the Green Paper required subsequent legislation to implement its provisions. During the process of drafting legislation some compromises became unavoidable, weakening somewhat the original positions (Bauer and Steinfield, 1994:51). A number of directives, decisions and recommendations followed. Amongst the most relevant binding legislation are the 1988 directive on competition in terminal equipment markets (88/301/EEC) and the 1990 directive on competition in the telecommunications services markets (90/388/EEC). The former prevents member states from granting special or exclusive rights to a private or public body for the importation, connection or bringing into service of terminal equipment; the latter says that member states shall withdraw special or exclusive rights for the supply of telecommunications services other than voice telephony and shall take the necessary measures to ensure that any operator is entitled to supply such telecommunications services.

The Green Paper did not put too much emphasis on industrial policy issues, focusing mostly on regulatory matters. The most relevant regulatory aspects were indeed incorporated in the Portuguese legislation (see particularly law nº88/89 of 11 September 1989 and law-decree nº283/89 of 23 August 1989). The communications regulatory body (Instituto das Comunicações de Portugal - ICP) was then set up, the telecommunications equipment and services markets were opened. However, as Michalis and Hills (1995:15) pointed out (and as we will demonstrate below) each country's government and PTO have been able to implement EU policy according to their own political criteria, which is some cases has led to differing technology, and in all cases leads to divergent regulation. The EU has managed to define a quite generalist legal framework but member states still have room for manoeuvre as their interpretation of the law can vary greatly.

So far, the EU has been mainly preoccupied with equipment market liberalisation and value-added services such as satellite and mobile communications but, since 1994, its activity has intensified around infrastructure liberalisation. The Bangemann Report (1994) - subscribed to by Portugal - argues that infrastructure competition is a crucial stage in the development of the EU telecommunications policy. However, the Commission's plans to introduce it as soon as 1996 were abandoned. Whilst the other member-states agreed to comply with infrastructure liberalisation by January 1998, the Southern states (except Italy) and Ireland have been granted a further five-year delay until 2003.

Though Portugal was one of the countries which asked for an extension in the infrastructure liberalisation, so far its regulatory reforms have been well in line with the EU telecommunications policy framework. This is not to say however that the Union has been the only international actor pressing Portugal to introduce reforms. In fact, most of the reforms already introduced have an ideological (neo-liberal) background. International organisations (e.g. World Bank, IMF, OECD, ITU, ETSI, etc.) and liberal governments (mainly US and UK) have diffused general assumptions about the benefits of liberalisation, full competition and privatisation. Hence, it is possible that - even without the EU binding legislation - Portugal would somehow follow the liberalising bandwagon.

Since the 1989 Telecommunications Act was approved, Portugal has complied with the general EU legal framework but, as senior EU officials recognise, the advantages of competition for advanced countries are easier to demonstrate: 'there are industrial interests to support, they have a strong local market and the associated economies of scale - and they can use these as a springboard for expansion into other markets' (Berben and Clements, 1995:276). Concentration of manufacturing supply across national borders has resulted in Siemens of Germany and Alcatel of France becoming the major European manufacturers. With the extension of EU membership, these have now been joined by Ericsson of Sweden. World oversupply of equipment, coupled with the convergence of computing and telecommunications, and the penetration of the telecommunications sector by computer companies, have resulted in fierce competition for exports and the politicisation of such exports (Michalis and Hills, 1995:2).

Indeed, it is relatively easy to assess the benefits of EU's telecommunications policy for more industrialised countries, but it all becomes rather more complicated if one attempts to value the benefits for less favoured regions such as Portugal. Indeed, the Commission has put forward little more than general hypotheses. The benefits for LFRs are likely to be based on the 'macroeconomic impact of improved services, the encouragement of inward investment in the sector, and the participation of strong and efficient local operators in global ventures' (Berben and Clements, 1995:274, our emphasis). No serious attempt has been made by governments and/or by the EU to provide empirical evidence to sustain their claims about the benefits of the new regulatory framework for LFRs.
 
 

2.2. The R&D Programmes

It has not been the EU liberal policies but the EU dirigiste policies which have directly benefited - even if in limited terms - the Portuguese under-developed telecommunications sector. As we have analysed in Chapter III, there are conflicting views within the Commission and, as a result, contradictory policies have been developed. A more liberal sector argued for more liberalisation whilst a more dirigiste one argued for further intervention mainly through R&D programmes. The ESPRIT and RACE programmes are the most visible face of the EU interventionist industrial policy but they had not been conceived to address the special needs of LFRs. The STAR programme and the subsequent Telematique programme are the sole relevant example of the trade-off between the Commission and LFRs for opening up their telecommunications market.

A general report to the Commission on the impact of R&D programmes in Portugal from 1986 to 1991 (Caraça et al., 1993:15-24), pointed out that the most relevant Portuguese participation was through programmes having a direct link to economic matters. 50% of the participation is in the area of IT and industrial modernisation. In fact, only two programmes, amongst 37, had a Portuguese involvement of over 30 contracts (BRITE-EURAM and ESPRIT). The Lisbon region accounted for more than 72% of the national participation in EU R&D programmes. In addition to reinforcing the existing centralising trends 4, the EU R&D programmes are not believed to play any leading role. In nearly 80% of the cases European programmes are felt as reinforcing the normal activities of participating teams, especially in the fields of IT and telecommunications, exploitation of biological resources and exploitation of marine resources (Caraça et al., 1993:33). The financial impact of European R&D programmes in the relevant period was globally small (around 5% of gross expenditure in R&D) but locally very significant (around 40% of the research budget of participating teams) (Caraça et al., 1993:53).

Indeed, accounting for only 5% of the gross expenditure in R&D, it cannot be assumed that EU programmes are making any structural difference in the research pattern of this member-state. As we are particularly concerned with telecommunications, we will now contemplate the EU programmes dealing specifically with this sector. ESPRIT, one of the most significant R&D programmes 5, supports research projects in the fields of microelectronics, information processing systems and software, and as such it cannot be properly considered a telecommunications programme. So, it can be said that RACE (Research and Development in Advanced Communications Technologies for Europe) is the only EU costly programme which dealt specifically with telecommunications. The objective of RACE was to generate R&D co-operation among manufacturers, PTOs, and research institutions within Europe, and by doing so, to stimulate innovation and competitiveness in the European industry. The ultimate goal of these efforts was the introduction of Integrated Broadband Communications (IBC) by 1995 (see e.g. Ungerer and Costello, 1990). The programme's budget was of 550 million ECU for the period between 1987 to 1991 and 484 million ECU for the period between 1990 to 1994 (Schnöring, 1994:151).

Just like ESPRIT, the RACE programme had not been designed to address the needs of the LFRs in general nor the needs of Portugal in particular. In the 1980's these countries were still struggling with network expansion and with very low penetration rates. In Portugal, for example, in the late 1980's the penetration rate was about half of the European average. Hence, the introduction of broadband communications could not have been a priority. As shown in table 9 and table 10, only the core countries and the big manufacturers and PTOs have taken full advantage of the RACE programme.
 
 

In fact, from the analysis of these tables, it is crystal-clear that the three largest EU countries (UK, Germany and France) are those which have benefited the most in terms of numbers of participations and in terms of project leadership. Even non-member states (Sweden, Finland and Austria joined the EU in January 1995) benefited more (Sweden) or almost as much as Portugal (Finland and Norway). Furthermore, there is no single Portuguese company among the 21 most involved in R&D projects.

As we have seen in Chapter III, the Commission is not necessarily the true policy initiator and much of the EU actual policy is the product of competing national interests. In fact, the EU's most influential countries (Germany, France and the UK) have never been too concerned with the development of specific programmes for LFRs. LFRs themselves have not had the necessary weight to properly counterbalance the interests of core countries. Council negotiations - often behind closed doors - are therefore strenuous, and decisions are reached through various trade-offs, the so-called package deals.

In these circumstances, it comes as no surprise that from the 1987 Green Paper to the CEC's 1992 Review on Telecommunications services (Commission of the European Communities, 1992a), there have been few mentions of the specific concerns of less developed and peripheral regions. 'Where they have appeared, they have been dealt with summarily and in little depth' (O Siochrú, 1993:4). In any case, some trade-offs were inevitable and STAR and later Telematique programmes were launched. STAR was approved in the October 1986 Council and was implemented from 1987 to 1991 with EU financial aid of 780 million ECU (Ungerer and Costello, 1989:167). The STAR's successor, Telematique programme, had a much smaller EU contribution - around 200 million ECU (O Siochrú, 1993). Most of these resources came from the European Regional Development Fund (ERDF).

The two general objectives of the STAR programme are i) to help develop the telecommunications infrastructure to enable the provision of advanced services and ii) to support measures to stimulate demand for telecommunications services. In order to achieve these aims, the lines of actions are mainly to connect LFRs to advanced networks and to accelerate digitalisation so ISDN can be introduced (Ungerer and Costello, 1989:166). During the five-year period of STAR, it contributed approximately 2% of the total investment of the Telecommunications Operators (TOs) in the LFRs or the equivalent of what TOs are investing every two months. Since peripheral regions as a whole lag behind core regions by 10 years, by this yardstick a further 60 STAR programmes would be required to catch up (all other things being equal) (O Siochrú, 1993:5). In any case, according to O Siochrú, even the most conservative estimates demonstrate the inadequacy of STAR to the task that telecommunications policy demanded of it (1993:6).

Through the STAR programme, Portugal received EU financial assistance of around 120 million ECU (Comissão Nacional do Programa STAR, 1993a) which, considering for instance overall budgets of ESPRIT and RACE, is a very restrained amount. The financial limitations of the STAR programme for Portugal are recognised by the STAR National Commission (CNPS) which stated in the final report on the STAR programme that 'much more would have been done, had the EU contribution been higher' (1993a:iii). This recognition is quite significant since the CNPS produced a hyped analysis of the benefits of the STAR programme, considering it 'crucial to the creation of infrastructures needed to the introduction of advanced services' (1993a:31) 6. In fact, of the 2,234 short-listed national applications to the STAR programme, only 1,318 could be partly financed (Comissão Nacional do Programa STAR, 1993a:8).

Although the STAR programme was clearly insufficient to deal with the specific needs of this LFR, it did have a positive impact on the expansion of the infrastructure and in the long overdue introduction of advanced services. Given that more than a thousand projects got financial support, the STAR programme has unequivocally speeded up the introduction of services such as mobile phone, videotex and videoconference. Table 11 presents the type and number of projects financed by STAR. Before the Telecommunications Act (1989) was passed, services could only be provided by public operators, so CTT and TLP were the companies with most applications to the STAR programme (Diário de Notícias, 14 May 1993: 12-Negócios).
 
 

Following STAR, another programme for telecommunications in LFRs was approved. The Telematique programme started being implemented in Portugal in 1992 and is run by the National Commission for the STAR programme. According to the commission, the objective of this programme - subsequent to STAR - is to develop advanced services, creating a national dynamic which would continue to favour the access and systematic usage of these services (Comissão Nacional do Programa STAR, 1993:15). In practice, Telematique is no more than extra financing for the task initiated by STAR. The maximum amount from EU structural funds for this programme was around 34 million ECU (Comissão Nacional do Programa STAR, 1993:8). The Telematique programme was still under way when the empirical research for this study was undertaken, so no final evaluation existed. In any case, the meagre amount of financial resources allocated to the programme suggests that it would not add substantially to what had already been done under STAR.

Though recognising the inadequate nature of STAR and Telematique to implement the EU policy of economic and technological convergence, it is indisputable that in LFRs these programmes have created a great interest in advanced services provision. Indeed, as O Siochrú puts it, STAR funds created a class of advanced services entrepreneurs, actively seeking opportunities to develop services. It is even possible that at the present time there is more activity on the ground in the LFRs in these technologies than in core regions (1993:6). In Portugal, an indication of this interest is given by the number of projects submitted to these programmes. STAR and Telematique helped create the momentum for the introduction and development of advanced services.
 
 

2.3. The EU and the Expansion of Advanced Services in Portugal

Indeed, it can be argued that the STAR and Telematique programmes were the only EU political measures which directly adressed the specific needs of LFRs. However, in addition to these programmes, member-states, PTO's and other organisations - either from the core countries or from LFRs - have been able to access other indirect (and often highly dispersed) sources of financing for investments in the telecommunications sector, namely through various structural funds and loans from the European Investment Bank (EIB). The EU's telecommunications programmes and funds cannot be seen as 'the' reason why advanced services were introduced in Portugal because domestic funds, policies and regulations have played a crucial part. Still, the EU has certainly had a significant impact in the sense that more resources were made available and the whole process of introduction and development of advanced services was accelerated.

The bulk of advanced services in Portugal were introduced in the early 1990's, following the approval of the Basic Telecommunications law in 1989 and subsequent specific legislation (see law decree 329/90 of 33 October 1990 and law decree 346/90 of 3 November 1990). This national legislation has effectively opened up the market of value-added services to private initiative. Some advanced services were already being provided by public operators but a diversified and competitive offer of advanced services has only taken place in the early 1990's. The introduction of advanced services was largely uncontroversial because they were perceived as necessary and the attribution of licenses was regarded as a regulatory issue not a political matter.

Portugal's first multi-user mobile telephone network was set up in 1988 when the then CTT awarded Siemens a contract to install the infrastructure for a C-450 mobile radio system (Datapro, 1991:463). Currently, the land mobile service is provided by two competing companies: Telecomunicações Móveis Nacionais (TMN) and Telecel. TMN is owned in three equal parts by the public operators (now PT) and Telecel is owned by Pacific Telesis International, Amorim and Espírito Santo, and by a few small share holders (Public Network Europe, 1993:43). TMN was already operating analogue mobile phone when, in 1991, it was granted a license to operate a GSM service. At that time, Telecel got a second GSM license through a public tender.

Telecel managed to launch the GSM service within a year of getting its license. So, it was not before 1992 that two companies were effectively competing in the mobile service market. In 1993, it was estimated that there were a total of 35,000 GSM users (Public Network Europe, 1993:43). One year later, the penetration rate of GSM technology was an overall 17,5 subscribers per 1000 inhabitants which represented more than 170,000 subscribers (ICP, 1995:6). TMN customers using the old analogue system are possibly around 20,000. No reliable figures exist about the distribution of users with each company in the GSM market but the likelihood is that the market is evenly split (Public Network Europe, 1993:43).

Data communications services are now provided by packet switching data transmission service 7 and by leased lines. The packet-switched network, Telepac, started on an experimental basis in 1984 and opened to public service one year later. TLP and TP used to operate the network jointly, although it is now managed by PT. The service provides special facilities which include closed user group, reverse charging, direct call, barring of incoming calls, extra logical channel, non-standard packet size, non-standard window size and one-way outgoing logical channel. Access to international packet-switched networks is provided to 15 European countries, as well as the US, Australia, Canada, Japan, Hong Kong, and Singapore via the international transit nodes in Lisbon (Datapro, 1991:463). By 1994, this service was provided to 12837 network termination points (ICP, 1995a:23).

In July 1992, British Telecom (BT) started its Global Network Service expansion into Portugal. BT and its local partner, Comnexo - the data network service of Compta - installed the first GNS nodes in Lisbon (MDIS, 1993a:429). Comnexo was therefore the second company entering the national market of data transmission. The company provides data transmission services with or without switching, electronic mail service and electronic data interchange service (ICP, 1995a:38). More recently, other companies have also entered the data services market, namely AT&T, SIBS (Sociedade Interbancária de Serviços), TSVA (Telecomunicações de Valor Acrescentado) and France Telecom (for a detailed list of services provided by these companies see ICP, 1995a:38). In terms of leased circuits, PT states in its 1995 annual report that there has been a high level of fulfilment for circuits but no figures have been provided.

Paging services 8 in Continental Portugal are provided by four companies: Telemensagem, Finacom, Contactel and Telechamada. TLP and TP have had the monopoly of paging services and the required network infrastructure through a joint venture company Telemensagem. The first contracts for the supply of base stations for the network were placed in 1988 (MDIS, 1993a:431). Competition in these services was introduced in 1992 when ICP awarded three national radio paging licenses to consortia led by local companies which had major international operators as consortium partners. The private consortium that won the license for the GSM telephone service was given one of the radio paging licenses under the name of Telechamada. The other winning companies were Contactel, 51% owned by Marconi, 15% by Telefonica de Espana, 10% by Matrix Telecommunications (an Australian firm) and the remaining 24% by other private Portuguese firms. The last license was granted to Finacom, a consortium of Portuguese firms, Hutchinson (from Hong Kong) and Cofira, a French firm (Lucena and Seabra, 1994:189). The paging services have had a significant expansion since their early days. In 1990, only 4 thousand subscribed to the service, but in 1992, it reached 29281 clients and, in 1994, 88236 people were signed up for the service (ICP, 1995a:24).

The commercial exploitation of trunking services 9 is also quite recent. In 1992, Radiomóvel, a company owned by Finacom (already in the radiopaging business), was granted a license to operate. Radiomóvel is now competing in the same market as Repart, the second company to be issued a license to operate in national territory. In the two public tenders for trunking services provision, few companies have applied for a license. The provision of this service is still in its initial stages and the ICP has not provided figures on the number of companies/individuals subscribing to it.

In December 1988, the first videoconferencing service was launched by domestic public operators (now PT). TP's videoconferencing service has fixed studios in Lisbon, Oporto, Coimbra, Faro, Aveiro, Funchal, Ponta Delgada, among other cities (Comissão Nacional do Programa STAR, 1993:a). In addition, the service can provide mobile studios that transform an ordinary room into a videoconferencing studio. PT's annual report (Portugal Telecom, 1995:42) states that there has been a marked expansion of the use of this service - an increase of 62% over 1993. It does not say however how frequently this service is used but it can be assumed that this service is only used by the authorities and by business people and still very seldom.

The first step towards the introduction of ISDN 10 took place in the late 1980's when heavy investments were made in the digitalisation of the network. A series of pilot trials took place in Lisbon and Oporto in 1991, with basic and primary rate access to a restricted number of customers to test new signalling protocols (Datapro, 1991:464). Public operators continued providing ISDN services to private companies but on an experimental basis. In 1994, the pivot stage of the provision of ISDN was - according to PT - consolidated with a total number of 1566 Basic Accesses and 281 Primary Accesses as well as the establishing of international Euro-ISDN connections with most European countries (Portugal Telecom, 1995:42).

PT's new services activities are now said to be concentrated on two areas: broadband services and services supported by intelligent network platforms. An experimental data communications service called Switched Mulimegabit Data Service (SMDS) - particularly suitable for the interconnection of Local Areas Networks 11 (LAN) - was launched and supported by the Lisbon and Oporto Metropolitan Area Networks 12 (MAN). As part of the ATM memorandum of understanding, the company participated in the establishing of the first Pan-European network based on ATM technology, which is a step forward for the development of European wide broadband networks and services. The first experimental intelligent network (IN) services and the Personal Number service were introduced in 1994. Private Virtual Networks, Universal and Advanced Toll Free Number services were to be launched in 1995 (Portugal Telecom, 1995:42).

As we have seen, a number of advanced services have started up since the late 1980's but it would only be in the early 1990's that most of these services were actually opened to competition. The STAR and Telematique programmes did play a role in the introduction and development of most of these services. However, in comparative terms with the core EU countries, Portugal is still lagging behind both in terms of quantity and quality of advanced services offered to the public and in terms of social demand for these services. In any case, these developments have political relevance in the sense that they can be presented to the public as a major achievement and as the direct result of national government policies.
 
 

3. National Policies

In this sub-chapter, when we refer to nationally-based policies, we do not mean that domestic policies are taken in isolation from the regional scene. Our meaning is that, although operating within the EU regulatory framework, Portugal still has room for manoeuvre in the decision-making process and in the implementation of policies. The EU framework is quite generalist and most of the recent telecommunications policies taken in Portugal cannot be explained by the regional setting. Even when national authorities are persuaded by the Commission's arguments and/or by the Council's package deals to move in a given direction - if no binding legislation already exists - the final responsibility for their actions falls on national governments hands. Yet, the separation between regional and national policies is still pressing because it is the government's own expressed policy to, first and foremost, defend the national interest 13 and to maintain telecommunications in national hands (see e.g. speeches delivered by the ministro Ferreira do Amaral at the 4th and 5th APDC congresses in Lisbon 14). The current telecommunications policy results partly from external sources (although it was ultimately Portugal which has conceded elements of its national sovereignty to the EU) and partly from a combination of nationally-based options. When Portugal joined the EC, the need to modernise and re-organise the telecommunications sector had already been recognised (see Chapter V) but the accession has intensified the pressure for change. On May 1986 - four months after the accession - Sequeira Braga, head of Secretaria de Estado dos Transportes e Comunicações (SETC) requested a study to examine Portuguese telecommunications and to report on the most pressing issues in this area. One year later, the Comissão para o Estudo do Desenvolvimento Institucional e Tecnológico das Comunicações (CEDITC) presented the study to the Ministério of Public Works, Transport and Communications.

In line with what was being discussed in the EC at the time, this study recommended the following sectorial changes: i) the regulatory body Instituto das Comunicações de Portugal (ICP) should initiate its activities; ii) a holding company should be set up to increase the efficiency of operators (CTT, TLP and Marconi); iii) postal and telecommunications services should be separated; iv) measures should be taken to prepare the opening up of telecommunications operators to private capital; v) more flexibility should be introduced in new telecommunications services; vi) prices should be liberalised in the non-basic telecommunications sub-sector (Ministério das Obras Públicas Transportes e Comunicações, 1987:C1-C8). These recommendations were largely adopted by the 11th Constitutional Government (see Assembleia da República, 1987:33; see also how government programmes are prepared in Chapter IV) and constituted an important input to the 1989 Basic Telecommunications Law (nº88/89 of 11 September).
 
 

3.1. Opening up the Market to Competition

Amongst the CEDITC recommendations, the first to be implemented was the separation of the regulatory and operational functions (until then the CTT/TLP exercised simultaneously both functions). The ICP gained effective legal existence through the law decree 283/89 of 23 August 1989 15 . This piece of legislation supposedly created an environment which would allow an even-handed introduction of competition in telecommunications services. The EU and indeed other pro-competition international actors had been arguing that the dual regulatory and commercial function of the telecommunications operator could not be sustained in a new competitive environment because of the conflict of interests. Although these arguments were accepted and ICP was set up before the directive on competition in the markets for telecommunications services (90/388/EEC of 28 June 1990) 16, no real autonomy was granted by the Portuguese government to the regulatory institute.

According to the article 4 of law decree 283/89, ICP has a vast array of responsibilities to perform, namely to actively contribute to the sector's legal framework; to provide assistance to the government for the purposes of carrying out its tutelage responsibilities; to co-ordinate, on a national level, all matters concerning the carrying out of treaties, conventions and international agreements; to approve materials and equipment, to undertake the management of the radio electric spectrum; to license public sector communications operators in addition to providers of value added services; among others. The difficulty however is that, with the exception of technical matters, the ICP has merely an advisory/supportive role. No line has been clearly drawn between what is a policy and a regulatory issue. Furthermore, the members of the board of directors are appointed by a resolution of the Council of Ministers (article 6, law decree 283/89). So, even with its legally recognised administrative and financial autonomy 17 and despite feasible strains, the ICP cannot be said to be a truly independent body.

Immediately after the legal setting up of ICP, the Basic Law on the establishment, management and exploitation of telecommunications infrastructures and services (88/89 of 11 September 1989) was approved by the National Assembly. This Telecommunications Act can be understood as a real watershed in the Portuguese telecommunications legal history because, for the first time, the general principles for the sector were compiled in the same piece of legislation. According to this law, it is the responsibility of the state to guarantee the existence and availability of fundamental services, including fixed telephone services, telex and a switched data transmission service (article 8). However, the exploitation of services involving the use of complementary telecommunications infrastructures 18 may be carried out by public and private companies, once properly licensed (article 10).

Similarly, the provision of value added services 19 may be made by any singular person or collective body (under specific conditions) and by the public telecommunications carriers and complementary telecommunications companies (article 13). To sum up, apart from the fundamental services, which would continue to be provided by the state, other actors - either private or public - could from then on apply to become services providers. Only the telecommunications infrastructure was to remain firmly under the responsibility of the public telecommunications carrier (article 7).

Although new entrants would have to comply with specific rules and regulations, the Telecommunications Act sets out some requirements concerning protection of competition. It states that public telecommunications carriers should guarantee the use of their networks for all communications carriers under equal competitive conditions. When public carriers provide complementary services they are equally forbidden to use any practice which may distort conditions of competitiveness or which are considered to be an abuse of a leading position (article 14). These legal provisions have not prevented alleged abuses of dominant position and accusations of unfair competition have been frequently reported. The implementation of these general principles - particularly those related to complementary and value-added services - required further legislation which 'should be made in accordance with the development of market requirements and obligations created by Community legislation' (Law 88/89, article 21) (see, inter alia, law decree 346/90 of 3 November 1990; law decree 147/91 of 12 April 1991; regulation 240/91 of 23 March 1991; law decree 329/90 of 23 October 1990).

These legal instruments - notwithstanding their significance - were not particularly controversial as the changes were perceived both as necessary and inevitable by both the government and the opposition main party, the Socialist Party. In general terms, it can be argued that the creation of ICP and the liberalisation of complementary and value-added services were directly and indirectly related to the EU legal framework. If Portugal had not passed this legislation, it would have had to comply later on with the ONP Council directive (90/387/EEC), with the Commission's Services directive (90/388/EEC) and subsequent legislation. Directives are indirectly binding in the sense that it is up to the member states to decide how the intended results of the legislation are to be achieved. In the Portuguese case, the liberalisation was nevertheless quite limited as, before the partial privatisation of Portugal Telecom, only 3% of the telecommunications market was in the private sector (Diário de Notícias,19 November 1994:12 Negócios).

Even if these changes were ultimately introduced by the national parliament and government, it is quite clear that the EU played a role here. For the reasons we have previously analysed (ideological, political and economic), the EU persuasively convinced the member states that no alternative existed but to open up their markets. Core countries had very concrete interests in doing so whilst peripheral countries were convinced that they had not much to lose. So, the Council ended up approving legislation that would make it more difficult for member-states to take protectionist measures. For Portugal, the liberalisation process was perceived as inevitable once no other alternatives existed (see speech of Ferreira do Amaral on the 5th APDC Congress in Lisbon, 1994).

Indeed, Portugal has, for example, opened up the advanced services market before the 1990 directive on competition in the telecommunications services market. The separation between operators and regulators was also approved at national level when it was still being discussed at European level. This suggests that, instead of trying to negotiate the opening up of the domestic market, the national political elites went for it at full thrust hoping to be seen as model European politicians. The elites' reference group has been their EU counterparts, not the domestic public whose interests they are supposed to represent.
 
 

3.2. The Re-organisation of the Sector

In addition to the opening up of the telecommunications market to new entrants, the Portuguese authorities believed that the three traditional public operators (CTT, TLP and Marconi 20) had to go through a re-organisation process. These operators were - for historical reasons - organised on a geographical basis 21 which was considered by the government as inappropriate. So, a financial holding society, Comunicações Nacionais (CN) was set up in 1992 (Law decree 88/92 of 14 April 1992) mainly to co-ordinate the sector, to define investment/business strategies and to deal with the privatisation process. CN started its operations in early 1993 comprising five independent public companies: the former postal services of Correios e Telecomunicações de Portugal (CTT), now an independent company (also called CTT), Telecom Portugal(TP), the telecommunications arm of the earlier CTT 22 , Teledifusora de Portugal (TDP) 23, Telefones de Lisboa e Porto (TLP) and Marconi.

The creation of CN was defended by its chairperson, Cabral da Fonseca 24, as being the 'rational' choice for the sector. The two other alternatives were to maintain the historical scenario or to merge the companies, but the holding company was - according to him - the only solution with small disadvantages (see Público, 9 December 1992). This view, however, would not be maintained for long as Telecom Portugal would soon put in place its strategy to become the dominant actor in the Portuguese telecommunications scene. The president of Telecom Portugal from 1990 to 1992, Gonçalo Areia, had already publicly argued for the setting up of a single telecommunications operator (Expresso, 19 December 1992: Economia). But it would be the next president, Luís Todo Bom, (also vice-president of the party in power) who would convince CN and the government that the company he chaired was the only one that could adequately lead the re-organisation process. The plan was to take over TDP, TLP and Marconi.

Fierce resistance towards what was then called the TP's 'secret plan', soon broke out. The Marconi's president, Sequeira Braga, and the TLP's president, Mello Franco, strongly opposed the idea as they wanted the identity of their companies preserved. Amongst other criticisms, these two operators argued 1) that the re-organisation process would be very expensive, 2) that a mega-company would be too expensive for national investors in the forthcoming privatisation, 3) that Marconi already has private capital which would complicate even further the process, 4) that lay offs would be inevitable if a merger occurred and 5) that each company had its own organisational culture (see Expresso, 23 October 1993:C2).

Marconi was, by far, the company which tried hardest to avoid the take over. In addition to intense lobbying, the company tried to position itself in such a way that would make it very difficult for it to be absorbed by PT. Marconi expanded into new markets and services and strengthened its position into the international communications market. A strategic alliance (Atlantic Alliance) was established with the Brazilian long distance telecommunications operator, Embratel, to provide global telecommunications services and to promote joint investment abroad. The company's position in the Chinese market was also built up with the signing of a co-operation and development agreement in the field of telecommunications with the Chinese authorities. At the same time, a satellite communications company was set up in Macau, in association with local companies from Macau and the People's Republic of China. Also, in 1994, the company was awarded several paging contracts in the Indian market and acquired a stake in a satellite communications company in Hungary (Marconi, 1994:10-11). Marconi was then operating in more than 15 countries, solidifying its image both externally and internally.

The predecessor of Ferreira do Amaral, Oliveira Martins, also argued against the TP's/government merger strategy, considering it 'absurd'. Whilst in other public service companies, the government talks about liberalisation of monopolies, in the telecommunications sector, the governments wants to 'integrate everything in a monster which will have more than 20,000 employees and where everything will be mixed up' (quoted in Expresso, 19 March 1994; see also interview to O Independente, 9 December 1994). In 1987, when Oliveira Martins was ministro and Sequeira Braga was secretário de estado, the government's strategy was to preserve the companies' identity and to grant administrative autonomy to CTT and TLP. In fact, 'the big the better' strategy was severely criticised and strongly opposed but Luís Todo Bom had already convinced the ministro Ferreira do Amaral and his close ally, Cabral da Fonseca, chairperson of CN, that concentration was the best solution for the Portuguese telecommunications sector.

So, despite Marconi's full thrust strategy and fierce criticisms from the government's own ranks, the merger went ahead. On the 20th of November 1993, in a long interview to Expresso, Cabral da Fonseca, argued that more than one company providing basic services in a country with ten million inhabitants and with the Portuguese GDP was unthinkable: 'there is no way of surviving in a competitive environment'. The CN's president previously believed that Portugal should have two basic service operators, one international (possibly the historic Marconi) and one national (possibly a new company resulting from the merger between TP and TLP) (see Público, 10 September 1993:35; Público 30 October 1993:39). No case was put forward to defend his new point of view but it became quite clear whose lobbying was more efficient. Interestingly enough, Luís Todo Bom has also never put forward a clear set of arguments to justify publicly why - in a country which has traditionally had three operators - a single PTT would provide a better service. He has argued, in very general terms, that Portugal should follow the Dutch model which is based on a single PTT and, furthermore, that the creation of a single telecommunications operation was essential to fight foreign competition when the market is fully liberalised between 1998 and 2003 (Público, 10 September 1993:35).

In early 1994, this most controversial issue was settled, and contrary to previous decisions, the first phase of the merger operation did occur. A new company, Portugal Telecom (PT) was finally set up (law decree 122/94 of 14 May). PT resulted from the merger of TP, TLP and TDP. The financial holding company, CN, would go on supervising the new PT, Marconi and CTT. CTT's postal services were never meant to be part of PT but Marconi would not remain independent for long. However, the incorporation of Marconi brought up more complex issues. Whilst TLP and TDP had a relatively small dimension, 100% of their capital was public and no international links had been established, Marconi had 49% of its capital in private hands, had well established international links and alliances and its concession contract would only be over by 2001.

Marconi's integration had already been decided but it was only in April 1995 that CN transferred 51% of Marconi's state owned shares to Portugal Telecom. PT became then Marconi's biggest shareholder and, once it controlled the company, it was not hard to get Marconi's small shareholders to exchange their shares for PT ones. The exchange of shares was done during the first stage of PT's privatisation, in May 1995, when PT managed to gain control over more than 90% of Marconi's capital (Diário de Notícias, 30 May 1995:4). With Marconi's actual integration, Portugal had for the first time what European countries used to have in the past: all basic telecommunications services under the umbrella of a single operator.

Neither the government nor the operator which has benefited the most from the re-organisation (PT) have been able to justify the paradox of arguing simultaneously for liberalisation and for concentration. On the one hand, it has been argued that liberalisation and full competition can only benefit the consumer; on the other hand, it has been argued that only a big operator can respond to the challenges imposed by liberalisation. In any case, because the re-organisation process was designed behind closed doors with no public debate and adequate consideration for long standing actors in the field, there was no need to prepare a consistent case. The process was conducted with speed but it certainly lacked participation.

The re-organisation of the Portuguese telecommunications in itself had nothing to do with the EU legal framework. It was designed and implemented by the national government and the lobbying process was also internally-based. Although the participation was very limited, it is relevant to note that all relevant actors involved were, without exception, members of the Social Democrat Party. Once the party has been in power for so long all important public sector positions were in the hands of social democrats. So, political struggles were not only nationally-based but also internal to the party in power.
 
 

3.3. The Privatisation of Portugal Telecom

Just as with the re-organisation of the sector, the partial privatisation of Portugal Telecom is not a direct result of EU policies. According to O Siochrú, the only acknowledged problem the EU has expressed about LFRs concerned where they would find the resources to 'keep pace' with liberalisation - 'and indeed this may be no more than a veiled reference to privatisation' (1993:4). But, even if the EU has tried to convince its members to privatise, it has no open policy on the issue and member states can decide their own strategies. Portugal has decided to follow the North American/European bandwagon.

The ministro Ferreira do Amaral has publicly stated that - whether we want it or not - the telecommunications sector will be exclusively private because public companies have no agility nor vocation to stand a chance in a competitive market. 'This is happening in all countries in the world. I do not know any [country] which is, at this stage, thinking about nationalising the telecommunications sector and the vast majority is thinking about privatising' (speech delivered at the APDC conference in Lisbon, November 1994). From this speech, two features emerge: i) if most countries are privatising, Portugal must do it as well, ii) even if Portugal resists privatisation, it would happen anyway. Yet, Ferreira do Amaral has not attempted to explain the benefits of privatisation and he has not attempted to explain why public companies (whose managers have been appointed by the social democrats over the last decade) have performed poorly. The telecommunications sector in the country was in private hands since the 19th century up until the 1960's, and in the public sector ever since (see Chapter V). In both periods it has performed deficiently. The arguments for less state intervention in the economy and the subsequent privatisation of PT were legitimised on an ideological basis as no evidence of its benefits is provided.

Apart from these general considerations about the benefits of privatisation, the government had indeed very concrete reasons to push for it. Both CTT and PT had huge financial deficits in their pensions funds because part of these resources had been used to invest in the sector. The combined deficit of CTT and PT funds was estimated by Cabral da Fonseca between £560 million and £1,120 million (Expresso, 16 April 1994:1). Commissioned by CN, the British company, Bacon & Woodrow, calculated that - although part of the removed money had already been paid back - there was still £800 million missing (Expresso, 14 May 1994:4 Privado, see also Público, 15 August 1994:23). The privatisation of PT was certainly an easy way of replacing the money which should not have been so readily removed from the pension funds in the first place. Furthermore, the ministério of Finances was urging privatisation in the expectation that it could generate extra funds. In a pre-electoral period, raising taxes was unthinkable but the government had to cope with increasing national demands and with the requirement of co-financing EU projects for the country.

The timing for privatisation was not accidental either. The government wanted to initiate privatisation before other continental operators (e.g. Telecom Italia, Telefonica, Deutsche Telekom, France Telecom, etc.). There was an understanding that if it was not done before their privatisation, their would be insufficient demand and Portugal would have serious difficulties in selling PT shares. Additionally, it had to be done before the legislative elections of October 1995 because, in this legislature, no robust opposition to privatisation existed and also because, when the government presented its telecommunications achievements to the electorate, the privatisation start up would seemingly 'complete' previous reforms.

On the 20th of March 1995, just before the privatisation went ahead, the government granted PT a public service concession contract for 30 years (due for renewal in 15 years). According to this contract (see law decree 40/95 of 15 February), PT has the exclusive right to provide basic telecommunications services and to manage all telecommunications infrastructures which support these services because the infrastructures will remain in the public domain 25 . The company will have the monopoly of basic services until this area is liberalised. PT will continue providing the same services in terms of 'universal service' which 'should guarantee the satisfaction of communications needs of the population and the economic and social activities in the entire country, in a non-discriminatory and adequate form, in order to support an harmonious and balanced socio-economic development' (Factos de Comunicações, nº10 May 1995:6). As the single basic services operator, PT has naturally to make provisions for emergency and information numbers, and to have distinct rates/facilities for people with special needs.

So, when the company was put on the market, it had a solid contract granting it the monopoly of most telecommunications services in the country. But the public service contract had little impact and it has not diminished criticism about the way the process was conducted. The government was particularly criticised because of PT's privatisation timing and valuation. Several Portuguese actors involved in the telecommunications sector argued that privatisation should be done after - and not before - wider liberalisation was brought to the sector. Amongst other actors, the telecommunications platform 26, representing the interests of four private telecommunications companies, argued that privatisation at that particular stage served foreign interests rather than national and believed that the current policy would asphyxiate embryonic private telecommunications companies (see e.g. Diário de Notícias, 18 November 1994:4 Negócios; Telecomunicações, nº9 January 1995:21-23).

The valuation of the company was especially controversial because the overall value of the company declined dramatically in a short period of time. In August 1994, the consultant firm, James Capel Europe, estimated PT's value as £4,000 million (Diário de Notícias, 6 August 1994:2 Negócios). Luís Todo Bom, in an interview to Expresso, denied press reports that PT was being poorly evaluated and stated categorically that the company was worth between £3,200 million and £4,000 million (3 December 1994:4 Privado). The ESSI group - commissioned by the government to co-ordinate the privatisation process - estimated, in early 1995, that PT's value was 40% less than that James Capel had calculated the year before. For reasons which have never been disclosed, the government itself has lowered the price even further and PT was put on the market at a price which would vary between 1,900 million and 2,356 million (see O Independente, 26 May 1995:3 Dinheiro). Whatever the specific pressures put on the Portuguese government to lower PT's value, it can be assumed that the government feared that there would not be demand for PT's shares if the price was not particularly low. As such, the demand was enormous and the operation was perceived as a success (see e.g. Diário de Notícias, 2 July 1995:2 Negócios). In any case, the government was not prepared to take risks - either stopping or postponing the operation - when the October 1995 legislative elections were just around the corner.

So, the partial privatisation went ahead with around 50 million shares on the market. PT offered 23 million shares for direct sale to Portuguese and international investors and 27 million shares at a special session of the Lisbon stock exchange on the 1st of June. The 27 million included 17 million for shareholders in Marconi, 7,5 million for PT employees, small investors and emigrants, 1,5 million for PT's bondholders and one million for other shareholders (see Comunicações Nacionais et al., 1995). Demand for shares in the direct sale of PT has outstripped supply fourfold. International and national investors have submitted offers for more than 80 million shares although only 23 million were made available.

From the overall 28% of PT's capital which was put on the market, 2,7% went to the hands of the Espírito Santo group which comprises the ESSI bank. The rest is highly dispersed amongst national and international small investors, pension funds and companies (Público, 4 July 1995:32). The operation cashed in £560 million, from which the state kept £20 million for the Treasury. £320 million went to the CTT/PT pension funds, £19 million went to the consortium - lead by Sociedade Financeira de Corretagem, part of the ESSI bank - which co-ordinated the privatising operation. The remaining £200 million corresponded to Marconi's shares exchanged for PT's 27 (Diário de Notícias, 2 June 1995:2 Negócios). More than 90% of Marconi's shares in private hands were exchanged for PT shares at a previously agreed price (£26 per share) which guaranteed the total integration of Marconi in PT.

Possibly it will be the second phase of the PT's privatisation - predicted to take place in 1996 - that will prove to be crucial to the company's future. At that particular stage, the government and PT will probably seize the opportunity to establish an international alliance that will improve PT's business opportunities in the international market. The government has dismissed the need to find a strategic partner in the second stage of privatisation when 21% to 22% of the capital will be sold (according to the law, no more than 49% can be in private hands) (Expresso, 3 July 1995:1 Privado). But if actors - in the international scene and within PT - have a specific interest in a given alliance at that time, it will probably be secured.

After the first stage of PT's privatisation, on the 13th of July 1995, the Council of Ministers approved the abolition of Comunicações Nacionais. CN had been co-ordinating the restructuring of the sector and preparing the privatisation of PT. Still, CN had not been able to actually lead the process and was too weak to fight lobbies and balance the needs and interests of the various actors involved in national telecommunications. Ferreira do Amaral, quoted in Público newspaper, argued that CN would come to an end because it has accomplished its mission (14 July 1995:32). Furthermore, Cabral da Fonseca stated that he would calmly assist the evolution of the sector because 'the essential had already been done and it is irreversible' (Público, 14 July 1995:32).
 
 

3.4. The Political and Economic Relevance of the Sector

The massive investments in the sector and the rapid expansion of the networks and services suggest that recent national governments perceived it as a priority area. Since Portugal joined the EU, the government wanted to be seen both internally and externally as being able to push hard for the expansion and modernisation of the network. Although Portugal still has one of the least developed telecommunications infrastructures in the European Union, very significant improvements were made over the last decade.

In order to develop the provision of basic and advanced services, domestic public telecommunications operators (previously CTT/TP and TLP, now PT 28 ) had to invest in the expansion and modernisation of the network. The activity has been concentrated in the upgrading of the fixed telephone system and on its modernisation by adopting digital switching and transmission. The digitalisation rate has doubled over the last four years (30% in 1990 and 62% in 1994) (ICP:1995b:13). According to Portugal Telecom's figures, the digitalisation rate of local switching was 62% in 1994 while the digitalisation rate for the trunk network rose from 76% in 1993 to 93% in 1994 (see table 12).

With a better quality basic infrastructure, operators have been able to respond more efficiently to public demand for the installation of fixed telephone service. The average delay in the installation of a main line has been declining steadily. In 1990, the waiting time was still seven months, but in 1993 it went down to one month, and in 1994 it was down to 22 days (ICP, 1995b:13). In the business segment, the improvement was from one month in 1993 to ten days in 1994 (Telecom Portugal, 1995:39).

The telephone density indicator (main lines per 100 inhabitants) reflects social demand for the service and the companies' technological and financial ability to respond to these needs faster than ever before. 'The total number of main lines existing in Portugal, as at 31st December 1994, was 3444 thousand, 21% of which were for professional use' (Telecom Portugal, 1995:39) which represents 35 main lines per 100 inhabitants. As we can see in table 13, the number of telephone main lines has risen steadily since 1986 and has, in fact, more than doubled over the last decade.

During the 1980's, main line and investment growth was indeed substantial. Between 1985 and 1990, main line growth was over 11% per annum, three times the OECD average, and from 1980 to 1990, investment growth was above 10% per annum or 3 times the OECD average. Despite these efforts, Portugal still has one of the lowest penetration rates in the developed world on a par with Ireland, it stands in last position amongst its EU counterparts. In 1993, both Portugal and Ireland had a penetration rate of 33 main lines when - for instance - Sweden, Denmark, France and the UK had a telephone density of 68, 59, 54 and 49, respectively (Portugal Telecom, 1995:33). In terms of consumer satisfaction with fixed telephone services, Portugal cannot be satisfied either. The high number of customer complaints connected with equipment faults reveals that the quality of the service is still defective. For every 100 main lines, there were, in 1994, 70 complaints (Telecom Portugal, 1995:40). In addition, as we have previously stated, the Portuguese consumers association DECO receives more complaints (for various reasons) regarding PT than concerning any other company operating in the country.

Contrary to the broadcasting sector, the telecommunications sector in Portugal does have an impact on the national economy. The sector 29 revenues accounted, in 1994, for 2.9% of the GDP, about the same as in previous five years. The investment figures in Gross Fixed Capital Formation (GFCF) have nevertheless declined considerably over the last five years from 4.3% in 1990 to 4.7% in 1991 to 4.2% in 1992 to 3.0% in 1993 and, finally to 2.6% in 1994. Overall, the public telecommunications companies have invested over the last five years (from 1990 to 1994) around £2,382 million (ICP, 1995a:15-19).

Telecommunications employment represents 0.5% of total employment (4,252,000) i.e., 21,225 people work in the sector (non-staff elements and other companies' outside contributors are not included in this figure) (ICP, 1995a:15-19). Although the sector has economic significance in national terms, it has almost no relevance in the OECD context. Kelly and Iida have estimated that in 1990 the Portuguese telecommunications market was worth US$ 1,5 billion which was equivalent to 0.4% of the total in OECD countries (1992:2).
 
 

4. Conclusion

The telecommunications reforms introduced in Portugal have been in line with the EU policy framework for the sector. The market was opened up: terminal equipment and advanced services were liberalised; the separation of the regulatory and operational functions became effective; postal and telecommunications services were split up; the telecommunications sector underwent a major re-restructuring which involved the merger of the three main public telecommunications operators and, finally, the partial privatisation of the main operator, Portugal Telecom, has started and will probably be finalised by 1996.

Some of these reforms, namely the opening up of the markets, were introduced because the country had to comply or would have to comply in the near future with the EU legislation. Other aspects of the Portuguese reform relating to the re-organisation of the sector and to the privatisation of Portugal Telecom have no direct relation to the EU legal framework. The re-organisation of the sector was designed and implemented by the national government and the lobbying process was also internally-based. Likewise, the privatisation of PT has taken place for very concrete domestic reasons. Capital was urgently needed to finance major investments in network expansion and in advanced services, so pension funds from public companies were used and the partial privatisation of PT was perceived as the easiest way of paying the money back. The Treasury was also keen on the privatisation, hoping to be able to generate extra funds.

So, although most of the policy decisions adopted in Portugal are in accordance with the EU policy framework, it does not necessarily mean that i) they were imposed by the Union and ii) that they were in contradiction with the government's interests. For example, the government wanted to protect PT's interests and it has taken the necessary steps to do so. In spite of the liberalisation of advanced services, PT's position in the market was strengthened. The company was the clear winner of the merger process; it has continued to be the sole provider of basic services and it has also been allowed to provide a wide range of advanced services, including cable television (see Chapter VII).

In any case, Portugal has so far complied with the EU binding legislation and policy orientations, even if it has not fully benefited from the most relevant aspects of the EU telecommunications policy, namely the opening up of the markets and R&D subsidies. The Commission itself recognises that it is relatively easy to assess the benefits of the EU telecommunications policy for more industrialised countries, but that it all becomes rather more complicated if one attempts to evaluate the benefits for countries like Portugal. Precisely because of the recognition that the EU policy does not specifically address the needs of LFRs, the Commission put forward programmes such as STAR and Telematique expecting to persuade LFRs that they had not been forgotten. Despite the meagre resources allocated to these programmes, they had a positive impact on Portuguese telecommunications: they supported the expansion of the network and they assisted in the introduction and development of advanced services such as ISDN, mobile phone, paging and videoconference.

So, it can be argued that there is a level of interdependency between the EU and Portugal in this field. Portugal might not have benefited from the most important aspects of the EU policy but has taken advantage of STAR and Telematique programmes to boost the development of national telecommunications. From the EU point of view, the opening up of the Portuguese market was perceived as relevant not only because it meant more business for core countries' industries but also because it was necessary to foster economic and political integration in this area. This interdependent relationship could have been more equitable if Portugal had not joined the EEC so late and if the country had not been isolated for so long. In fact, Portugal lacked experience in the international fora and was clearly ill-prepared to effectively negotiate for further concessions out of Europe in this particular field. Portugal has, for example, agreed to open up its telecommunications markets before the EU directives were adopted which put the country in a weak negotiating position. Had national political and technical elites had superior bargaining skills, a more even-handed relationship could have been established between Portugal and the EU in the telecommunications sector.

Although it is quite clear that there are increasing levels of interdependency or mutual dependency, the telecommunications sector does not disprove that the nation-state still remains the main locus of power in terms of defining most domestic public policies. As far as the Portuguese case is concerned, the development of international linkages does not imply that the state has lost its grip over the definition of telecommunications policy. Well established policy-making traditions are observable in the way national telecommunications policy has been conducted in recent years. Crucial political decisions such as the re-organisation of the sector and the partial privatisation of PT have been taken according to the elitist mode of decision-making. Although a great number of actors had a direct interest in these matters, only a very limited number of individuals had an impact on the political output.

The merger of the three traditional basic telecommunications operators into Portugal Telecom did not take into account the diversity of competing interests and was decided behind closed doors by the ministro for telecommunications and a very restricted group of close allies. Similarly, the partial privatisation of PT was presented as 'inevitable' and therefore no debate or consultation was understood as being necessary. In practice, crucial decisions are being reached without transparency and without the proper consideration of alternative policy decisions. The pattern of centralisation and secretism is still very much part of the way telecommunications policies are actually developed.

The elitist nature of the decision-making process, and the inherent lack of accountability, allows politicians to get way with their options without even being compelled to justify self-evident contradictions. The government tried, for instance, to conciliate liberal ideology with the specific interests of the most powerful national interest groups, particularly the TP/PT lobby. Hence, on the one hand, it has been defending liberalisation and competition and, on the other hand, it has led the concentration process of Portuguese telecommunications under one operator, PT. There is also a clear contradiction between the government's expressed objective of protecting national interests and national economic groups and the signing of the Bangemann report which argues for full competition at all levels (equipment, services and infrastructure). If full competition is to be implemented, national companies cannot - in theory at least - be protected by governments.
 
 

Footnotes:

1. The need for catching up with the European partners is expressed, for instance, in the programme of the 11th Constitutional government (the first majority government of Cavaco Silva) (Assembleia da República, 1987:33).

2. In practice, the Council articulates national interests (for more, see chapter III).

3. The liberalisation drift started in the US in the 1960's culminating with the divestiture of AT&T in 1984. In the same year, the British telecommunications operator, BT, was privatised and a duopoly network structure was set up. Correspondingly, in Japan, in the very same year, the long distance network was liberalised and the telecommunications operator, NTT, was partially privatised.

4. For more on centralisation in Portugal, see Chapter IV.

5. The budget of the ESPRIT programme from 1987 to 1991 was 1,600 million ECU and from 1990 to 1994 was 1,339 (Schnöring, 1994:151).

6. The exaggeration in the assessments made by the civil service is common and it is one of the reasons why politicians themselves distrust the analysis of their own services which, in general, consider political measures to be 'beneficial' and 'effectively undertaken' (see Chapter IV and Portas and Valente, 1990:342).

7. This service is characterised by the data transmission between locations where telecommunication equipment provides access to information during a certain period of time (ICP, 1995a:23)

8. Paging Service is characterised by allowing the establishment of adressed and one-way low speed non-voice communications to adequate terminal equipment with a non fixed nature (ICP, 1995a:24). Paging is also commonly known as the 'bip-bip' service.

9. Trunking services allow the establishment of voice and data between two pre-established terminal points. Trunking services are usually associated with fleet management.

10. ISDN stands for Integrated Services Digital network. It is an integrated digital network capable of controlling, transmitting and switching several forms of telecommunications services on the one network. Narrow-band ISDN can carry voice, data, text and image; broad-band (B-ISDN) can also carry High Definition Television (HDTV) (Westerway, 1990:xvi).

11. LAN is a network permitting interconnection and intercommunications between a group of computers; LANs cover short distances and may be confined to the boundaries of a single property (Westerway, 1990:xvii).

12. MAN is a city wide network permitting a group of computers to be interconnected and to communicate; e.g. computer network linking head office and branches of a bank in one city (Westerway, 1990:xvii).

13. National interest can be understood as the overall common good of an entire society (Clinton, 1991:49). Although this concept is commonly used by politicians, it is not clear what it entails which helps the authorities to identify national interest with governmental interest.

14. These speeches were published in Comunicações, January/February 1993 and Comunicações, January/February 1995, respectively.

15. The ICP was formally created in 1981 under the law decree 181/81 of 2nd of July but this legislation has not produced any results until the 1989 go ahead.

16. In addition to the opening up of the telecommunications services, this directive also contemplates the separation of regulatory and commercial functions.

17. The ICP has to generate its own financial resources which is achieved mainly from the spectrum management (spectrum users pay ICP directly) and from the issuing of licenses (see, e.g., ICP, 1995b)

18. In accordance with the Portuguese law, complementary telecommunications infrastructures are all public telecommunications infrastructures which are not part of the basic telecommunications network. Basic telecommunications network is comprised of a fixed system of access by subscribers and by the transmission network including, in addition, concentration, switching or processing nodes which are essentially meant for the provision of the fundamental services (fixed telephone, telex and one switched data transmission service) (law 88/89, article 9 and 11)

19. Value added services are understood - by the Portuguese law - to be those which, using fundamental or complementary services as their only support, do not require their own telecommunications infrastructures and which are distinguishable from the services on which they are based (law 88/89, article 13).

20. Marconi was considered a public operator but 49% of its shares were in private hands.

21. CTT used to supply local telephony to the entire country with the exception of the two main cities, Lisbon and Oporto, and long distance communications to Europe and North Africa; TLP used to cover Lisbon and Oporto while Marconi had the monopoly of cable and satellite communications to the rest of the world (for more see Chapter V).

22. The separation of the CTT's post and telecommunications activities was contemplated in the law decree 277/92 of 15 December 1992.

23. TDP was set up through law decree 138/91 of 8 April 1991 in order to distribute broadcasting signals for RTP and for the forthcoming television companies, if they wished so.

24. Cabral da Fonseca is an ally of Ferreira do Amaral and, before chairing CN, was the chief of the Portuguese commissioner's cabinet in Brussels.

25. What is privatised is the provision of the services, not the infrastructures.

26. In Portuguese, it is named Plataforma para a Modernização das Telecomunicações

27. These are approximate figures as data is sometimes provided in US dollars and other times in Portuguese escudos.

28. Before Marconi was absorbed by PT, it used to be the carrier of international telecommunications services outside Europe and North Africa.

29. The sector revenues considered here are those coming from CPRM, PT (TP+TLP+TDP) and Telepac.