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THE NEW TELECOMS PACKAGE: RIPE FOR REFORM, AGAIN?
Andrea Renda, CEPS Senior Research Fellow
Brussels, 30 April 2010
2
INTRODUCTION
The reform of the EU telecoms package has taken more than two years: is the result obsolete?
Structural problems:
Is the competition policy approach the right one?
Is the “competition in member states” approach the right one?
Lack of an internal market for e-communications
Lack of adequate checks and balances
Dynamic views:
Can the current framework manage convergence and the transition towards NGA networks?
Is there a way to “de-ossify” telecom rules by avoiding endless discussions on a “one-size-fits-all” package?
2
3
THE INTERNAL MARKET AS EU TELECOMS’ CINDERELLA
4
PRO-INTERNAL MARKET PROVISIONS IN 2002
A common regulatory approach
General authorizations
Competition policy tools (relevant market, SMP, etc.)
The 3 criteria test
Art. 7 procedure
The Commission wanted to extend it to remedies already in 2001
Independence of the NRA
The European Regulators Group
5Towards fullcompetition
Monopoly
Amount ofregulation
19981990 2001
Competition Law
Pro-competitive
sectoral telecoms Laws
RELY INCREASINGLY ON COMPETITION RULES
2004
?
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STATE OF PLAY – BEFORE THE REVIEW
Market analyses are quite resource-intensive
Analyses and remedies are often inconsistent
Competition policy tools only partially applied
Appeals procedures slow down regulation
The “ladder of investment” still lacks convincing empirical evidence
The current framework is not suited for mobilising needed spectrum resources
Better regulation tools are missing
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WHERE’S THE INTERNAL MARKET?
“in the electronic communications sector, two decades after we started to open national markets formerly
dominated by state-owned monopolies, to competition, we still do not have an internal market for telecoms. The
reason for this is mainly a regulatory one: the fragmentation of the internal market into 27 different
regulatory systems”
Viviane RedingERG Plenary meeting,
November 2007
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WHERE’S THE INTERNAL MARKET?
“Europe is still a patchwork of national markets. We no longer have queues of lorries at frontiers but we are still
very far from achieving a Digital Single Market”
Neelie KroesMobile World Congress,
February 2010
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FAILED INTERNAL MARKET? EVIDENCE FROM THE 14TH REPORT
COM (2009) 140 > “.. necessary ..to create a level playing field in the EU’s single market”
Enormous price differentials in the EU27, both fixed and mobile
“… full potential of a competitive telecoms market.. impeded by ineffective and inconsistent implementation of regulation”
Approaches to NGAs fragmented; methods for setting MTRs diverse
COM signals a ‘need for a more coordinated approach’ to spectrum management
COM holds that lack of veto on remedies ‘hampers the efficient functioning of the single market’
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IS IT ONLY BAD IMPLEMENTATION?
The framework is conceived to foster competition and innovation in national markets – a structural absence of internal market goals: consistency in the regulatory approach, not outcomes
Art. 7: Commission supervises application of EU competition/regulation principles in national territories (unlike DG COMP, which acts only if IM is affected)
Pan-European services residual by nature in the 2002 framework
The framework is not outcome-based, rather it is principles-based: what about a more pragmatic approach?
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A LOOK AT THE EVIDENCE
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BROADBAND PENETRATION, JUNE 2008
Source: OECD (2009)
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MORE V. LESS DEVELOPED: THE INCREASING DIVIDE
31.9%
35.6%
7.6%8.6
0%
5%
10%
15%
20%
25%
30%
35%
40%
2003 2004 2005 2006 2007 2008
BB
pe
net
rati
on
3.4
5.9
12.8
16.3
20.0
0.0%4.4%1.4%
0.5%0.1%
8.5%
13.5%
19.2%
25.2%
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MOBILE TERMINATION IN THE EU27
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15
0%
20%
40%
60%
80%
100%
120%
Aus
tria
Belg
ium
Bulg
aria
Cypr
us
Czec
h Re
publ
ic
Den
mar
k
Esto
nia
Finl
and
Fran
ce
Ger
man
y
Gre
ece
Hun
gary
Icel
and
Irel
and
Ital
y
Latv
ia
Lith
uani
a
Luxe
mbo
urg
Mal
ta
Net
herl
ands
Nor
way
Pola
nd
Port
ugal
Rom
ania
Slov
akia
Slov
enia
Spai
n
Swed
en UK
EU a
vera
ge
Broadband Coverage Urban V Rural (Dec 2007)
Urban Rural
URBAN V. RURAL COVERAGE
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Source: European Commission
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INVESTMENT IN TELECOMS INFRASTRUCTURE, OECD
0
50
100
150
200
250
300
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Europe Asia/Pacific North America
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PER CAPITA INVESTMENT IN TELECOMS INFRASTRUCTURE, OECD
0
100
200
300
400
500
600
Icela
nd
Denmark
Austra
lia
Norway
Switz
erland
Irela
nd
United St
ates
Canada
Luxe
mbourg
New Z
ealand
Spain
Sweden
Netherla
ndsIta
ly
Greece
Korea
OECD
United K
ingd
om
Portuga
l
Belgiu
mJa
pan
Austria
France
Slova
k Republic
Finla
nd
Germany
Czech
Republic
Poland
Hungary
Mexi
co
Turkey
2005 2007
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NEXT ESSENTIAL FACILITIES: FIBER
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Physical (transport) layer(e.g. coaxial cable, backbones, routers, servers)
Physical (transport) layer(e.g. coaxial cable, backbones, routers, servers)
FixedFixed MobileMobile OtherOther
Logical layer(e.g. TCP/IP, domain names, telephone numbering systems, etc.)
Logical layer(e.g. TCP/IP, domain names, telephone numbering systems, etc.)
Application layer(e.g. web browsing, streaming media, email, VoIP, database servi ces)
Application layer(e.g. web browsing, streaming media, email, VoIP, database servi ces)
Content layer(e.g. web pages, audiovisual content, Voice calls)
Content layer(e.g. web pages, audiovisual content, Voice calls)
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NGA: SELECTED NATIONAL STRATEGIES
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Source: Bocarova (2009)
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NGA: TECHNOLOGIES & REGULATORY OBLIGATIONS
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Source: Bocarova (2009)
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NGA: SELECTED NATIONAL STRATEGIES
Source: Bocarova (2009)
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NGA: TECHNOLOGY + REGULATORY OBLIGATIONS
Source: Bocarova (2009)
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INTERNAL MARKET AS EU TELECOM CINDERELLA?
Telecoms regarded as a leading example for EU approaches to network industries…
…But this does not hold as far as the internal market is concerned
In postal, electricity and e.g. air transport price variations are less marked, or “national” markets become less prominent, if not irrelevant at times
Proposition for debate:
the economic gains from EU telecoms liberalisation, in combination with technological progress in hardware and services, have been so overwhelming for 20 years that the internal (telecoms services) market was snowed under or ignored (and few noticed)
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THE 2006-2009 REVIEW: SELECTED TOPICS
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AFTER THE 2002 PACKAGE
Roaming regulations (2007, 2009)
First proposal to review the telecoms package
Commission’s veto power over remedies
EECMA
Functional separation (not really IM-oriented!)
Rules on appeals
Centralisation of spectrum policy
Recommendation on termination
NGA recommendation
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AFTER THE 2002 PACKAGE
Roaming regulations (2007, 2009)
First proposal to review the telecoms package
Commission’s veto power over remedies
EECMA
Functional separation (not really IM-oriented!)
Rules on appeals
Centralisation of spectrum policy
Recommendation on termination
NGA recommendation
No veto, only “concerns”
BEREC
Spectrum remains national
prerogative
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THE COMMISSION’S PROPOSAL: EECMA
Would have merged the ERG and the ENISA
an “enhanced ERG” would not have been able to issue binding decisions (only the Commission can)
Provided a framework for cooperation between NRAs (like ERG)
Voted with simple majority to issue non-binding opinions on Art. 7 procedures (impact on Internal Market and compatibility with Community Law)
Adviced on spectrum harmonisation issues
Issued Annual reports
Legal basis was Article 95 EU Treaty
27
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THE CASE FOR A NEW AUTHORITY
According to the IA, benefits are 10-30 times the cost (up to 1.4 billion Euros), plus the reduction of regulatory risk . This calculation seems hazardous
Internalization of cross-country externalities
(e.g. international roaming, mobile communications on board of aircrafts, VoIP, spectrum, the provision of pan-European services to multi-location businesses)
Would help the Commission face the increased burden from (the proposed) extended veto power on remedies
Would ensure economies of scale in regulatory decisions
ERG has proven to be weak and lacking accountability
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THE CASE AGAINST A NEW AUTHORITY
Hardly in line with the transient nature of sector-specific regulation
Markets are not sufficiently integrated
Adds another administrative layer, costly today and difficult to dismantle in the future
Governance does not guarantee independence (in particular, the EECMA Administrative Board)
Accountability is not guaranteed (what about appeals? Stakeholder consultation?)
Appeals to Commission decisions?
Simple majority voting can create problems
Unclear what the balance of power would have been between the Commission and EECMA
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AN EXAMPLE
Assume that
Neither a NRA, nor the incumbent want to undertake functional separation
The Commission, backed by the EECMA, rejects all other remedies
The NRA is then forced to choose separation under new Article 13a
Then:
functional separation can be de facto imposed in one country…
…against the will of the regulator and of the regulated…
…thanks to a simple majority vote by the EECMA…
…and with no real possibility of appeal!
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A NEVER-ENDING SAGA
Lost in translation
Initial proposals: ERG+ and ERG++
The Commission proposed EECMA in 2007
The Parliament responded with BERT in 2008
The Council further watered it down to GERT
Finally an agreement was found on BEREC in 2009…
… but BEREC is indeed ERG+!
But the key issue (appeals on Commission decisions) could not be addressed: much ado about nothing?
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CAN BEREC DELIVER THE INTERNAL MARKET?
Very far away from a true IM agency. A small Agency, with split legal personality and a role
dependent largely on quality advice based on expertise Run by NRAs – too little incentive to give priority to IM NRAs (MS) overruling each other is not easily done in the
Brussels circuit BEREC intervenes mainly on competition in national markets
No power on spectrum and very soft on pan-EU services, fatal weaknesses
COM (remedies) can only express ‘serious concerns’ and NGA recommendation was by-passed by MS acting, a major drawback of ‘soft’ multi-level governance
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WRAPPING UP
The policy problem exists
The Commission failed (again) to introduce truly IM-oriented changes in the telecoms package
Failure to integrate markets is a serious missed opportunity (up to €20 bn yearly for EU consumers?)
Even soft-law documents appear less thorough than one could expect (especially termination and NGA)
Member States are taking diverging solutions to NGNs and spectrum: too late to intervene?
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CONCLUSION: AGONIZING QUESTIONS
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AGONIZING QUESTIONS
Will Telecoms-2009 deliver the IM ?
Is the Meroni doctrine really an obstacle on the way towards an EU regulator?
Is the competition-in-national-markets approach not ill-suited for an internal eComms market?
What alternative policy approaches?
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SOLUTIONS?
Another review of the framework?
No political will to strengthen the IM orientation of the telecoms package
Further simplification (or removal) of the list of relevant markets?
Strengthening the three criteria test/reversing the burden of proof for NRAs?
Changing the regulatory approach?
From competition in member states to pan-European competition?
Fostering industry consolidation?
Multi-layered self-regulatory schemes?
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TOMORROW’S APPROACH
The sector is increasingly dominated by layered architectures:
Industry consolidation. The infrastructure layer might soon feature real facilities-based competition (if spectrum is made available): no need for strong access policy anymore?
Spectrum centralization. This is why spectrum centralization and digital dividend coordination is the key step towards a new approach – 4G is waiting…
Reversal of the burden of proof. Repeal the list of relevant markets by 2012?
Co-regulation. Adopting a co-regulatory solution focused on consumer rights would change the perspective on the Internal market?
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CONCLUSION
IM is EU telecoms’ Cinderella – neglected so far, but potentially a shining star
Difficult to work on a revision of the 2002 framework –better work under the Digital Agenda and carry out a strategic review of the e-communications sector, aimed at measuring the added value of centralization (good old subsidiarity, revisited)
Absolute priorities: spectrum reallocation and a wide co-regulatory agreement on net neutrality and QoS
From process-based to outcome-based regulatory policy
