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The European Union 2006 Review of Telecom Regulation "There is No Big Push for Further Competition"

Posted on: Saturday, 1 April 2006, 03:02 CST

By Sutherland, Ewan

The European Union does not have a static frame-work for the regulation of telecommunications, rather it is a long march that has already lasted well over a decade and will run for at least another decade. Almost inevitably, there is the avant garde and the long tail of stragglers, plus a few dragged along with little commitment or understanding of why they are on the journey.

Last November the European Commission launched the "2006 Review", the next push for reform. However, it is to be modest compared with the legislation of 1998 and 2002. It is to be tidying up and fine tuning, rather than dramatic changes. For there is little willingness to begin again, nor are there any radical ideas or new visions that might justify tearing down the present framework.

The target remains the elimination of specific regulation for the telecommunications sector, switching entirely to reliance on horizontal regulation, mostly competition law but also some consumer protection and data protection law. Yet there remain serious doubts about the capabilities of the National Competition Authorities (NCAs) and whether they have the necessary resources to deal with the large number of cases and their complexity.

Indeed, the processes of competition law and their relatively slowness, when compared to a fast moving sector give cause for concern, especially amongst smaller market players. The present arrangement, involving the National Regulatory Authorities (NRAs), the NCAs and the European Commission helps keep everyone honest and avoids regulatory capture.

Consulting Nostradamus?

At the Commission's hearing on 24 January, ETNO, the association of former monopoly operators, asked for an end to sector specific regulation by 2015. This seemed both arbitrary and optimistic, as if they had consulted Nostradamus. There are now well established regulators in each of the member states and a wide range of evidence that markets require and will continue to require interventions to eliminate abuses.

As good bureaucrats they leave risk taking and speculation to the operators and rely on the evidence from the market analyses. The only obvious reason for this request was so that ETNO can say at the next review, in 2013, that it had asked before.

The argument that de-regulation can be measured quantitatively by the number of markets and remedies ignores the provision in the present legislation which has explicit sunset clauses. The regulation of markets is lifted as they are found to be competitive. The aim is not less regulation, but more markets that are effectively competitive and better means of getting there. The problem has been the lack of competition and the lack of policies to promote competition.

There is a sort of transitory schizophrenia amongst the big operators as they pass from being national tyrants into multi- national competitors. Their domestic views are not tempered by their initial experiences abroad, where they must argue for regulated access to the networks of other incumbent operators. Only gradually are these views reconciled. British Telecom seems to have come through at the other side, while France Telecom is almost there. Telefonica de Espana and Deutsche Telekom are still expressing their domestic opinions, that regulation is a burdensome, purposeless imposition.

Game-playing?

In theory the introduction of new entrants was to allow the incumbent operators to learn about competition. Instead, they have learned advanced politico-regulatory game-playing. They lobby at the highest level and seek public consultations of the detailed legislative and regulatory proposals. The recent efforts in Germany by Deutsche Telekom, persuading the coalition to include regulatory relief in the CDU-SPD agreement is the most simultaneously blatant and impressive example of lobbying. The implementation was frustrated by the European Commission.

Yet the consultations have become so obscure and so technical that the only people able to respond and comment are the operators themselves. These are consultations in public, but not of the public. A recent example of the need for considerable expertise in economics, engineering and law was the European Regulators Group seeking opinions on its remedies document.1 The GSM and UMTS operators argue against further market entry, claiming that they must have exclusive use of the 2.6 GHz band. They allege that interference from sharing with WIMAX would be intolerable and would raise the prices charged for the services. There are few people able to refute or even comment on such arguments.

The delays in the implementation of what is still called the "new regulatory framework" have been considerable. The member states bound themselves to transpose the directives by 25 July 2003 only for many to fail and to have to be pushed by infringement proceedings initiated by the Commission. Only Finland has completed the analysis of all eighteen markets. Some NRAs are only just starting. It is far from the results expected in the 1999 Review where the consensus was there would be rapid implementation, followed by quick discovery of competition and the rapid rolling back of regulation.

If nothing else, the 2006 Review makes the laggards look bad. However, it may also exclude them from the debate, since they do not have the experience of applying the "new" directives.

The Lisbon goals

The lack of will in the member states to transpose and to implement the legislation comes, in part, from the dot.com crash and burn. Many of the new entrants disappeared. At the same time, the sense amongst politicians that ICTs were important left them and there are few votes in what remains. The 2006 review, as with the previous review, will fall to the work of civil servants and a small band of MEPs. both some distance from their national political leaderships. While they will ensure that nothing objectionable to their leaders is included, they cannot ensure support for the measures. The Lisbon goals will be mentioned, but with little expectation that jobs and growth will be delivered, despite the obvious and pressing need.

One of the key considerations in the regulatory framework is the achievement of sufficient "certainty" to deliver the levels of investment necessary to deploy new services. There are quite different views of this-what can seem regulatory certainty to one market player can be inertia to another. The financial market takes a short term view, measured in quarters of a year, and is subject to frequent adjustment and revision.

The regulators look ahead two years for their market analyses. The operators are supposedly taking long term views on infrastructure investments. However, they also play short term games by seeking special treatment when they must make larger investments and by selecting specific investments in order to get around regulations. Such very different views are not easily reconciled.

The European Union has little interest in the creation of an internal market for telecommunications, beyond equipment sales. The greatest failing of successive reforms has been the acceptance of the desire of the member states to retain national markets. This is clearest in spectrum, where the EC has very little influence. One of the symptoms is the high level of charges for international mobile roaming where the emphasis should have been on the creation of trans- national services, rather than possible price controls.

Little change?

Little will change in the 2006 Review, with national markets remaining very much that. There may be some guidance on how to move towards the regulation of regional markets where Scandinavia is an obvious candidate. The existing regulatory framework allows for the regulation of both trans-national and sub-national or provincial markets, yet regulators have kept firmly to national borders, neither more nor less.

Article 7 of the Framework Directive sets out the obligation on NRAs to present their conclusions to the EC and these may be subject to a veto. The provision requires the NRAs to inform other NRAs, but they have never commented on each other in public, though they may do so privately. Many of the conclusions have been negotiated, with pre-notification meetings and a few post-notification withdrawals of measures, leading to only a very small number of vetoes and one appeal against a veto. Despite a sense that it was cobbled together as a compromise in the 1999 Review, the Article 7 process has worked surprisingly well.

Interestingly, the operators are arguing for strengthening the provision of the EC veto and guidance, though member states may not be very willing. There is unlikely to be any discussion of a single European regulator - that is far from being popular.

One of the problems to be addressed in the 2006 Review is a general sense amongst operators and regulators, perhaps not amongst governments, that the systems of appeals are not working. That in their great diversity of arrangements and decisions they act against the modest levels of harmonisation being achieved in other ways.

It is a tough problem to crack, since some right of appeal is essential and the member states have different traditions. If the EC waits for harmonisation by the training of judges, it will take forev\er. Transferring the appeals to a single European appeals tribunal or to a special chamber of the Court of First Instance are ideas that are probably too radical for the member states, even if the tribunal were to be composed of the retired heads of NRAs.

In the nature of the European Commission there are constant reviews of all sorts of legislation and policies. Some of the reviews conducted by other directorates-general have to be considered in the 2006 Review in order to ensure that everything fits together properly and coherently. In particular, the alignment with competition policy requires to be reconsidered, given the adoption by DG Competition of the test of significant lessening of competition and the green paper on the abuse of dominance. It is far from immediately obvious how this test, intended for merger analysis, can be applied to sector regulation. Yet this could be a vital element in increasing competition in telecommunications and the eventual reduction of regulation.

Overlaps and gaps

There is a need for alignment to deal with overlap and gaps with the changes made or being considered in the E-Commerce Directive, the Television Without Frontiers Directive and the recent Data Retention Directive. Minimally, the definitions need to be considered and, ideally, made consistent. Examples include the application of the country of origin principle and the strange misalignment of definitions between electronic communication services and information society services.

The risk is that services are designed to work around specific regulatory obligations. These are important areas of work that should not be left to inter-service consultation which is conducted far from the public eye.

There were some strangely nave comments at the January public hearing about developments in the USA. Perhaps the speakers forgot that a high level delegation from the EC was there in December and that there is regular interaction with North American delegations at the ITU and the OECD. Yet it is important for Europe to consider what is happening in the other countries. In particular, it is necessary to consider the work in Japan and Korea on the ubiquitous network society. There are lessons to be learned from elsewhere, but requiring a sound basis of evidence.

The list of "relevant" markets defines those areas where NRAs must seek out market dominance and where they find it to apply remedies, in the sure and certain hope that when they return in a couple of years it will have diminished. The operators claim that there is excessive and intrusive regulation, that the NRAs seek it out with too much enthusiasm. The other side to this argument is that there is too little competition, certainly much less than envisaged at the time of the 1999 Review.

For the operators changes to the list are the most important issue in the present review where they are seeking to eliminate all the retail markets, shifting the regulation to wholesale markets, though a few of those are also targets for deletion. In the light of experience, some clustering of the markets should be possible and might simplify and improve analyses. The transition to the new list of markets needs to be considered carefully to ensure that remedies are not removed precipitately.

Timetable

The programme for the Review is that the deadline for first responses was at the end of January 2006. The Eleventh Implementation Report will be published in February 2006, which will disclose the enormous diversity and lack of harmonisation in performance amongst the member states. The EC will develop its report by July 2006 for further consultation and then present formal legislative proposals to the European Parliament and the Council of Ministers by the end of 2006.

They should be adopted as directives during 2007 and transposed by 2009, by when Bulgaria and Romania should have become member states. Thus in 2010 some 29 member states should have implemented the results of the review. A further review is scheduled in 2013, but this could be brought forward.

The revised Recommendation on relevant markets should be presented in draft form in July 2006 for public consultation and adopted by the college of Commissioners before the end of 2006, taking effect at the beginning of 2007. It will then initiate a fresh round of market analyses, with a further review of the list in 2008.

It seems highly unlikely that on this timetable and with the large number of laggards that the Review will deliver any measurable additional contribution to the Lisbon goals, for which the deadline is 2010. Most significantly, the emphasis is on streamlining the regulatory process, rather than creative destruction in markets. There is no big push for further competition.

(Footnotes)

1 http://erg.eu.int/doc/meeting/erg_05_70_rev_1_ common_position_on_remedies_cons_version.doc

By Ewan Sutherland[clubs]

* Ewan Sutherland is a policy analyst who has been involved in the development of European Union telecommunications policy for the last six years. http://www.3wan.net/ and Swan [at] 3wan.net

Copyright International Institute of Communications Feb 2006

Source: Intermedia

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