Reviewing the review: introduction.
On the whole, the most widely-held view is that the overall architecture provided by the telecom package of 2002 has globally worked. To its credit, the package has also promoted market analysis, as well as favouring benchmarking practices and the exchange of information by providing a common frame of reference for the various national instances of the European Union. Yet the public consultation has certainly led to the emergence of several types of criticism. The first arises from an awareness of the ground still left to cover in building a single European market. This criticism is unfair, in that it was unrealistic to expect that the application of a common regulatory framework would lead to the structuring of a homogenous European market within such a short period of time. The only relevant market that is not national is consequently the intra-European roaming market (which may justify European regulation, although it would seem curious that, contrary to the trends highlighted in other areas, regulation should not be limited to providing a framework for wholesale prices). At best, in the current phase, we can hope for a situation characterised by the juxtaposition of national markets ruled by a harmonised regulatory framework. A strict comparison of the implementation levels of certain remedies is not always relevant, as market configurations vary, not only among the "15" and the ten new EU member states (characterised, for example, by under-developed fixed telephony markets), but also between countries where cable networks are widely deployed and those where they are not. It follows that fair criticism should confine itself to the uniform implementation of the principles and mechanisms of the "telecom package" by all member states.
However, the Review procedure was not undertaken merely to take stock of failures to apply community law, or even to rectify ideas that turned out to be ill-conceived. To avoid such mistakes, it has to endeavour to recognise the dynamics of the sector to which it is applied and anticipate the trends emerging in that sector by validating the choices made to reach set objectives. As far as this point is concerned, we could refer back to a past issue of COMMUNICATIONS & STRATEGIES ("Dynamic Solutions to Policy failures"). Naturally it is this dynamic vision that gives rise to the most interesting debates, so numerous are the factors leading to complete breaks or at least transformations in the electronic communications landscape. It is for this reason that we decided to open this dossier with the paper by Sophie BISMUT offering an overview of European markets.
However, taking this overview as a springboard, what do we mean by the term "dynamic vision"? Firstly, it means taking into account the fact that the regulatory framework under discussion needs to apply to a market and technological reality looking forward to 2010. Otherwise we run the risk of either concentrating regulation on market sectors that may become very secondary, or of slowing innovation and the competitive potential it represents by underestimating the transitory nature of an operator's power over an emerging market.
From this angle the article by Sion JONES and Pau SALSAS, based on a study recently carried out with PWC for the Commission, should make for interesting reading. However, the obvious overinvestment at the end of the 1990s that led to bursting of the speculative bubble in spring 2000, cyclical effects--especially in mobile infrastructures--and the recent nature of competition on several markets makes it difficult to see a correlation between the regulatory framework and trends in investment.
Going through the list of the 18 market segments identified in the Recommendation as candidates for ex ante regulation, we realise that over half of these markets involve the network, fixed telephony services and line rental, which no longer account for the majority of the sector's revenues and are actually in rapid decline. Some of these markets, particularly the retail markets, are likely to disappear. Behind issues of investments and the conditions for the renewal of the fixed network, there are also perhaps questions as to the limits of the total competition model that the telecom package adopted. Texts outlining this package repeatedly emphasize its aim to create "facility based competition". The dossier contains a summary of the research carried out by the three economists consulted by the Commission on this matter in the article by Ulrich STUMPF. In addition to the list put forward, it is worth highlighting the valuable methodological comments made by the author, which complete the list of the three criteria initially selected to justify ex ante regulation.
The list of the 18 markets in the Recommendation in its current form also raises the question of its evolution against a background of fixed-mobile-audiovisual convergence, which makes the value chain far more complex and makes it difficult to identify relevant markets. Although the telecom package took care to make it clear that audiovisual contents were excluded, some also see the risk of a continued extension of the field of application of ex ante regulation under the effect of multiple converging services or of regulatory asymmetry in access and the definition of dominant positions upstream, for example, on the level of television channel bouquets. Aside from the potential complexity of its implementation and the tough problem of updating the list of relevant markets, the mechanism outlined in the "framework" and the Recommendation is regularly attacked, admittedly often by powerful operators in the market, for its ability to freeze market configurations. It does this even although the Recommendation, in its criteria for identifying relevant markets that are candidates for ex ante regulation, specifies that:
"In view of the dynamic nature and the functioning of electronic communications markets, the possibilities of raising the barriers (to entry) within a suitable time period must [...] be taken into account. As a result, the second criterion consists of only accepting markets whose structure does not signal any evolution towards a situation of effective competition."
Criticism is consequently levelled at the application of the Recommendation, which allegedly does not conform with the spirit of the texts (notably with [section] 13, 14 and 15), and at the unsuitable nature of sticking to the procedure proposed given the new phase that the sector is entering under the influence of increasingly effective competition and the extension of the value chain to include several new players (such as the internet giants). In all events, this would bypass one of the explicit aims of the telecom package of 2002, which was to steadily bring the regulatory framework closer to that of general competition law. It is nevertheless likely that it would help if we could avoid a caricatured opposition between ex ante regulation--systematically leading to daily administration of competition--and an application of anti-trust law (ex post regulation) reduced to intervention five years after the event. It is important to realise that this is not merely a question of effectively applying the principle of proportionality in the remedies. The current reality of the sector, namely the first announcements of the deployment of life-size FTTx access networks, has paved the way for a debate that deals directly with this topic (ex ante regulation) and, more generally, with the coherence of the regulatory framework and the objectives of innovation and investment. The telecom package notably reiterates the principle of compulsory content unbundling in the December 2000 ruling by the European Parliament and Council. As a result, an access infrastructure that uses the copper pair of the incumbent's telephone network even partially, has to be opened up to competitors. It follows that the Commission could only oppose the agreement negotiated between Deutsche Telekom and the German government, which would have made its future FTTN/VDSL infrastructures exempt from the obligation to open up. It is nevertheless worth noting that this decision leaves some room for negotiation over the conditions governing access pricing and how the network will be opened up. Yet whet is the status of an investment by an incumbent operator in a totally fibre optic network? The competitive situation has to be analysed by looking at the potential coverage of the broadband and very high speed access markets. Although the latter mainly covers applications that cannot be offered via ADSL, for example, the market is recognised as "emerging" and should be exempt from the remedies related to ex ante regulation as a result, as noted in [section] 15 of the Recommendation:
"[...] new and emerging markets, in which companies may be powerful thanks to the advantages they enjoy as forerunners, should not, in principle, be subject to ex ante regulation".
The problem remains that it is difficult to bank on a radical break in the nature and features of services consumed by broadband subscribers and those consumed by very high speed subscribers (cf. [section] 3 of article 14 of the "framework" directive on related markets), and it is not easy to command a significantly higher price for the latter. These complexities may account for a lack of incentive, or even provide a disincentive to innovation and investment, both of which that were promised in the form of heartfelt obligations in the Lisbon objectives.
Staying with a dynamic vision, Gerard POGOREL puts into perspective the wireless spectrum reform policy, which has become a more important part of the Commission's vision, by highlighting that a clarification of standardisation and harmonisation objectives (mentioned in article 9 of the "framework" directive) should make it easier to achieve a wider consensus on the Commission's proposals in terms of flexibility. It seems likely that the harmonisation of spectrum management on a Union-wide level, an almost "overlooked" aspect of the telecom package, will be at the centre of the propositions put forward by the Commission.
Most of the problems examined here (investment, the deployment of FTTx networks, spectrum management) refer to the rather dogmatic opposition between a vision of fair regulation dominated by the concept of "services based-competition," versus orientations arising from the priority given to "facility-based competition."
The paper by Jorg KITTL, Martin LUNDBORG and Ernst-Olav RUHLE tries to offer the first empirical evidence on this alternative and its impact on competition. Today some believe that while alternative operators remain stranded on the "ladder of investment" (unable to get past the unbundling bar), future optical access networks should provide an opportunity to definitively establish the essential facility nature of this access infrastructure. These networks would not be replicable and would be subject to no competition, even from cable networks or wireless networks in the mid-term. It would consequently seem logical to consider ex ante that the operation of such a network should be strictly regulated (to the point of prohibiting its operator from providing services). This type of "open access" approach, which can also legitimise public initiatives to compensate for market shortfalls, falls into line, to some extent, with the extreme claims made by the supporters of Net-neutrality in the North American debate, for whom the operator should, at the end of the day, serve as a pipe. We can also see a link between this line of argument and the proponents of splitting up incumbents in ways that are more or less inspired by the 'Openreach' model negotiated between BT and Ofcom. It is with reference to this very same British experience that Martin CAVE conceptually explores the problems of "separation", with a detailed presentation of the options available in the choice of the shared line (access/core network versus retail/wholesale).
David FLACHER, Hugues JENNEQUIN and Jean-Herve LORENZI, on the other hand, offer ammunition for the diametrically opposed view. Citing several other authors, they present the dissenting argument for more faith in market-driven innovation, including in an asymmetric oligopoly context without ex ante regulation.
The institutional debate is also represented in the Review, with a reflection on the sharing of responsibilities between NRAs and the Commission in the regulatory process. Pierre LAROUCHE and Maartje de VISSER look at the alternatives and reforms possible in this field.
The papers presented here have been selected for their quality and for their ability to illuminate the debates that are expressed in the Review and beyond. They do not attempt to defend a shared or converging position. We are also fully aware that they do not cover all the topics that are likely to be handled. C&S will continue to publish analyses and opinions on this subject that should complete this dossier in the future.
To round off the dossier, it seemed only fair to invite two key players in the regulation sector in Europe to share their views. Our "Opinion" section consequently contains interviews with Fabio COLASANTI, Director General at the Commission (Information Society DG) and Kip MEEK (Ofcom partner and President of the European Regulators Group/ERG in 2006).
Ecole Nationale Superieure des Telecommunications, Paris
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|Author:||Gassot, Yves; Pogorel, Gerard|
|Publication:||Communications & Strategies|
|Date:||Oct 1, 2006|
|Next Article:||Competition in European telecom markets.|