The European Regulators’ Group (ERG) and the European Commission (EC) today held a public hearing to canvass opinions on the ERG/EC’s draft document (130 pages) setting out a joint approach on appropriate remedies in the new EU regulatory framework for electronic communications.
We attended the hearing, took notes, and we are available to discuss the speeches and presentations that were made, as well as the opinions that were voiced.
An extensive summary is provided in the remainder of this news item.
The hearing was opened by the Chairman of the ERG, Eric Van Heesvelde, followed by speeches by EU Commissioners Erkki Liikanen (Information Society) and Mario Monti (Competition Policy), and led into a wide ranging discussion chaired by Prof. Heinrich Otruba, the ERG secretary.
The event was attended by +/- 250 participants.
Key points were as follows.
A. Speeches by EU Commissioners
Commissioner Liikanen emphasised that this joint paper is the final element in a complex process of setting out a new EU regulatory framework for electronic communications, and proceeded to explain that this framework is essential to ensure legal certainty and investments in new infrastructure. He stressed that incumbent operators must be adequately rewarded in order to maintain and upgrade existing networks, and to develop new networks, whilst new entrants must strive towards reducing their dependence on the incumbents’ networks, and National Regulatory Authorities (NRAs) should stimulate this process, by providing the correct incentives. He also specified that the new regulatory framework recognises that consumers buy services rather than technologies, and that “emerging markets” must be understood as markets for services which, in the eyes of consumers, are not considered a substitute for existing services.
The full text of Mr Liikanen's speech is accessible by clicking here.
Commissioner Monti noted that this is the first document (in the world) of this nature, and that its main achievement is to bring economic analysis to the centre stage, and as such represents a huge leap forward. He also set out the respective and complementary roles of ex-ante sector-specific regulation and ex-post antitrust remedies. In particular, he stated that regulation is here today to create the circumstances to ensure that in the future only the antitrust remedies will be needed. He then switched to discussing the relationship between infrastructure and (media) content, and emphasised that the Commission will actively monitor, and intervene if necessary, to ensure that there will not be leverage by vertically integrated media/network companies, and no foreclosure of the accessibility of premium content (movies, sports, etc.) via new networks and new media.
The full text of Mr Monti's speech is accessible by clicking here.
B. First Debate Session: General Remarks
ETNO, the industry association of mainly fixed incumbent operators, and some of its members, Telefonica, Telecom Italia, Deutsche Telekom and Portugal Telecom expressed major concerns about the ERG/EC Remedies paper, amongst others as follows:
- the paper fails to reflect the deregulatory philosophy of the new regulatory framework (especially regarding retail tariff regulation, widespread recourse to the most intrusive remedy of cost-orientation, and the treatment of innovative services), is quite theoretical, and tends to perpetuate or increase past regulation;
- national regulatory authorities are put in the position of assessing and managing incentives to invest, leading to a situation in which regulators are designing the market, creating an experiment rather than a functioning market;
- the treatment of emerging markets is likely to open the door to the regulation of new networks, and new services using legacy networks; this is considered to be confusing and sending wrong signals to the market in terms of incentives to invest, especially with reference to broadband access, mobile data services and digital television;
- the paper protects competitors rather than competition.
ECTA, the industry association of mainly fixed new entrant operators, and the Italian operator WIND (fixed and mobile new entrant), welcomed the ERG/EC paper as a rigorous document, providing an advanced and well balanced approach to regulatory practice, providing a common language for all parties affected by regulation. WIND expressed concern about the fact that the paper only discusses the ‘standard remedies’ contained in the EU directives, but not the other remedies which are possible in application of art. 8.3 of the Access and Interconnection Directive 2002/19/EC. According to WIND, such further remedies can be justified by the failure of standard remedies to have the desired effect, or by infringement of the standard remedies by those operators that are subject to it.
TP S.A., the Polish operator, speaking on behalf of multiple incumbent operators from Central and Eastern Europe, stressed that markets in the Accession Countries are different from those in the current EU, and that this needs to be taken into account when applying remedies. Copying the established practices from the EU would lead to (further) market distortions.
In closing this first debating session, the ERG Chairman, Mr Van Heesvelde commented that divergence rather than convergence was heard.
Commissioner Monti responded to some comments that were made, by stating that it is not correct to say that NRAs should first identify market failures, and then think about remedies. The purpose of this document, according to Prof. Monti, is precisely to give guidance on what will happen in case of market failure. He added that the market reviews will have to take into account the specific situation of the countries in Central and Eastern Europe.
C. Summary of ERG/EC Remedies Paper and Written Comments Received
Paul Pisjak (Austrian RTR), and Patrick Kenny (DG Information Society, on secondment from the Irish competition authority), who are key authors of the ERG/EC Remedies paper, gave a joint slide presentation of the paper. This was the same presentation as was given at the special industry associations hearing of 20 Jan 2004, in which T-REGS also participated, and is not discussed in this summary.
More interestingly, Paul Pisjak highlighted that 41 written contributions had been received, and that key items raised were as follows:
- Need for cost-benefit analysis / regulatory options assessment.
- Insufficient account taken of the new regulatory framework.
- Doubts about NRA attitude to the possibility for infrastructure replication.
- Migration between various access possibilities (‘moving up the ladder’), requests by market parties for this to be the subject of reference offers.
- Ex-ante versus ex-post regulation.
- Emerging markets: opposing claims about various xDSL technologies and services based on them
D. Second Debate Session: General Remarks
Portugal Telecom commented that there do not seem to be any markets that will be ‘remedy-free’. “Is there such a market at this stage? Money is neutral; there is no reward for innovation in this framework. Telecoms has been, and remains, much more innovative than other sectors, and prices for consumers are continually declining; yet this document refuses to acknowledge incentives to invest”.
Case Associates, a consultancy in economic policy, raised various criticisms, specifically relating to the absence of criteria to assess the sufficiency of competition law alone, the potential cost of errors by regulators, a weak evidentiary standard of the paper (“all that has to be identified is an incentive to abuse a dominant position”), and an overall shift of policy towards leveraging market positions rather than persistent market failures.
Tiscali, the pan-European ISP, also speaking on behalf of the industry association EuroISPA, defended the ERG/EC paper, as reflecting many real issues, but warned that “the devil is in the detail”, as was learned from negotiations with incumbents. Tiscali pleaded for the ERG/EC paper to be enhanced over time with details on practical problems and issues, and also stated that the eventual form that this document will take is important: “it has to provide real guidance to NRAs”.
Vodafone, the global mobile operator, commented that the paper seems to be written from a fixed network mindset, and expressed concerns about its implications in a situation where there are multiple vertically integrated operators (i.e. the mobile market). Vodafone also questioned whether the paper leaves choice to national regulators on the selection of alternative remedies.
GSMEurope, the industry association of mobile operators, emphasised that the paper is not deregulatory in nature, and should state more clearly how the principle of proportionality will (have to) be dealt with.
MCI (WorldCom), welcomed the ERG/EC paper, and responded to the comments of incumbent operators, by stating: “have a look at the market” (implying a justification of the interventions put forward in the paper). MCI expressed concerns about regulators looking first at the maturity of emerging markets, and ending up intervening too late.
E. Role of Infrastructure Competition versus Service Competition
NetCologne (German city network operator) expressed concern about remedies “disturbing each-other”, specifically that the imposition of resale upon SMP operators (Art 12.1(b) of the Access and Interconnection Directive 2002/19/EC) could foil infrastructure investments made by new entrants in the past few years, and could send wrong price signals, thereby reducing incentives to invest. NetCologne also highlighted what it termed the “inequality between fixed and mobile” in terms of obligations of carrier (pre)selection.
TP S.A. (Poland) referred to reduced incentives for incumbents to invest, and pleaded against the imposition of xDSL bitstream access in the countries of Central and Eastern Europe, on the grounds that broadband is not well developed in those countries.
TimeWarner, owner of the ISP AOL and a major content developer, commented that new entrants in Europe have seen incumbents benefiting from first-mover advantages in the broadband access/services market, and that new entrants have to catch up in terms of economies of scale. This requires xDSL bitstream access, and certainty that bitstream access will be available in the foreseeable future.
The ERG secretary, Prof. Otruba, closed the session by highlighting that there are many different views on the length of the value chain (access, network, services, content).
F. ‘Ladder of Investment’
Only AUNA, the Spanish company (owning Retevision, the backbone network and fixed operator, various cable TV interests, and a mobile operator), commented, in support of infrastructure competition delivering real benefits to consumers. AUNA defended consistency in the pricing of various access types, as well as migration between access types (with an emphasis on moving up, not down, the ladder of investments).
G. Accounting Separation / Cost Accounting Standards
No comments were made.
H. Emerging Markets
Hutchinson 3G Austria expressed its satisfaction with the treatment of emerging markets, and what it considered to represent a confirmation that a new entrant in an emerging market cannot be leveraging a market position.
SFR/Cegetel (mobile and fixed operator in France) favoured the pro-investment message on emerging markets but cautioned about foreclosure of such markets through leveraging. According to SFR/Cegetel, emerging markets need to be analysed today, not after someone captured a position.
Prof. Arnbak, former ERG chairman, and head of the Council of OPTA, the Dutch regulatory authority, asked whether drastic tariff rebalancing might prevent investments by new entrants. No real answers were given to this question.
Corning, also speaking on behalf of the equipment manufacturers’ association EICTA, requested that emerging markets be discussed in a separate paper, so that more thought can be given to this essential subject. After specific questioning by Prof. Otruba (indirect reference to the industry associations hearing of 20 Jan 2004), EICTA stated that it is not requesting the section on emerging markets to be removed from the ERG/EC Remedies paper.
01051, a German voice telephony operator, stated that dynamic access pricing could lead to problems over time, and should be considered with caution.
Tiscali/EuroISPA, compared the experience with ADSL in the past few years, with emerging markets issues, and emphasised that “the same mistake cannot be made again”, and therefore that the emerging markets section should not be taken out of the ERG/EC Remedies paper.
Telefonica requested periodic re-evaluation of whether markets should be maintained in the Commission Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation.
I. Mobile and Fixed Call Termination
MCI drew attention to problems beyond pure termination issues, in casu vertical leveraging by mobile operators in some market segments, particularly the outgoing corporate voice market (fixed and mobile), and remaining room for margin squeeze by mobile operators, even where (progressive) cost-orientation is imposed. MCI requested the imposition of an ex-ante margin squeeze test in addition to cost-orientation.
Belgacom and Telenet (Belgian operators) engaged/continued their discussion on fixed call termination. For further analysis, please contact Yves Blondeel.
WIND (which is a smaller mobile operator in Italy) stated that it disagrees with other players in the mobile industry, and highlighted on-net/off-net retail mobile pricing/discrimination issues. According to WIND, cost-orientation of mobile call termination may not be sufficient to prevent foreclosure, and additional safeguards may be needed.
Telefonica Moviles, in contrast, complained that no cost-benefit analysis is made of imposing cost-orientation on mobile call termination.
AUNA (which is a smaller mobile operator in Spain) countered this by stating that the ERG/EC Remedies paper provides an opening to discuss the status of smaller (mobile) operators at the national level; not only in terms of cost-orientation, but also as regards non-discrimination.
J. Miscellaneous Points
Various remarks were made; please contact Yves Blondeel for details.
K. Conclusions by ERG Chairman Van Heesvelde
Mr Van Heesvelde concluded the day’s proceedings by stating that the ERG and the national regulatory authorities need to give a signal about what will happen next. An early indication is likely to be given on 29/30 Jan 2004, in the conclusions of the next IRG/ERG meeting. Subsequently, the ERG plans to issue a specific document responding to the responses received to the consultation, and a final Remedies paper is expected to be adopted at the ERG meeting in April 2004. Mr Van Heesvelde emphasised that NRAs will view this paper as a code of conduct, but that they need to finalise their market definition and market analysis procedures before thinking about remedies, and that NRAs need to find facts, not just operate according to theory. In closing, he stated that the definition of emerging markets is key on a forward-looking basis.
The ERG/EC draft paper can be accessed by clicking here.
The questions put up for consultation can be accessed by clicking here.