The European Commission has today released document COM(2006)28 final, including a lengthy annex SEC(2006)86, which provides a first formal assessment of the functioning of the market analysis procedure instituted by Article 7 of the Framework Directive 2002/21/EC.
The Communication assesses the way in which NRAs and the European Commission's eCommunications Consultation Task Force (eCCTF) have performed their duties until now, the way in which markets are being (de)regulated, provides comments on the process and on its outcomes, and contains indications on the validity of the list of markets contained in the Recommendations on Relevant Markets Susceptible to Ex-Ante Regulation. The document also contains a short discussion of regulatory trends for each of the 18 markets listed in the Recommendation.
It will be seen that the content of this Communication gives a few indications on the European Commission’s preferences in the context of the 2006 Reviews (of the Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation and of the EU Directives for electronic communications).
For example, the European Commission states the following with regard to the consistency of the selection of regulatory obligations (‘remedies’), which is an area over which it has no veto power (but – back in 2001 – it proposed veto powers):
[...] The system of market reviews has ensured that regulation is based on a thorough economic analysis and is strictly limited to markets in which there is persistent market failure. This has resulted in better regulation. As regards the development of a joint European regulatory culture, it is important to point out that all NRAs follow a common methodological approach, based on EC competition law principles. A transparent consultation mechanism further contributes to this development. [...]
[...] Generally, NRAs have applied similar sets of remedies to similar market failures. However, the detail and implementation of those remedies have differed considerably from one Member State to another. Such differences are manifest, for example, in pricing (e.g. methodologies for cost orientation), which has significant implications for the internal market. The question thus arises as to whether, and if so how, greater consistency in the application of remedies can be achieved. The question will be addressed in the upcoming review of the regulatory framework. [...]
Further highlights are as follows:
Development of competition
Although a large number of national markets remain subject to regulation there are signs of sustainable competition in other markets. This is true in particular of retail markets, but it is conditional on the effective enforcement of regulatory remedies at wholesale level or on the existence of alternative infrastructure. The introduction of new technologies may create additional competitive pressure, which can lead to less of a need for regulation.
Modifications to the Article 7 process?
The Commission will look for ways, in the context of the review, to decrease the administrative burden on companies and NRAs and to streamline procedures even further. Notifications from NRAs normally comprise all elements of their proposed measures together, although some NRAs notify in two stages, remedies following market analyses. The Commission notes that the latter approach unnecessarily prolongs the regulatory process.
Segmentation of markets and definition of additional markets
So far, NRAs have defined the majority of markets in line with the Recommendation, but in a number of instances they have defined markets more narrowly or more broadly. The Commission has not objected to such diverging market definitions provided that each individual market definition and SMP analysis is in line with EC competition law principles. […] It has been argued that where markets have been further refined this may lead to over-regulation and amount to an unnecessary administrative burden. However, in the Commission’s experience to date, such refinement has actually helped to deregulate the sector, as it has allowed regulation to be rolled back in those markets where sustainable competition has developed.
Effectiveness of remedies
If the enforcement of a proposed remedy requires additional time (e.g. because an appropriate cost model is still to be developed), NRAs should already provide in the notified draft measure for temporary remedies addressing the competition failure identified.
Voice markets and VoIP
In all Member States, the incumbent has continued to be dominant on the market for retail “access” – i.e. connection to a fixed telephony network enabling calls and related services to be made and received. However, competition is gradually emerging on both the domestic and international calls markets. This process has been facilitated by the application of appropriate remedies (notably carrier selection/pre-selection16 and wholesale line rental) and the introduction of competing technologies, in particular VOIP. Wholesale markets, conversely, have shown few signs of sustainable competition save, in certain limited cases, for the market for transit services. The provision of call origination, which is needed by alternative operators to enable them to provide their own retail telephony and dial-up Internet services, is still an enduring bottleneck for competition. However, where effective remedies are applied at this level, they help to develop sustainable competition in the downstream retail (calls) markets, thereby enabling retail regulation to be phased out.
[...] in Annex [...]As regards possible regulation of VoIP, it is recalled that any obligation imposed under the regulatory framework must be appropriate in light of the specific market failure that it intends to remedy. Even if VoIP and PSTN telephony belong to a same product market and SMP is found on that market, a differentiated regulatory approach may be appropriate for VoIP on the one hand and PSTN telephony on the other hand, as the competitive challenges related to both products may be different. In particular, in view of the fact that VoIP is in principle provided over broadband, effective regulation of wholesale broadband access products (LLU and bitstream) may remove barriers to entry as regards the provision of VoIP and may therefore make retail regulation redundant. [...]
The full text of the 'Communication COM(2006)28final on Market Reviews under the EU Regulatory Framework. Consolidating the internal market for electronic communications' can be accessed by clicking here.
For a detailed discussion of EU-level regulation of the electronic communications sector, please contact Yves Blondeel.