The controversial European reform of network regulation

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In July 2012 Mrs. Kroes announced a fundamental reform of the Commission’s policy in the matter of broadband and high-speed networks (NGA: next generation access). The Dutch commissioner is convinced that this attempt will encourage more investments in the sector and enhance competition.

Despite Kroes’s belief, the proposal appears controversial and many stakeholders fear that the new regime  will dramatically harm consumers’ interests and competition in Europe, bringing back the telecoms’ clock to the ‘80s. The arguments of Kroes’ opponents (mainly alternative operators and consumers associations) are the following.

Broadband prices will increase in general throughout Europe. Kroes is proposing to fix the access price of traditional copper networks (i.e the infrastructures build 50 years ago thanks to the money of taxpayers, and currently owned by privatised telecom incumbents) for a long period, at least 8 years. The draft proposal indicates a price of 8/10 Euro month, to be subject to inflation adjustment (up and upper!). This will result in an increase of retail BB prices in many European countries, while in others the decrease of retail prices, even if possible because the copper networks are old and depreciated, will be prevented. Thus, consumers will pay the same amount, or even more, for a very long period (8 years in the telecom sectors corresponds to a geological era), irrespective of network depreciations, market developments, new technologies. The European Union has never experienced such kind of intrusive economic dirigism. It is not a coincidence that even in Belgium, a country where BB prices are amongst the highest in Europe, Belgacom has just announced an increase of broadband prices as from February 2013, and for the same BB services.

Competition (and innovation) will be reduced: Kroes intends to reduce the number of operators in Europe, and as a result consumers will experience less choice and innovation. The idea of solving Europe’s investments failures by reducing the number of operators is simply naïf: the number of European operators is a consequence of the fragmentation of the European market (27 national markets, a problem that the Commission is unable to address), therefore such kind of comparison is a non-sense. In any case, if you compare fixed network operators of a single European country with respect to US, Brazil, China and Japan, you will find out that in Europe we have fewer fixed network operators per country (1 or 2 against 3 or 4 on average). In any case, what matters is competition, not the number of operators. In US AT&T and Verizon invested because of the competing cable Internet offers. Without such competition, they would have not.

Fibers investments will be even more uncertain and scarce: apart from copper-based VDSL upgrades (which are already happening and are natural for networks operators), it is still unclear why incumbents should invest the huge and stable profits of the copper networks into NGA networks. Kroes believes that “stability” will encourage investments, however she mixes price and legal stability. Price stability does not produce network investments in the absence of competition, it rather produces “financial investments” in shares and dividends instruments issued by the “winners” (old legacy incumbents). On the contrary, the draft proposal will inflate legal uncertainty into the entire European regulatory framework, because it multiplies different variations and conditions for non-discrimination remedies as well as for relaxation of cost orientation obligations. A real roulette for the national regulators.

To sum up: there are convincing evidences that Kroes’ reform will bring the telecom sector back to re-monopolisation: the dilemma “build or buy” for alternative operators may result in the majority of operators leaving the market (the operators which invented BB, ADSL and many Internet stuff, by the way). The decrease of competitors (and competition) will make even less attractive and reasonable the business case for fibres investors. 15 years of telecom liberalization will be lost.

5 thoughts on “The controversial European reform of network regulation

    Raffaele Mosca said:
    6 December 2012 at 13:19

    Last but not least, the conditions are different across Europe. In many countries cable TV operators may represent an effective competition to the incumbents. Even if this wouldn’t justify the complete elimination of competition born so far by exploiting the incumbents’ networks.
    In countries where there are no cable TV operators, e.g. Italy, the net effect of the proposed recommandation would simply be the total disruption of any infrastructure based competition.

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