Month: August 2013

The concerns about financial stability of incumbents take priority over the regulatory agenda of the European Commission

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Immagine

Neelie Kroes, the European Commissioner for Digital Agenda, appears to be more committed to preserve the financial stability of historical telcos (incumbents) rather than pursuing a consistent and credible regulatory agenda

 

Today the European Commission decided to challenge a decision of Italian regulator AGCOM, who intended to lower wholesale access prices for the copper network  in Italy (i.e. the price paid by alternative operators to access the telephonic network of the local incumbent, namely Telecom Italia). The decision of AGCOM, notified to the Commission on July 13,  had been welcomed by Italian altnets (Vodafone, Fastweb, Wind an so on) taking benefit from the decrease of such prices, in order to become more competitive in the market; Telecom Italia, by contrast, claimed that the reduction would cost around 100 million Euro and warmly contested the decision.

A debate emerged amongst stakeholders and experts whether AGCOM’s proposed decision may affect ability or attitude of operators to invest in next generation networks (fibers). Fact is, very high prices in the copper market would incentivise the incumbent in retaining such network in order to cash-in extra-profits (to be distributed to creditors, shareholder ecc), with the result to delay the transition to fibers. However, Telecom Italia – as other incumbents in Europe – has always contested this theory, maintaing that the profits of copper prices will be used to build the new fibers network. Remarkably, the prices proposed  by AGCOM perfectly match the price band (8-10 Euro/month for ULL) indicated by the European Commission in its reform of the access network since July 2012 (a recommendation has to be adopted in September 2013).

Whatever may be the opinion of the above, it is interesting to see that Commissioner Kroes is challenging the Italian decision on the basis of different grounds:  rather than contesting the prices fixed by AGCOM, it is argued that the procedure followed in Italy “undermines the required regulatory certainty for all market players” because AGCOM “contradicts its own announcement of October 2012 that new prices will result from the new market analysis”. Fact is, it happened that AGCOM decided to change immediately the 2013 prices because the current market analysis would take a longer time. AGCOM relied on the fact that a similar approach had already been taken in 2009 and the European Commission did not make any comment at that time.

The action brought now by the Commission is very weak from legal point of view. It is ordinary practice for national regulators, not only AGCOM, to review prices, even pending the market analysis, if they can apply criteria which had been already approved and reviewed by the Commission itself. Therefore, AGCOM should not be very impressed by this initiative, also in light of the striking precedent of 2009. In addition, Berec – the agency of national regulators which will be now involved in consultation process with both Commission and AGCOM in compliance of article 7a of the Framework Directive – may be disturbed by Kroes’ aggressivity and may think to adopt a negative opinion (negative for the Commission).

One should wonder why Commissioner Kroes decided to take such kind of risk with so weak legal background. The initiative at stake seems to be more a political decision rather than a regulatory one. Telecom Italia has claimed that reduction of prices (even if compliant with the band of 8-10 Euro) may affect its financial stability and jeopardize its intent to separate the network. Commissioner Kroes may have decided to run in rescue, even if challenging AGCOM’s prices per se is impossible (because the 8-10 Euro band is met). This is the reason why a legal proceeding has been opened on the basis of pure procedural reasons. Kroes has little chance to win this battle, however she has done what Telecom Italia definitively needed: a suspension of 3 months of AGCOM’s decision, which may be useful to start a new negotiation in Italy.

To sum up, Commissioner Kroes is completing her mandate with the objective to protect the financial stability of big telcos. This is the reason why she decided to dramatically review the access network regulation since July 2012. The main concern for Kroes is that some incumbents may stop paying dividends or repaying bonds, may fire employees or be caught by foreign companies (as it may happen now with KPN which could be bought by Telmex). All such concerns seem to gain priority over long-term established regulatory policy. Commission Kroes has become the main guarantor for the financial stability of big telcos, whatever it will cost in terms of investments, competition and consumers welfare. If she has been right, we’ll learn it at the end of her mandate (next year).