The new relevant market recommendation: Kroes playing the last (deregulatory) trump

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The European Commission has published the new recommendation on relevant markets, i.e. the document which will guide the national regulators (“NRAs”) in assessing competition in the EU and imposing regulatory remedies such as access to networks, price control, non-discrimination and so on. The European Commission made various substantial changes to the previous recommendation, including withdrawing markets 1 and 2 on retail fixed telephone access and wholesale fixed call origination. While ETNO, the incumbents’ association, has welcomed the new recommendation as a further step on the way of a possible deregulation of the European market, ECTA, representing the alternative operators, has showed some worries but also recognized that some clarifications go in the right direction. Thus, both associations (whose telcos members are mostly affected by the new rules) remained relatively prudent and have not dramatized too much in positive and negative terms.

According to Commissioner Kroes, the partial deregulation inflated by the new recommendation reflects the increasing competition in the market. This opinion is not shared by everyone however: the European regulatory agency Berec stated in an opinion that the deregulatory measures appear to be a bit premature.

When at beginning of 2014 a first draft of the recommendation was published, alternative operators were dramatically alarmed because it was clear that Kroes effectively intended to pursue a deregulatory agenda. Thus, after reactions and critical comments also by other Commissions’s departments and institutions associated to the legislative process, such as Berec and Cocom, the entire reform has been revised. While the reduction of relevant markets remained unchanged, important clarifications have been inserted in the Explanatory Note (the annexed text providing practical guidance) in a way to ensure sufficient flexibility and empowering NRAs to continue to adopt regulation to target competitive problems, also in areas where the Commission wished deregulation.

It is not the first time that an important deregulatory boost announced by Commissioner Kroes ends up with moderate practical results. The reform of fibre networks regulation (i.e. the new NGA recommendation) as well the Single Market Package encountered the same destiny. In all cases Kroes is paying because of her iper-political top-down approach: in 2012 she endorsed a deregulatory agenda in order to meet the financial needs and claims of incumbents operators, but then she failed in finding the market evidence for this approach and, worstly, she missed the support by other Commission’s departments (DG COMP, ECFIN, CONS). Also other institutions such as Parliament, Berec and Council have been quite cold and critical vis-à-vis Kroes’ approach. As a result, all impressive deregulatory initiatives have been watered-down and, what’s worst, the market has encountered an increasing and continuing legal uncertainty. The roaming chaos is an example: the entire Roaming III Regulation (2012) has been affected even before entering fully into force (July 2014) , because the Single Market proposal (September 2013) contained incompatibile proposals.

The impact of the new recommendation will therefore depend on the practical implementation by the NRAs as well as by the attitude of the new commissioner in charge, Oettinger. The deregulation of markets 1 (retail access) and 2 (call origination) may provoke some increase of retail voice prices by deregulated incumbents, depending on the degree of competition in each national market and the ability to alternative operators to provide the same services via ULL or own networks. In this respect, the developments of potential competing OTT services shall be also monitored: it is a paradox, but big telcos such as Orange and Telefonica should thank Skype and Whatsapp for the deregulatory result.

Wholesale access networks was not deregulated, however the Commission loved to see the market to migrate to a model of virtual ULL concentrating all access investments (and related control over services) in the hands of incumbents. This scope was not completely achieved, as at the end the Explanatory Note stated that NRAs are expected to continue mandating physical ULL, because it is usually considered to be the most adequate access remedy, as it ensures alternative operators’ ability to differentiate their retail offers and innovate. The Commission however added that in situations where physical ULL is not technically or economically feasible, NRAs may mandate virtual access products (as some NRAs have already done in the EU).

To sum up, the deregulatory agenda of Commissioner Kroes ended up more in a slogan than a practical achievement. The incumbents industry thanks in any case, because even a vague deregulatory trend is helpful when facing financial analysts and bonds purchasers. However, the emerging opposition of NRAs and governments to the Commissions’ approach opens the doors to a season of future litigations, unless the new commissioner Oettinger will invent something new.

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