European telecoms regulation

The European Commission puts an end to competition in telecoms

deregulate indystry? excellent

While the public debate is inflamed on the theme of “fair share“, i.e. the question whether the large online platforms should pay certain European telcos for the “transportation” of their Internet services on the telecommunications networks, the European Commission, in a rather discreet way, is preparing to radically rewrite the rules of operation of telecommunications in Europe. It does so through an inconspicuous document, a simple recommendation, an act therefore formally non-binding but which, as those familiar with European telecommunications governance know, will become a text from which the European regulatory authorities, like AGCOM in Italy or ARCEP in France, will find it hard to deviate.

We are talking about the Gigabit Recommendation, a regulatory text which, unlike the fair share which will take years to complete, the European Commission can instead adopt quickly and on its own (subject just to a non-binding opinion from Berec). Moreover, the very high media hype linked to the theme of fair share, which is seen as yet another dispute between the EU and the United States, can help to obscure the relevance of the Gigabit Recommendation, which in fact has gone mostly unnoticed until now to the media.

The Gigabit Recommendation should have the aim of harmonizing the way in which the European regulatory authorities apply the European Code of Electronic Communications of 2018 (directive 2018/1972). This is the legislation that allows users to receive Internet access services, through the local copper network, from a plurality of operators, and not by the incumbent alone which owns the infrastructure for historical reasons dating back to the monopoly. It is therefore the cornerstone of liberalization, without which there would be a return to monopoly in a large part of the European Union. However, should the proposed recommendation go ahead as it is written, national regulators will in fact be discouraged from adopting pro-competitive measures, otherwise they will face confrontation with the European Commission in a control procedure where the latter normally prevails (see arts. 32 and 33 of the European Code). It will suffice that in a given market there may be “prospects” of infrastructural competition and then the national regulator will have to let his guard down: and thus access to infrastructure will become much more difficult, with prices no longer cost-oriented. All of this is referred to as “flexibility”, a euphemism that actually translates as: no more competition.

Furthermore, one wonders whether this way of imposing the interpretation of the European Code is not in truth a surreptitious form of rewriting it by administrative means, thus avoiding going through the legislative codecision procedure with which Parliament and the Council democratically approved it in 2018. With the European Code, the European Union has in fact expressed the will to maintain competition in the European telecommunications markets, on assumption that competition stimulates investment. But the proposed  recommendation starts from a different and surprising assumption, namely that the only subjects that must be encouraged to invest are the dominant operators (so far regulated on the basis of the European Code). The proposed Gigabit Recommendation ignores the role played by alternative operators in the fiber market and the role of competition as the main driver of network investments. Consequently, the only investment incentives recognized by the recommendation, unlike the European Code, are the (direct or indirect) deregulation of the market or the raising of access prices to the networks. The only acceptable competition in this context seems to be limited to a narrow oligopoly.

In other words, the Commission’s recipe for investments is not aimed at the market, but rather addresses the strengthening of some major European players, in particular Orange (of which Commissioner Breton himself was CEO), Deutsche Telekom and Telefonica. The Commission seems willing to rely on the expansion and investment capacity of these large companies, disregarding the others, and for this reason it aims to solve the specific problems of the large telcos only: namely, the competition exercised by the smaller operators, which have entered the market with liberalization and who have not inherited the telephone infrastructure.

Doubt remains as to what the real purpose of the proposed recommendation is. Investments in fiber optics are not as risky and uncertain as is believed, proof of this is the presence of numerous infrastructure funds in the sector. In many areas operators have declared to invest without need for public subsidies. Regulation is not a problem once the return on investment is defined.

The Commission’s concern, instead, seems to be the general profitability of the telecom sector, which also depends on retail services, and not just on the network. Retail prices are in fact low due to market competition, while value-added services, the more profitable ones, seem to be the prerogative of US OTTs, given the inability of large European telcos to develop businesses based on the data economy. In other words, this recommendation has nothing to do with the incentive to invest in fiber optics, if anything, and above all, it serves to increase the profitability of some large telcos, to the detriment of consumers and competition.

We are therefore faced with the desire to increase the resources of some large telcos by reducing competition and probably by increasing prices, both wholesale and retail, an effect that is certainly not optimal in times of inflation. There is no strategic vision in the Commission’s proposal, nor to make the telecommunications sector more efficient and innovative. Copper network prices are even expected to rise in the case of switch-offs, again a bizarre measure of support for telephone operators. A bad epilogue after 25 years of liberalization.

2 replies »

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s