Why the end of roaming surcharges is not the start of a Single Telecom Market

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Mobile phones are seen in a shop window in Yangon

The single telecom market which had to be

In the last few years many people, including me, believed that the phasing-out of roaming surcharges would have shaken the European telecom market, transforming the current puzzle of distinct domestic markets into a unified, single and big European telecom market. This was apparently the scope of the legislative initiative encompassing the roaming reform proposed by Commissioner Kroes in 2013, the Single Telecom Act also known as the Connected Continent (which ended up with Regulation 2120/2015). Indeed, we expected that once roaming surcharges would disappear, users would be able to subscribe mobile services from any operator in the EU, thanks to the fact that any domestic mobile tariff would be valid elsewhere in Europe. To make an example, a French citizen would purchase a Finnish mobile SIM from a Finnish operator if he/she believes that retail tariffs in Finland are more convenient than in France. In such circumstances, competition would fiercely emerge at cross-border level, with European citizens looking at better mobile tariffs available abroad, while mobile operators would be targeting clients everywhere in the UE, not only in their domestic market. Thus, the mobile European market would have rapidly becoming a unique competitive space leading to rapid consolidation amongst telecom operators, with the main groups (Telefonica, Orange, Deutsche Telecom and Vodafone) shopping abroad in order to be able to achieve continental scale.

The European institutions would have welcomed such development. In particular, since 2015 the offices of DG Competition have resisted plans for domestic consolidation by telecom operator, while letting open a window for cross-border mergers. The head of Competition directorate, Margaret Vestager, rejected mobile mergers in UK and Denmark, while imposing remedies in Italy, with this making clear that the time for domestic consolidation had ended. According to Vestager, mobile operators could continue to merge only at cross-border level while the phasing-out of roaming surcharges would provide the right incentive for that. The fixed market would have followed, since the biggest mobile operators in Europe are integrated with fixed networks.

What’s gonna happen instead

Despite the above, the expected consolidation in the mobile market is unlikely to happen. This is due to the final mechanism, introduced with regulation 2120/2015, setting the end of roaming surcharges. The retail and wholesale regime should be examine separately.


The Roaming-Like-At-Home regime introduced by Regulation 2120/2015 does not mean the European citizens may actually use a SIM card everywhere in the EU without paying roaming surcharges. In fact, the regulation prohibits permanent roaming, that is to say roaming services to be used in competition with domestic ones. In other words, European citizens may enjoy a free-roaming regime only when temporarily traveling abroad, not in order to get more favorable retail tariffs from foreign operators. The latter behavior is considered abusive or even fraudulent by the regulation.


While imposing the end of roaming surcharges by June 15, 2017, regulation 2120/2015 sets wholesale roaming access tariffs which are completely misaligned with domestic retail tariffs. Fact is, beginning from June 2017 the operator’s cost to provide roaming abroad will be 7,7 Euro per Gigabyte, with a decreasing glide path ending up with Euro 2,5 per Gigabyte in 2022. Such wholesale tariffs are fully inconsistent with domestic practice, since today mobile operators normally sell one Gigabyte for 1 or 2 Euro on average. It follows that many mobile operators, mainly MVNOs and small mobiles, will face losses when providing roaming services at domestic tariffs. The situation may be different for big mobile operators which normally exchange roaming traffic on the basis of bilateral agreements, based on the fact that inbound and outbound traffic are quite balanced. For such operators, wholesale rates have only a nominal value, no losses are incurred.

Because of the above, the phasing-out of roaming surcharges will put small and competitive operators at risk, while big mobile operators will be reinforced. No pan-european competition may emerge from this scenario, as big mobile operators will continue to defend domestic markets (where they can extract oligopolistic profits), while more competitive operators will be unable to be commercially aggressive. Under such circumstances, there will be no incentive for big mobile operators to merger at continental basis. The telecom market will remain fragmented as it is.

Why it ended up like this

Basically, while the traditional telecom industry had to accept the end of roaming surcharges because of political pressure, it succeeded in convincing the European institutions that domestic markets must be preserved because they are still important to make profit and sustain investments. The misalignment between wholesale tariffs and domestic practice has this scope: preventing foreign operators to attack domestic markets by way of convenient foreign/roaming tariffs. In addition, consumers cannot use foreign SIM to escape less convenient domestic tariffs.

As a result of the above, the scope of a single telecom market will be completely missed. On one side, there is no incentive for operators to provide cross-border services and consequently to merge. On the other side, bigger mobile operators are getting reinforced and will have the possibility to increase domestic tariffs, thus strengthening the isolation amongst domestic mobile markets.

Big and small telcos: EU merger policy, between domestic and cross-border consolidation

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Today’s news, that Telenor and TeliaSonera are going to abandon the planned merge of their Danish assets, will play a pivotal role in the incoming years. The nordic companies have decided to make a step back following the conditions imposed by the European Commission (and specifically by DG COMP offices lead by commissioner Vestager) in order to clear the transaction.  Vestager, a Danish politician (what a case!) commented the move of the companies in the following way: “EU merger control has to make sure that company tie-ups do not lead to reduced innovation, higher prices or reduced choice for consumers and do not restrict competition in the internal market”. In other words, Vestager has confirmed the view that the mergers amongst the Danish mobile operators (the number 2 end 3 in terms of market shares) would have been detrimental for the Danish consumers. The remedies required to clear the transaction, i.e. MVNO access and the sale of spectrum to a new mobile operator, were necessary to compensate the lost of a player in the market. In the Commission’s view, un der the circumstances of the Danish mobile market is not possible to reduce the number of mobile operators from 4 to 3.

In the last years the European telecom market has been characterized by a sort of merger-mania, with many telcos advocating for the need to consolidate in national markets and reduce the number pf players, in order to save costs and increase margins. The most notable operations happened in the mobile sectors in Austria, Germany and Ireland, where the number of (network) mobile operators was  reduced from 4 to 3. Since most of the European mobile national markets have 4 operators, a debate has started whether the reduction from 4 to 3 would be detrimental for competition or there might be remedies able to compensate the lost of an operator.  The European Commission, lead by the precedessor of Vestager, Joachim Almunia, cleared the Austria, German and Irish transactions by imposing remedies that, however, have now proven to be ineffective: on one side, the obligation to offer spectrum did not work and no new (fourth) mobile operator entered the market; on the other side, the remedies in favor of MVNOS did not work properly and competition by these operators was quite weak. As a result, prices have been increasing in the Austrian mobile market and similar effects are expected now also from Germany and Ireland.

Vestager has probably considered these market effects and, taking into account the views of DG COMP offices (more than Almunia did), she started a more strict approach, aiming at making sure that the mobile consolidation do not affect competition. However, this could mean, in practice, to definitively stop the mobile consolidation in Europe within domestic borders, because it is clear that the planned mergers for now (in Italy and UK) have not other reasons than increasing margin and profits in domestic markets, while the potential benefits for investments and innovation are absolutely theoretical. In other words, the chances for H3G to merge in Italy with Wind and with Telefonica (O2) in UK are today definitely weaker. 

The main argument played by European telcos for the mobile consolidation is about investments: reducing the number of players at domestic level, or increasing their size via a merger, would be necessary to invest in infrastructures, in light of the migration to 4G or further technologies. DG COMP has been always skeptical about this, however. Fact is, until now the presence of 4 mobile operators in the market has never affected investments, as the historical data show. Because of the strong infrastructure competition and the rapid growth of mobiles services, investing rapidly was necessary for any player. However, what changed with respect to the past was the profitability: with the end of high profits with sms and voice (due to the gradual phasing out of mobile termination tariffs) a s well as international roaming surcharges, the mobile sector profits have been going down, although they remain higher than in most of other markets. The problem is, however, when you are used for years to have champagne and caviar, you do not accept to be back to a normal menu. This is the problem of European mobile telcos.

Vestager’s mission could bother other European commissioners and stakeholders which are claiming consolidation in order to create bigger telecom players in the EU, to invest more and compete at global level. However, what Vestager is doing makes absolutely sense: to achieve these targets (creating big players and bla bla) European companies should consolidate at cross-border level, rather than merging domestic assets. Cross-border consolidation would be the only way to become really big and support the creation of a Single Digital Market in the EU. Nevertheless, European telcos continue to play consolidation more as a rhetoric argument and they prefer to be big in (small) domestic market rather than playing at global level by merging with operators of various countries. This is the reason why Vestager is right.

The European Parliament opens the eyes over lack of competition in European telecoms

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Today the European Parliament voted an important motion for resolution on the Annual Report on EU Competition Policy.

The report concerns, inter alia, the competitiveness situation in the European Telecom sector. The European Parliament reminds the importance of competition for investments, innovation and consumer welfares, and addressed the risks if excessive market concentration.

The position of the European assembly follows straight the declarations of Competition Commissioner Vestager who, during the Mobile Forum in Barcelona and in public interviews, made clear her intentions to stop the telecom consolidation process in the EU, as far as consumers interests may be affected. It is worth-noting that the Competition Directorate of the European Commission is currently carrying out deep investigation about mergers in Spain, Danmark and UK.

Remarkably, the European Parliament expressly doubts about the market data used by the European Commission to justify some of its past policy positions. This is of paramount importance. The past European Commission (namely the former Commissioner for the Digital Agenda, Dutch Neelie Kroes) has been accused to have taken initiatives without a sufficient assessment of the market and proper consultation with stake-holders (a proceeding is currently pending with the European Ombudsman with regard to the Connected Continent proposal). Doubts have been also emerging also with regard to the comparison between US and EU broadband market data, when it became clear that Europe is performing much better than US, at least as far as the interests of consumers are concerned.

Rather then commenting the wording of the draft at stake, it is much more interesting to look directly at the relevant statements of the resolution (§§47 to 50 copied below, I added some emphasis when needed):

47. Underlines that, in the next-generation broadband sector, the former monopolies have a staggering market share of over 80 %; recalls that effective competition is the best driver of efficient investment and provides maximum consumer benefit in terms of choice, price and quality; calls on the Commission, therefore, to enforce properly both ex post and ex ante competition rules in order to prevent excessive market concentration and abuse of dominance, as competitive pressure is key to ensuring that consumers can benefit the most from high-quality services at affordable prices;
48. Stresses that limiting competition is unlikely to lead to more broadband investment, even in remote areas, as full coverage of basic broadband services has been achieved in Europe through a regulatory framework ensuring access to dominant operators’ networks;
49. Believes that investment in next-generation broadband infrastructure is clearly core to achieving a digital economy and society, but that in order to maximise investments, telecoms policies should enable all players to make efficient investments by providing them with effective access to non-duplicable network assets and fit-for-purpose wholesale access products;
50. Calls on the Commission to base its decisions and policy proposals on a thorough and impartial analysis of correct, relevant and independent datasets; highlights, in particular, doubts about the correctness of data presented on the EU’s under-performance in high- speed broadband including speeds received by end-users, infrastructure investments and the financial state of the sector in a global comparison;

The new US order about net neutrality and Internet, and the impact upon Europe

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The FCC, the US regulator for telecoms and Internet, will soon adopt a fundamental decision in the matter of telecom and Internet regulation: as anticipated by various sources, US broadband access will be soon classified as a telecommunication service (while it is currently classified as an information service)  with a twofold consequence:

– FCC will be empowered to impose net neutrality rules to US broadband ISP, and intends to do so: fact is, FCC intends to prohibit blocking, throttling and paid prioritization of online services;

– FCC will be empowered to impose access remedies to broadband ISP such as pricing control, ULL and bitstream, in other words to open their network to alternative operators like it happens now in Europe (NB: chairman Wheeler has specified that this power will no be enforced for the time being).

It is clear that the FCC is playing with the American ISPs the stick and carrot game, where the stick consists in the new NN regulation, while the carrot is the guarantee not to apply access regulation to broadband access. US IPS are scared about the possibility to apply access regulation to their networks and have loudly claimed that they could stop fibers investments if FCC does so.

While the FCC decision is destined to provoke an intense debate in the US, it is interesting to see whether it could influence similar debates in the EU, or vice versa.

Net neutrality

The EU is getting closer and closer to define a NN regulation. The Council is currently discussing a text which, after long months of debates, should be finalized by February 2015 so as to be submitted to the European Parliament and European Commission for the final negotiation and approval. In a previous post I remarked that the Council draft was too much telco-oriented and would have probably faced opposition or reserves by the European Parliament as well as by some directorates of the European Commission. Whatever the Council will finally agree, it is certain that the new US position will affect the balance of the European negotiations. The European Parliament will surely attack the paid prioritization proposed by the Council, on the basis that this practice is destined to be prohibited in US. Whatever the compromise will be, the Council will have to offer in return a more robust guarantee for best effort Internet. The Parliament will also feel stronger in advocating some symbolic amendments, such as an explicit reference to net neutrality and openness of the Internet. To sum up, the new FCC position on NN will surely help the European Parliament to defend its citizens-friendly approach.

Access regulation and competition

As stated above, the new classification of broadband in the US would theoretically permit an application of economic regulation to American ISPs, such as pricing control, ULL access and so on, although this possibility has been loudly excluded for the time being. It is therefore uncertain how this approach could impact on European policy, where access regulation is imposed in practice and not only in theory. The European Commission will start to revise the European framework in 2016 and there are strong pressures by historical incumbents (such as Orange, Telefonica and Deutsche Telekom) to lift regulation in order to boost investments (although the link between regulation and investments is controversial and challenged by many). In this respect, a paramount role will be played by the comparison of European and US data/figures relating to BB performances such as investments, speed, coverage, price, quality, consumer satisfaction and so on. In the past big US telcos such as Verizon and AT&T have loudly claimed that the US broadband market should be more successful than the Europea one, at least in terms of profits and network/fibers investments. Nevertheless, more recent data have radically challenged this assumption: various voices has shown that US consumers pay BB more expensive than in the EU, and the quality is not better. Also the debate about network investments has become more controversial, since it has been shown that with the Bush’s deregulation in the 2000 the percentage of revenue dedicated by US ISPs to investments has decreased. Only the profitability data resist for the time being: US ISP make more profit than European ones.

In light of the above, if the comparison of US/EU data will show that EU is performing better than US, despite the burden of internal fragmentation, it is possible that the EU access regulation approach will be endorsed by the US authorities, rather than vice-versa.

The European Commission stops easy consolidation in the telecom markets

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The European Commission has started a Phase II investigation regarding an envisaged concentration in the Spanish telecommunications market, regarding the acquisition of Jazztel (a pure fixed operator) by Orange (a Spanish subsidiary of the French incumbent delivering both fixed and mobile services). The decision to open the investigation has been published via a PR.

This case it quite interesting because it is the first time that the competitions offices of the European Commission raise doubts about a merger between altnets in a fixed market. Normally concerns have been raised frequently only in the mobile market (although deals have been finally authorized with remedies) or in the fixed market, when the merger concerned the incumbent (like in the Nordic markets). So far, a pure merge between fixed alternative operators did not encounter any particular issue (for instance, some fixed operators have been bought by Vodafone, recently in Germany).

Why DG COMP is taking now a different views?

Firstly, the Spanish fixed market is highly concentrated, with few independent ISPs competing amongst them and with the incumbent. Spain is similar to France and Portugal, where similar level of market consolidation already exist, but less to Italy, Germany and UK, where there are still plenty of operators (especially in the UK). Thus, a national merger in a high concentrated market creates a competition alert for the European Commission.

Secondly, the Spanish market is driven by triple/quadruple play offers. Therefore, the reduction of competition resulting from the merger may not be compensated by potential new entrants, unless the latter may also compete on the mobile side. This is however unlikely, since the number of mobile operators is limited by frequency scarcity, and there is no effective obligation to grant MVNO access to competitors.

How could it end up?

It is difficult to believe that the European Commission will ban the proposed merger, one should however wonder which remedy could be proposed to let the operation to go through. There might be various hypothesis:

– a MVNO access obligation on the merged entity (such as happened in the latest mobile mergers in Germany, ireland and Austria)

– a light fixed access obligation on the merged entity (this would be a leading case, then)

– a request to the Spanish telecom regulator CMT to promptly review market regulation, with possible outcome resulting in regulation over incumbent Telefonica (or other operators operators, if a collective dominance is found).

Whatever will be the result, the signal launched by the offices of DG COMP is clear: against the political mantra whereby the European telecom sector needs consolidation – at all cost – to increase margins and profits, the antitrust supervisor reminds that competition and consumer interest cannot be affected at all. This is not a change of view by the side of DG COMP, which also with Almunia was reluctant to authorize national mergers (instead of cross-borders ones), although they did it at the end. The new Competition chief, the Danish Vestager, seems to say that the time of political compromises is ended and that competition is not a matter to be driven by politicians.

Broadband rural development: the “déjà vu” from the European Commission

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While people are still speculating about what will be the approach of the new European Commission to boost investments in broadband, Mr. Oettinger – the (German) commissioner for the Digital Agenda – launched a provocative proposal via his blog: in order to boost investments in rural areas, one should limit consumers’ choice by restricting the possibility to switch to another operators (lock-in) and/or exempting investing operators from regulation. According to Oettinger “wouldn’t it be better to have the option of broadband with a longer contract, than not to have broadband at all?”.

For sure, this declaration will shake the debate in Brussels well before to see the concrete proposals tabled by the new Junker Commission. Truly speaking, Oettinger’s proposal only addresses rural areas where objective reasons (small density, wide territory) for investment actually exist; however it is clear that many operators (Deutsche Telekom in primis) will soon flag this idea as a general solution for the BB market.

The most surprising aspect of this declaration is that Oettinger consider his idea to be a”fresh” one, as he ignored the last 5 years of regulatory debate in the EU. Just to remind, during the Kroes’ mandate (2010-2014, RIP) the European Commission embraced the mantra that competition could be a little sacrificed in exchange of more investments. This mantra was reflected in a deregulatory agenda with took place via the new Relevant Market Recommendation, the new NGA recommendation, the Connected Continent proposal and so on. While Kroes’ proposals shaked a lot the regulatory and conference debates in Brussels, the real market was basically indifferent, since broadband penetration and investements in Europe remained quite stable. There were lot of fibers announcements (so-called fibers to the press release) but less in practice, and depending on the country. The main effect of Kroes’ policy was to migrate the investments from FTTH to FTTC (i.e. shortening the fiber deployment to the streets cabinets, rather then up to house-holdings), because many operators, mostly incumbents, found more convenient to invest less in fibers and continue to exploit the monopolistic profits of the last mile made of copper. That’s BB Kroes’ heritage in peanuts.

The reason why this deregulatory solution could work in rural areas is still not clear. Oettinger says that it worked in the energy sector, where in facts similar proposals were made for very depressed areas in emerging countries. Maybe he referred to some zones of Germany, where some local municipalities are providing electricity in small territories. We do not know exactly, since his post provides for little explanations about. Oettinger says that “in some limited cases, for new pipelines, companies can be exempted from the requirement to provide competitors with access to pipelines. This is only given if they can convince the EU Commission that without that exemption the investment would not have been made”.

In any case, broadband is a bit different from energy. Most rural areas in the EU are considered niches markets and are frequently covered by small, alternative operators of any kind, with different business models: fixed, wireless, satellites, privates, municipalities, dark fibers providers, ecc. There is no clear evidence that regulation may be The Obstacle for operators, especially incumbents, to invest. It seems more a problem of margins: a big operator like Deutsche Telekom, with 235.000 employes and related costs, needs to concentrate on rich areas. A small flexible operator may have the costs structure to try the venture in niche areas, and the same for municipalities which also have to pursue a public objective. The main players, by contrast, prefer to stay in metropolitan/high density areas for obvious reasons, irrespective of regulation.

The lesson coming from US confirms this scenario: the main US operators, such as AT&T and Verizon, have massively invested in areas where they had to counter the competitive presence of the cable operators (Comcast and TW) providing Internet access. Outside of these areas very little was made, including rural areas, despite the fact that broadband access is fully deregulated in US.

This proposal would therefore not change too much in European rural areas, however it will be welcomed by European incumbents as a first step to enhance deregulation and remonopolization of BB markets in general. Oettinger seems aware of this and tries to avoid too rapid conclusions: “The needs of a dense city with rich competition may be different to those of an unserved rural area“. Thus, It will mainly depend on the concept and ambit of “rural areas”. Somebody in Brussels will soon argue that Tiergarten as well as Villa Borghese should be regarded as rural areas – at the end, there is lot of green there.

A final comment: Oettinger seems to say that an expensive, maybe crap, and not changeable BB may be better than no BB at all. It could be. However, there might be better solutions, like using public funds, financing pure network infrastructures with access to any service providers, leaving to citizens the property of their last miles, ecc ecc. The debate is open.

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.