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Regulatory mess hurting broadband investment: consumers and businesses stuck in slow lane

European Commission - MEMO/13/756   30/08/2013

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European Commission

MEMO

Brussels, 30 August 2013

Regulatory mess hurting broadband investment: consumers and businesses stuck in slow lane

Today, telecoms companies face different charges and regulatory systems from country to country in the EU, despite years of Commission efforts to smooth out these differences. Overall, these problems make companies reluctant to invest large sums in new high-speed networks, while limiting competition by making it difficult for companies to enter new markets based on an existing business model. The effect is that Europe is losing the global race to build fast fixed broadband connections. Concretely: telecoms companies are under-performing, other businesses are losing competitiveness and frustrated consumers are stuck in the internet slow lane.

Commission Vice President Neelie Kroes said: "Today’s guidance to regulators just doesn’t give businesses – old or new – the certainty they need to make investments. It’s time to change."

“The sector needs more certainty to help it invest and grow. I want citizens to start enjoying the benefits of faster, next generation broadband networks.”

Given the long pay-back times for investment in fast broadband (20-30 years) the Commission believes more predictable revenue streams for network owners and predictable prices for access seekers will spur investments in further high speed networks. Such incentives are necessary if the EU is to reach its targets to get fast broadband to all citizens and businesses by 2020.

In the absence of public funding to support better broadband, it’s vital that all companies have a stable and consistent system. That is how we can maximise investment and the infrastructure competition that encourages investment,” Kroes said.

Why does this matter?

Many of tomorrow’s internet services will depend on faster networks being available. For individuals, one example is videoconferencing with your doctor. Such a service depends on high quality and high speed broadband so that your doctor can give accurate diagnoses. Similarly, many businesses will increasingly depend on very fast cloud computing services in order to operate their core services. A business that is operating in many countries cannot afford different levels of service and delays simply because some countries don’t have modern networks.

Why is change needed?

To adapt regulatory practice to technology developments while giving better incentives to all companies to invest in Next Generation networks.

Current regulatory tools (the Commission’s “Article 7” powers under EU's Electronic Communications Framework Directive [2002/21/EC]) are designed to ensure consistency of regulatory obligations imposed on dominant operators in a range of specific telecoms markets. However, improved guidance to regulators would further reduce a current problem: companies and users facing different outcomes depending on where they live and operate. European guidance should therefore be provided upfront and steer national regulators to impose similar obligations for similar problems. Such an improvement would offer more predictability and consistency to the market. This will encourage more investment in high-speed broadband.

Neelie Kroes said: “In our forthcoming legislative package we will be formalising a tighter set of the principles for encouraging investment. These principles were first outlined in July 2012. Now, after a year of intense collaboration with regulators we have refined them, and reached agreement. We are determined to deliver stable copper prices and fibre regulation that reflects market reality.”

The role of copper and other networks

Rather than build their own networks, many companies rent access to existing copper networks, from incumbent companies (former telecoms monopolies), which they package for selling onto individual customers. This system plays an important role in maximising competition and use of the networks.

However, if this system does not function effectively, it can lead to negative consequences. For example, if the price is too low this makes it harder for copper network owners to generate the income needed to invest in Next Generation Networks, and reduces the incentive for ‘alternative operators’ to move from renting a network to building their own Next Generation network. This is a frequent problem today.

Currently the fee to access these copper networks varies greatly from country to country (from €4 to €14 per month, per line/subscriber) based on several diverging calculation methods. The result is unpredictable and unstable access products. This negatively affects the incentives of all companies to make long-term commitments to invest in new next-generation networks, and is, as a matter of principle, unjustifiable in a single telecoms market.

NGA price regulation needs to match market circumstances

"We need to lift price regulation of high-speed networks where it is not warranted, and make regulation of copper prices stable and consistent across the EU.

Today operators also have little flexibility to experiment with the fees they can charge competitors for renting space on their “next generation” networks. This is despite a range of different conditions in the various national markets in Europe. The Commission believes that, in certain circumstances, it is possible to avoid over-regulation and encourage investment by giving investors in fibre networks the possibility to experiment with access charges. The goal would be increased investor confidence about the potential for return on their investments in infrastructure.

Background

Depending on the technologies and time-scales, between €100 billion and € 270 billion is needed to roll out high-speed internet across Europe.

High speed broadband is essential for growth and job creation, with studies indicating that a ten per cent increase in broadband take up triggers up to 1 per cent in GDP growth.

Improving the consistency of copper and NGA pricing and access, sits alongside other measures the Commission has proposed to cut the cost of installing broadband networks, coordinate spectrum allocations, and more generally ensure regulation does not stand in the way of a truly connected continent.

Useful links

EU telecoms rules

Digital Agenda

Neelie Kroes

Follow Neelie on Twitter with the hashtag: #ConnectedContinent


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