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SPEECH/01/356

Mr Erkki Liikanen

Member of the European Commission, responsible for Enterprise and the Information Society

The European Union Telecommunications Policy

Telecommunications Seminar

Sarajevo, 16 July 2001

I. A brief history of telecoms liberalisation in the EU

The launch of the EU policy telecoms policy dates back to the 1980's.

Three inter-related trends pushed the European Commission to start liberalising the telecommunications sector. First, it had become apparent that radical changes in technology were going to demand changes in the way that the telecommunications sector was managed. A monopoly control of telecommunications networks would not be the right way to unleash the new technologies to offer new services.

Secondly, globalisation of the world economy started to put pressure on the telecom sector. European businesses, such as banks and airlines, which were expanding to global markets needed permanent and seamless communications for payment and information systems.

Thirdly, there was an international trend towards liberalisation. In the US, the monopoly of the AT&T was broken and the so-called Baby Bells were created. In Europe, the Nordic countries were opening up competition.

All in all, the European Commission came to the conclusion that opening up the competition in telecom markets is a key element for competitiveness of European economy. It was also realised, that he telecommunications sector would also be the foundation of the emerging Information Society.

II. The Basic elements of the EU's telecom policy

The EU's telecom policy was and still is based on three basic elements.

  • First, liberalisation of the sectors under monopoly. Starting in 1988, through a step by step approach, the EU liberalised all segments of the telecoms market: terminal equipment, value-added services, satellite equipment and services, cable TV networks and mobiles communications. This process culminated in 1998 with the liberalisation of voice telephony and infrastructures.

  • Second, harmonisation of the European market. Common rules were needed to create a unified EU-wide telecoms market. This was done by the establishment of the so-called Open Network Provision or ONP Framework. The purpose was to set the rules for open access to the networks of the old monopolies so that the new entrants could offer services in competition - on equal terms - with the ex-monopolies. This entailed the introduction of asymmetric regulation: ex-monopolies, or incumbent operators, faced obligations that new entrants did not face. These obligations included for example the obligation to offer an inter-connection to their networks at cost-oriented prices. This was necessary to open up the competition. These rules are still in place, and to some extent are likely to remain in place for some time.

  • Third, application of EU competition rules to liberalised segments of the telecoms market. The aim of the EU competition policy is to prevent collusive agreements or abuses of a dominant position, and to prevent the creation of dominant positions.

III. The effects of liberalisation

So, what have been the effects of liberalisation ? The picture today is that of a very dynamic market:

  • Telecoms is despite the current slowdown - a fast growing sector of the economy with an overall growth rate of more than 10 % in 2000.

  • Competition is intense: There are now hundreds of licensed local, long-distance and international operators for fixed voice telephony. There are also almost 60 licensed mobile operators offering GSM services.

Tariffs have fallen dramatically, especially in international and long distance calls. And they are continuing to fall. Last year, incumbents' tariffs fell by more than 10 % for business users, and almost 5 % for residential users for national calls. For international calls, the same figures were 15 % for business users and 13 % for residential users. In addition, the tariffs of new entrants are usually lower.

Liberalisation is the key to achieve lower prices. As a result, the whole European economy has gained in competitiveness.

To sum up: competition has led to lower prices, more choice and better quality of service. In addition, liberalisation has a very positive impact on incumbent operators. In a matter of a few years, most of them have evolved from public administrations to innovative and competitive companies that expand internationally. It is clear that liberalisation and innovation go hand in hand.

So far, I have concentrated on the effects of the pro-competitive ONP framework, which introduces asymmetric regulation related to the market power of the operators.

There was also other type of regulation put in place, namely regulation applicable to all operators in order to achieve certain public policy objectives. The most important legislation was introduced on Universal Service and on data protection in telecommunications.

Universal Service provisions were introduced to EU legislation to ensure that the liberalisation would not lead to a situation where some social groups would be excluded from enjoying basic telecom services. A defined set of basic services were to be offered to all users, independently of their geographical location, at affordable prices . The Member States of the EU had to designate at least one operator in reality the incumbent operator who had to provide these basic services. Member States also have an option to set up a fund to compensate the designated operator, should the Universal Service obligations represent an unfair burden.

Finally, I have to briefly mention some of the administrative arrangements that were put in place, and which are absolutely indispensable elements in a successful liberalisation. The most important is the existence of an independent regulatory authority in each Member State of the EU. When the telecommunications business is separated from state control, it is essential that the owner of the biggest company in the market is not the one who sets the rules of the game. The birth of independent regulators has not been without pains in the EU, but now they are recognised as essential building blocks of the EU telecoms regime.

IV. The Review 1999: up-dating the telecoms legislation to the Internet age

Let me now turn to the on-going revision of the EU's telecommunications policy. Only after two years of full liberalisation, the European Commission proposed new package of legislation to replace the old ones. Why is this happening ? There are three basic reasons. Technological Convergence, the rise of the Internet, and the effects of the liberalisation itself.

First on convergence. Until recently, the communications industry was characterised by separate sectors specialised in the provision of distinct services: voice telephony, data transmission and broadcasting. Each of these services was delivered over a determined network. And the user accessed it via a given terminal: the telephone, the computer or the TV set.

Digital technologies have changed all that. Today, any service can be offered over any network, and be accessed via any terminal. Why? Because the phone call we make, the data we receive on our computer, or the picture we see on TV can all be converted into the same digitised format: a string of 0s and 1s.

The proposed "mega-mergers" of last year, in particular between Vivendi and Seagram, and between America On-line and Time Warner, reflect the changing structure of the industry: content is coming together with delivery.

The focal point of this convergence process is the Internet. It is a platform which brings together all communications services and terminals. The Internet has emerged over the last year as the main vector of economic growth and innovation also in Europe.

The Internet has a fundamental impact on telecommunications policy. Increasingly, telecom networks are carrying data, not only voice. And the transmission of data will be done increasingly by using Internet protocol and packet switching. This means that the end user can be always connected anywhere, anytime.

All of this called for a step-change in the Community's policy on telecoms and other transmission networks. Our response was the so-called 1999 Review made up of proposals for five directives and a regulation - adopted in July 2000.

The new legislation aims at creating a new framework for all electronic communications. It pursues three concrete goals:

  • First, adapt the existing framework to the needs of communications industries in the Internet age.

  • Second, boost competition in local access networks to stimulate widespread Internet take-up and high-speed Internet access in Europe.

  • Third, ensure a high level of user rights and privacy protection.

  • Let me examine these three goals in more details.

We must adapt the EU legislation to the fundamental technological changes. But adaptation won't be enough. It is essential that the new framework is "future-proof": that is, flexible enough to accommodate future technology-driven market changes.

To achieve this, we must start by securing a greater level of harmonisation amongst Member States on the basis of a common set of core rules. This will secure greater coherence between national telecoms markets and facilitate the progressive emergence of pan-European markets vital for European competitiveness.

The new framework must respond to the convergence phenomenon by defining itself not according to a sectoral split between telecoms and broadcasting, as in the current framework. Instead, it is based on the distinction between transmission and content. The new framework will include all transmission networks terrestrial and satellite, fixed and mobile, broadcasting and telecoms within the same framework. In this way, we can ensure that regulation is technologically neutral.

The new rules will be contained in a smaller number of legislative texts. Telecom operators and investors need legal certainty. The new framework will therefore provide for a seamless transition from existing rules to the new ones. This will ensure continuity between today's and tomorrow's framework.

Around this core of binding regulation, greater flexibility will be achieved by relying more on accompanying non-binding measures, giving guidance to businesses and national telecoms regulatory authorities. This will allow us easily and rapidly to take account of future technology and market changes.

This dynamic process will be combined with the presumption that regulation should be rolled-back wherever possible. As genuine competition continues to pick up, we will be able to rely increasingly on competition rules of the EU Treaty to ensure fair competition between incumbents and new entrants.

But for the time being, securing a level-playing field for new entrants in the telecoms market still requires a substantial level of asymmetric legislation: legislation which places heavier obligations on the incumbent operators than on new entrants.

The capacity of new entrants in the telecoms market to invest in local infrastructure is limited. It is possible for them to deploy their own networks between European countries, between key European cities and even in some financial districts.

But duplicating the local loop of incumbents - the network that connects every house, every building and every company - is beyond the reach of new entrants. In the future, this will be possible thanks to new wireless technology and the progressive deployment optical fibre networks. But in the short-term, the only solution is to give new entrants access to the local loop of incumbents under fair and non-discriminatory conditions.

Unbundled access to the local loop will stimulate competition in the Internet access market. Digital Subscriber Line (DSL) technology makes it possible to offer high-speed Internet access over regular copper lines. DSL connections are "always on". They are very user-friendly and allow for flat-rate pricing. The local loop unbundling happened in all of the EU at the beginning of this year.

V. eEurope initiative and Information Society Policy

Let me finally briefly turn to the eEurope initiative of the European Commission. We see the telecommunications policy as only one part albeit the most important part of a larger concept of Information Society policy.

The European Commission launched in 1999 its eEurope initiative in order to bring all relevant policy sectors under a coherent strategy. A strategy whose aim is to bring Europe fully into information age. To a society were new technologies are embraced not only for dynamic and innovative economy, but which brings benefits to all.

One of the most important political objectives is to fight the digital divide. The potential of new technologies, such as mobile communications and digital television should be exploited to address the digital divide. We believe that digital television can be an effective solution to connect a large share of the population to the Information Society. This could be the case also in South East Europe.

The European Union is willing to cooperate with countries of South East Europe to develop Information Society. Political co-operation can happen through the Stabilisation and Association Agreements which are very similar to Europe Agreements with candidate countries. Economic co-operation will be provided through the CARDS programme. Support for regulatory development (transposition, implementation) and Institution Building (development of the NRAs) is foreseen as well as wider IS activities such as the legal basis for e-commerce, creating a better business environment for Internet.


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