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Mr Erkki Liikanen
Member of the European Commission, responsible for Enterprise and the Information Society
"7th Implementation Report on Telecoms"
Brussels, 28 November 2001
Ensuring widespread access to new communications services by driving prices down and opening up consumer choice is one of the fundamental priorities of the eEurope initiative, adopted at the Lisbon Summit in March 2000. The aim is to make access to the internet better, faster and cheaper across Europe a fundamental requirement for the creation of the e-economy.
An essential element of this is to conclude the work on the new legislative framework as quickly as possible.
As you know, this was proposed by the Commission following the 1999 Review.
The new regulatory framework will introduce greater regulatory flexibility as the market becomes more competitive. It will ensure a smooth transition by carrying forward many of the regulatory obligations from the old framework. These obligations will be reviewed against the criteria of effective competition in the new framework.
The success of the new framework will therefore depend on the full and coherent implementation of the current EU rules.
Developments on the new package are encouraging and I will return to this at the end of this presentation.
The Commission has just adopted a report the 7th Implementation Report - on the progress made across Europe in this field. It takes a fresh look at the market, and identifies the remaining regulatory bottlenecks that need to be cleared away.
You will find the report and its annexes on the Europa website. There is lot of material there to illustrate further the points I am making this morning. The press release includes the address.
First, the market. Now the wider economy is slowing down and stock markets are pessimistic, how is the telecoms sector performing?
Growth in telecoms services is still very buoyant. The combined national markets of the fifteen Member States will expand by an estimated 9.5% in terms of revenue in 2001.
The fastest expanding segment is again mobile services, with revenue growth of an estimated 22.3%.
There are 36% more mobile subscribers this year, driving the average penetration from 55% in August 2000 to 73% by August 2001.
In countries like Spain, Italy, Austria and Finland the mobile services market is worth as much as or more than that for voice telephony.
Prices are coming down overall.
For long distance, the average price of a ten minute call in Europe through the incumbent has gone down 14% since last year and 47% since 1998. A three minute call has gone down 11% since last year and 45% since 1998.
The strength of competition is evident from the fact that for local calls, the whole population of six Member States has a choice of more than five operators.
In most Member States, these local calls are made via carrier selection or pre-selection. In some, moreover, they can be made via local lines supplied by TV cable companies.
For long distance and international calls, the whole population of twelve Member States can choose between more than five operators.
Finally, the level of competition is also indicated by the fact that the incumbent operators' call market shares continue to fall.
The slide shows that their market shares by retail revenues have been falling steadily since liberalisation, and are now on average down by 10% for local calls and around 20% for long distance and 30% for international calls.
If we look more closely at the breakdown of market shares by Member State for long distance and international calls, we see a range of market shares for international calls of 100% down to 48%, and for long distance calls from 100% down to 32%.
We consider these to be quite remarkable figures, in particular since in both cases the 100% market shares are in Member States that liberalised later than most other Member States as a result of deferments granted by the Commission.
The report contains many more statistics indicating choice, and I will refer to carrier selection, pre-selection and our efforts to ensure broadband access in a moment.
In the meantime, note that the average level of internet penetration in EU households in June 2001 was just over 36%, up from around 28% in October 2000 and from just over 18% in March 2000.
This is overall a remarkable performance, and in our view shows that liberalisation continues to work.
But we have identified parts of the EU regulation that are not being applied fully, or where there are regulatory divergences between Member States.
Let me touch on two or three of the most important ...
Local loop unbundling is an essential piece of regulation for stimulating competitive broadband access, which is why it was mandated at the Lisbon Summit in March 2000 as part of the eEurope strategy.
There are some positive aspects to report:
But overall the situation is very disappointing:
The number of unbundling agreements varies widely across the Member States.
Above all, our concern is that incumbents are continuing to develop their own DSL services in the absence of effective competition.
We have recently heard the argument that in the present financial climate, implementation of local loop unbundling is no longer a priority. The Commission strongly disagrees.
We have already had the experience, for example, with carrier pre-selection. We were told that this service would be uneconomic, especially for local calls. But once the regulators provided the legal basis new operators did enter the market. Today, in fact, there are 110 operators in Europe using carrier pre-selection for the provision of local calls to residential users, and 214 for long-distance and international calls. More that 1,000 access codes for carrier selection have been allocated in the EU.
We therefore believe that regulators need to ensure that incumbents offer a full unbundling and shared line offer, in line with the local loop unbundling Regulation - it will then be for the market to respond.
For that to happen, regulators need to provide hands-on monitoring and set binding deadlines with credible penalties. Regulators also need to act to ensure that wholesale DSL is offered to entrants on non-discriminatory terms.
The Commission has done a lot of work to follow the implementation of local loop unbundling, and have a very clear view of where the faults lie. I will, in association with my colleague Mario Monti, be proposing infringement proceedings to the College at its meeting of 20 December in cases where incumbents are not offering an unbundled service in line with the Regulation.
Let me turn now to the pricing and provisioning of leased lines, particularly at speeds used for internet and e-commerce applications.
This is another important regulatory bottleneck with a significant impact on the e-economy. An open letter from new entrants was addressed last week to Mario Monti and myself on this subject. The main points raised were the level of prices of leased lines in the EU and the length of supply times.
We will provide a joint response, but the Seventh Report already makes the following point very strongly that while there have been improvements on prices, and there are no glaring anomalies when comparing EU prices with those of an East Coast and West Coast supplier of leased lines in the USA, the spread of tariffs between Member States is hard to justify on the basis of costs.
The report also finds that differences in supply times between Member States are difficult to explain.
As regards interconnection leased lines in particular, you will recall that the Commission issued a benchmarking Recommendation in 1999. The report looks at divergences from the price ceilings set out in the Recommendation, and finds that for the 2 Mbit/s lines used for e-commerce and internet applications, 8 Member States are at or below the ceiling, although 6 are significantly above.
Mario Monti's services have also been examining the competitive provision of leased lines in the EU on the basis of a sector enquiry, and have opened individual cases concerning 5 Member States. The Commission's aim with this dual approach is to foster effective implementation of the sector-specific regulation on the one hand while applying competition law instruments in cases of alleged abuses on the other.
Another regulatory bottleneck, and one where a harmonised approach between Member States has been difficult to obtain under the current framework, is call termination in mobile networks.
The cost of terminating a call in a mobile network that has originated in a fixed network is in principle met by the fixed operator. The cost is, however, ultimately met by the end-user of the fixed network.
The report shows that the cost of terminating calls in mobile networks is ten times as expensive as terminating calls in fixed networks. We know that the cost drivers in mobile networks are not identical to those in fixed networks, but this difference is too wide to be credible in terms of the actual costs incurred.
There is also a wide spread of prices across Europe for the same service: the most expensive country is almost twice as expensive as the cheapest.
Finally, we have identified nine different regulatory approaches to this question across the Union.
Mr Monti is currently examining the competition law aspects of call termination. Clearly, however, harmonisation under the sector-specific regulation still has some way to go.
While on the subject of the lack of harmonisation, the report touches on some of the disparities between the Member States in the roll-out obligations and licensing of 3G mobile.
The disparities are very high, and prevent the creation of a level playing field for third generation services in Europe.
The Commission set out its thinking on this subject more extensively in its March 2001 Communication, and has provided a basis for future action in its proposal for a new framework, including a Spectrum Decision.
Finally, the report refers to a range of other regulatory issues that need to be tackled.
As most of you are aware, carrier selection is the selection of a carrier for a particular type of call - such as long distance or international - by means of a dialled code.
Carrier pre-selection, on the other hand, is the system whereby a carrier is chosen by the subscriber and the switch of the incumbent programmed to route the call to the carrier chosen.
Yet another bottleneck: ensuring that rights of way are readily obtainable, especially for the roll-out of 3G mobile networks.
The report refers in particular to problems relating to the multiplicity of local and regional authorities with powers in this area. It also highlights the additional burdens faced by mobile operators, in particular through the imposition of additional taxation on antennae. Environmental and planning restrictions and emission limits lower than those laid down in the Council Recommendation add to the difficulties experienced.
Finally, consumer protection needs to be monitored and strengthened.
Our conclusions are as follows.
There remain a number of areas where different regulatory approaches in the Member States under the current framework have resulted in a wide spread of prices and call for a more coherent approach.
The continuing divergences in implementation under the current framework indicate that a strong transparency mechanism and better coordination between NRAs are a pre-requisite for a level playing field and a single European telecoms services market in the future.
Which brings us full circle - to the regulatory package.
You will recall the principles that guided the Commission in its proposals for the new package: Simplification, Legal certainty, Convergence and, in particular, Harmonisation.
So what progress have we made towards final agreement on the new framework?
Of course, negotiations between the Parliament and the Council are by no means complete, so nothing I say now can be regarded as definitive, but there appears to be consensus on a number of issues.