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Mr Erkki Liikanen Member of the European Commission, responsible for Enterprise and the Information Society "The EU Communications Regulatory Framework" Forum for EU-US Legal-Economic Affairs Brussels, 3 April 2002

European Commission - SPEECH/02/140   08/04/2002

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SPEECH/02/140

Mr Erkki Liikanen

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

"The EU Communications Regulatory Framework"

Forum for EU-US Legal-Economic Affairs

Brussels, 3 April 2002

Ladies and gentlemen,

Since their inception, the objective of the EU's telecommunications policies has been to encourage the provision of high quality services at low prices to European citizens. We have used liberalisation and harmonisation rules to create the conditions for a competitive and dynamic internal market in which new entrants would be able to develop services and push prices down.

To this end, we have gradually liberalised all segments of the telecoms market. The point of no return came in January 1998 with the full liberalisation of services and infrastructures in all Member States, and we have seen substantial growth and increasing competition.

The Commission has been actively monitoring these developments. Thanks to liberalisation, telecoms services became the fastest growing sector of the European economy - in 2001 the growth rate was 9.5%. Carrier services are still expected to grow by a healthy 6.7% this year, despite the economic slowdown.

Competition keeps intensifying, leading to lower prices, more choice, better quality of service and innovation.

Allied to the development of new technologies and markets, this means that there has been a fundamental shift in the environment in which the EU policies operate.

There has also been a radical change in thinking on the part of governments concerning the role of communications technologies in social and economic development. The EU is now embarked on a drive to become a dynamic and competitive knowledge-based economy.

eEurope

This has been the Union's strategic goal since the Lisbon Summit in March 2000. Following this meeting, EU Heads of State and Government agreed on the so-called eEurope action plan. This plan consists of a series of actions undertaken at both EU and national level. They focus on making the necessary amendments to the legal framework, benchmarking actions and support programmes related for example to R&D and content production.

We have already achieved a lot in the eEurope 2002 Action Plan. Decision-making on telecoms and e-commerce regulation has been accelerated, benchmark indicators have been introduced, and above all, the Internet is now on the top of the political agenda in all Member States.

At the European Council in Barcelona. EU leaders have called for a next phase of progress. The Commission is now developing a new eEurope Action Plan that runs until 2005. It will be presented to the Sevilla Summit in June.

Of course, conditions have changed again since the inception of the eEurope action plan two years ago. It was the time of the dot.com boom. A time of euphoria. Most people didn't realise that high-tech stocks had already reached their height. Reality caught up with them, ruthlessly.

Once the bubble had burst on some specific applications and business models, however, the solid foundations of the new economy were actually clearer to see.

The Internet is now a key tool for a growing number of companies of all sizes and all sectors, as well as public administrations and individuals. It continues to grow, regardless of the stock market moods. This is best illustrated by the evolution of Internet penetration in European homes.

About 38% were connected to the Internet at the end of 2001, up 10% over one year. The number of regular users in the population has now passed 40%.

So what are our priorities in telecommunications policy today ?

Broadband access

First, we have to promote broadband Internet access. The Internet won't deliver its full potential unless broadband becomes a mass market. But if we sustain the development of a dynamic and competitive market, then we will be able to reap huge rewards for the economy and society alike.

Today, we see increased competition in flat-rate, high-speed Internet access. Between 2000 and 2001, the number of Internet households that have broadband access doubled. This represents about 6% of all EU homes. ADSL is making particularly strong progress; subscriber numbers have increased in several European countries by over 50% in the last three months of 2001.

For the time being, competition is mainly between ADSL and cable modem, or amongst ADSL providers. By 2005, as broadband progressively evolves into a mass market, ADSL and cable modem offers will improve and they should together represent 6 out of 10 connections to homes and SMEs.

In the future, we will probably witness the coexistence of various technologies such as fibre optic, wireless and satellite, next to ADSL and cable.

One major element in the development of broadband is that the Internet puts distinct distribution platforms in direct competition with one another. This is a direct product of convergence. Today, telecom operators are already locked in a direct rivalry with cable operators.

Ultimately, any given terminal can be put to any use. But even then, some differentiation will remain. A large, wide screen TV set installed in the living room will always be better suited for the home cinema experience than for teleworking, studying or surfing the Net. A mobile terminal may be a universal communication tool, but it will always have limited use for teleworking or entertainment.

Nevertheless, the next generation of mobile communications, with full multimedia capability, will change the market configuration again, and will also play an important role in broadband development.

There will of course be some competition between terminals and delivery platforms. But more important is their complementary nature, allowing users to be on-line anywhere, anytime, in the most appropriate fashion.

But the growth of these technologies has not been without problems, and we have a responsibility to create the competitive conditions in which they can flourish. Europe needs an ambitious strategy to bring broadband quickly to all European citizens. What is at stake is the potential benefits in terms of competitiveness, growth, jobs and quality of life.

Unbundling

Even while such a strategy was being developed, it became clear that there was an immediate and serious barrier to the development of a dynamic market due to the continued quasi-monopoly of the incumbent operators in the local access market. This led to the Regulation on the unbundling of the local loop.

This is an EU legal measure which places an obligation directly on incumbent operators to allow new entrants to use their local access network, to offer their own services. Competition at local access level is an essential vector for broadband.

This is a vital step for the development of broadband Internet platforms. However, while there have been difficulties in implementation, with slow overall progress until recently, Commission legal action against Member States has produced rapid regulatory progress. The Commission is responsible for ensuring that Member States implement and comply with Community law under the Treaty. This is done via so-called 'infringement proceedings'.

These consist of a three-stage process in which the Commission first states its concerns in a formal letter to the Member State and, if the Member State's response is not satisfactory, the Commission then expresses its legal objections in a reasoned opinion. If the Member State fails to properly address these objections, the Commission may then decide to apply to the European Court of Justice to decide if there has been a breach of European law by the Member State.

A first round of infringement proceedings in December brought immediate results. This was followed by a further round in mid March, the results of which we are awaiting. The danger is that many incumbents are developing their own ADSL services in the absence of effective competition. The Commission therefore continues to keep a close eye on unbundling implementation in order to speed up its completion.

The actions I have described - implementing the regulations unbundling, and following-up the Lisbon strategy for the eEurope programme - help to ensure that the competitive environment exists for viable services to develop.

But we must do more. We must ensure that our strategies can adapt quickly to the changing environment both in markets and technologies and see to it that convergence results in more choice rather than less, in greater competition rather than greater concentration of control.

The new telecoms framework

This objective underlies our most recent regulatory work. The speed at which the Unbundling Regulation was achieved shows that the EU has the power to intervene quickly and decisively when required.

Similarly, the new regulatory framework for electronic communications, agreed in December 2001 and formally adopted in February, was proposed by the Commission on July 2000 and has therefore been completed in precisely 17 months. This represents a remarkable achievement for a package of this size and complexity. And it shows how rapidly the European institutions can achieve clear objectives where there is widespread support

The new regulatory framework for electronic communications, which will enter into force in by May 2003, will be a more flexible version of the existing one: simpler, lighter and providing greater regulatory stability and transparency.

It is designed to foster competition and choice in a number of ways:

First, the new framework drastically cuts away the unnecessary red tape which obstructs entry to national markets by replacing individual licences by general authorisations to provide services. This removes any possibility for regulators to insist, as many do today, on checking compliance with licence conditions before allowing telecoms operators to begin to offer services to consumers and businesses.

Second, we know that in a converged world, distinctions between different transmission infrastructures are artificial and will create disincentives for investment. The new framework will apply to all transmission networks in the same way. This technological neutrality meets the requirements of the Internet-driven convergence between telecoms, computers and the media and gives the EU a pro-competitive regulatory framework. The new telecoms package is in this respect one of the most advanced in the world.

Third, the new framework will be flexible. It will allow regulation to be rolled back, ensuring that regulatory obligations on market players are lifted as soon as markets become competitive, hence relying more heavily on EU competition rules.

This is the case as regards market definition, where the process is capable of changing over time and from Member State to Member State, if the market conditions are different. This is in contrast to the existing framework, where markets are pre-defined in law.

The new framework will also regulate only where absolutely necessary. After all, either regulating a company's prices, or requiring it to give competitors access to its customers, are substantial interventions in the market.

Under existing EU law, the threshold at which NRAs can impose obligations the concept of Significant Market Power is based on a 25% market share. Under the new framework, the threshold will be based on the competition law concept of dominance. This should ensure that any regulatory intervention takes place only where absolutely necessary.

Using the dominance concept should also ensure that the threshold is applied by regulators consistently across the EU. Consistent application is the fourth key theme in the new framework. In particular I mean here consistency such that the Internal Market is not compromised due to the increased flexibility that regulators will enjoy.

I've mentioned market definition as one area where there is much more flexibility than under existing directives. Regulators also have much more discretion over the obligations may be imposed on operators with Significant Market Power. They may choose from a maximum list those remedies that are most appropriate for their national circumstances.

To counterbalance all this flexibility at national level, and thus avoid refragmentation of the internal market the new framework has a system of checks and balances. This system is perhaps of most interest to this audience.

It consists on the one hand of procedures for consultation and transparency across the EU. National regulators are obliged to cooperate with each other and with the Commission on issues that might affect the internal market.

On the other hand, the new framework gives the Commission the power to require national regulatory authorities to withdraw draft national measures in key areas linked to the functioning of the single market. This covers measures on market definition, as well as the designation, or non-designation, of undertakings with Significant Market Power.

This final compromise on the distribution of responsibilities and powers between the national and European level is a reasonable one, even if it was one of the most difficult issues to resolve during negotiations.

Consistency was also a key driver for the adoption of the Spectrum Decision a key part of the package agreed in December. The new framework contains a major innovation, albeit one often overlooked by the outside world. It establishes, for the first time, a Community framework for radio spectrum policy. The new framework should ensure that the lack of co-ordination that characterised previous 3G mobile network (UMTS) licensing procedures will become a thing of the past.

Our work is by no means complete on the new framework. There remains one final hurdle, namely the proposed E-communications privacy Directive, which has fallen slightly behind the rest of the package.

But it is to be hoped that rapid agreement between the EU institutions is also possible here. This would allow all the directives to have the same date of implementation at national level.

Agreement on this package sends an important positive signal to the market, and should boost a sector which has been suffering recently from the lack of confidence on the part of the investor community.

Conclusion

The next phase of eEurope, the Action Plan 2005, should focus on the user. We need content, services and applications that bring real benefits to users. Widespread availability of broadband networks is a priority as is an inclusive multi-platform approach. As much as possible users should be able to choose from competitive network offers and use what fits them best, whether a PC, a digital TV or a 3G mobile terminal.

With eEurope 2005 we continue striving for improved competitiveness in Europe. And at the heart of achieving this will be dynamic and competitive telecommunications markets.

Our work to devise a new regulatory framework that is technology neutral will be crucial in this regard, removing artificial distinctions between technologies that are capable of providing the same service. This will allow innovation and enterprise to flourish, with consequent benefits for consumers and society as a whole.

Thank you for your attention.


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