SPEECH/06/422
Viviane
Reding
Member of the European Commission responsible for Information Society and
Media
The Review 2006 of EU Telecom rules: Strengthening
Competition and Completing the Internal Market
Annual Meeting of BITKOM Brussels, Bibliothèque Solvay, 27 June
2006
Ladies and Gentlemen,
I would like to thank BITKOM, Germany’s leading trade associations in
the field of ICT, for the invitation to introduce this evening in the
Bibliothèque Solvay with a speech on the Review 2006 of the EU telecom
rules and the policy challenges to be discussed in the months to come.
In times of convergence where we can access music, emails and media content
using different terminals and networks and where also the borders between
fixed-line and wireless are disappearing, I welcome the fact that you at BITKOM
are open to members from all the converging sectors: IT, Telecommunications and
New Media. This is because, only if we understand convergence and if all the
stakeholders in “triple play” and “quadruple play” will
we take the right business and policy decisions for the tomorrow’s
electronic communications markets.
BITKOM’s emphasis on small and medium-sized enterprises in the ICT
field is, from my perspective, one of your special added-values as trade
association.
I am therefore glad to be able to share with you tonight some insights into
my views on the future of the EU telecom rules, which are on the agenda of the
weekly meeting of College of Commissioners’ tomorrow morning.
The EU telecom rules: a true European success story
The EU regulatory framework for electronic communications is a true European
success story. Back in the 1980s, traditional telecoms monopolies still
controlled all forms of telecommunications – voice and data. They also
controlled almost all equipment attached to the networks, and themselves issued
licences and conditions for others to use their networks.
Starting with handsets in 1988 and progressively adding services until 1998,
the EU liberalised all telecoms goods and services. The effect was dramatic. The
number of fixed-line telecoms operators doubled between 1998 and 2003. New
entrants invested in new services and infrastructure, and consumers got a better
deal all round.
Between 1996 and 2002, EU telecommunications services grew much
cheaper. On average, for the same telecoms services, consumers spent about
30% less of their income in 2002 than they did 1996. Competition among telecoms
operators has in particular drastically cut the cost of making phone calls over
the past 20 years. Since 2000 the EU weighted average charge of a 3 minute call
has fallen by 65% and the cost of a 10 minute call by 74%.
At the same time, the EU telecom rules have led to impressive investments
in the electronic communications services both by the telecom incumbents and
increasingly by new market entrants. Europe’s market for electronic
communication services amounted to some 273 Billion Euro in 2005. Aggregate
investment, measured in terms of capital expenditure, rose to more than 45
billion Euro in 2005, 6% more than in 2004. 2005 was thus the third consecutive
of increased year-over-year investment levels. On average, around half of the
turnover generated in the electronic communications markets in Europe comes
today from new market entrants.
Three developments are particularly noteworthy for the European
Commission:
- First, at 45 billion Euro in 2005, European investment in the sector
has overtaken investment in the US and the Asia Pacific Region.
- Second, a pan-European telecom industry is emerging. The search for
economies of scale and the implementation of pan-European strategies,
cross-border investment has driven merger and acquisition activity to above 70
billion Euros in 2005, the highest level since 2000. Incumbents today are
receiving between 5 and 27% of their income from European business outside their
home country. Some are becoming challengers in other EU markets even while
remaining incumbents at home. This development is changing the market position,
business orientation and also policy view of many operators.
- Third, good implementation of the EU regulatory framework is paying
off. EU countries that have applied the EU rules in a timely and efficient
manner, following the principle of competition, have clearly achieved the best
results in terms of investment in new networks and take-up of new innovative
services. The regulatory reform index of the OECD shows that those countries
with a poor record of regulatory reform have less investment. While investment
in the electronic communications sector is rather high in the UK (0.42% of GDP),
Denmark (0.72 % of GDP) and the Netherlands (0.79% of GDP) – in all these
countries we observe, in principle, a very effective application of EU rules
–, investment made in the German market reaches only 0.27%. The
correlation between investment and competition in infrastructure in the EU is
particularly visible in the broadband markets. Countries with strong competition
between incumbents and cable operators tend to have the highest broadband
penetration. Thus, broadband penetration levels in Denmark, Finland, Sweden and
the Netherlands are all above 20% and have already left behind the broadband
penetration level in the US.
Europe’s lesson from the
liberalisation of the telecom markets is therefore: Competition has been a
key driver for investment and innovation. This is a very important lesson
also for other network-based markets, in particular for the energy markets.
Three challenges for the Review 2006
The i2010 agenda – a European Information Society for growth and jobs
–, adopted by the European Commission in June 2005, intends to continue
and further intensify the positive effects of the EU framework for competition
and investment. It is our aim to create a Single European Information Space
in the field of electronic communications and media services by 2010. The main
objective of the Commission’s strategy is to strengthen the forces of
competition in the internal market, notably by modernising EU rules where
needed. Thereby, we want to accelerate the economic pay-off from digital
convergence.
Tomorrow, the Commission will adopt a Communication and a number of Working
Documents assessing the functioning of the EU regulatory framework and laying
out the policy options for possible legislative changes. This will trigger the
final phase of public debate on the 2006 Review of the EU telecom rules, which
will be open until the end of October. I intend to conclude the Review by the
end of this year with concrete legislative proposals that will then be submitted
to the European Parliament and the Council of Ministers.
My general assessment is this: We will reaffirm the key objectives of the
existing EU framework, i.e., to promote competition, the internal market and
citizens’ interests. The fundamental principles of EU telecom regulation
will remain, that is; a market-based approach to ex-ante regulation and
technological neutrality.
In a sense, we will thus follow the good example of the team chief of
Germany’s national team in the Football World Cup, Jürgen Klinsmann,
who also is doing very well by not changing a winning team!
My focus in the Review 2006 will be bringing the EU’s framework up to
date to make it fit for the coming decade. In particular, I want to “back
up our defence” and even strengthen competition where progress has been
slow in the past years.
In the Review 2006, I want to tackle three issues:
- First, spectrum – historically a rare public good – has
become economically strategic in the wireless society. We urgently need to look
at how we can use it more efficiently in the EU.
- Second, what concrete steps can we take towards better regulation?
Liberalisation of markets has led to many remarkable successes in this
sector. Now we have the chance to regulate less in some markets where
competition is already effective, and regulate in a more focussed and more
consistent way in markets where competition still has not yet developed.
- Third, how can we best achieve competition and investment in
Europe’s internal market? This will lead me to say a few words on the
present debate on “regulatory holidays” and on structural separation
in some EU Member States.
1) The need for an internal market for spectrum
The first area where I see a clear need for change, including legislative
change, is spectrum management. If we really believe in growth and jobs for
Europe and in the strategic importance of the communications sector, then we
must move with determination towards a more market-based approach to spectrum
management, and this across the EU.
The economic potential is enormous. Radio spectrum is crucial for any
application that relies on wireless communication, from mobile telephony and
broadcasting to guidance systems for planes, ships, satellites and defence. It
is estimated that the total value of services that depend already today on use
of the radio spectrum in the EU exceeds €200 billion. This equates to more
than 2% of the European GDP!
Think how much more it will be with all the new wireless applications that
are emerging.
This is particularly important in Europe as wireless has been one of the
strong drivers of our economic growth. Just one sector, mobile communications,
now represents 1% to 2% of Europe’s total GDP. If we want to continue to
be world leaders in this market we need to be decisive in seizing these emerging
opportunities.
But continued economic growth in this field is dependent on access to
radio spectrum. The current explosion in demand is putting great pressure on
this resource, such that the scarcity of economically available spectrum
resources is now at risk of holding back the development of our economy.
The way radio spectrum is managed is also a critical issue for the single
market more generally. The efficiency of European business in all sectors of the
economy and the growth potential of the mobile content industry vitally depend
on a clearing the obstacles to the efficient use of spectrum.
The considerable cost of developing new wireless technologies and
applications means that companies increasingly need the prospect of large
markets to justify their investment.
And Europe is not operating in a vacuum. It competes with its main trading
partners to innovate more quickly and effectively. If we take our eyes off this
ball or we are slow in acting we will lose possession.
We must urgently tackle this issue. I will therefore ask the Commission
College tomorrow to endorse my plan to table proposals for better management of
spectrum in the EU by the end of the year in order to allow more efficient use
in the future.
By taking action together on spectrum reform, we will:
- generate the critical mass needed to sustain growth and innovation;
- strengthen the internal market in electronic communications; and
- support the development of globally competitive European companies.
What are the issues? Radio spectrum itself knows no borders, but it is
managed at national level, normally in an administrative, bureaucratic way that
creates scarcity by prescribing in detail what every part of the spectrum may be
used for in that Member State. I believe that decisions about spectrum use
should, where possible, be taken by those directly affected. My proposals
for the Review 2006 will be focused on empowering market players and giving them
the necessary legal certainty to exercise this role.
In relation to spectrum used for electronic communications, I will suggest
three concrete measures that will lead to more flexible use of spectrum:
- to strengthen the application of the principles of technological
neutrality and service neutrality to spectrum allocation, where
possible;
- to introduce spectrum trading across the EU in selected bands agreed
at EU level; and
- to improve the coherence and consistency of authorisations for
applications with a pan-European or a significant internal market dimension.
Those who develop wireless services with a wider reach than a single country
should be able to obtain a market entry authorisation as easily as those who
offer services only in one Member State.
I also believe that we need
to put the idea of a European spectrum agency on the table. I know well
that this idea is not yet very popular in some quarters. But we have to
recognise the competitive disadvantage the EU faces because, instead of having
one single regime for spectrum management and spectrum licensing, as they do in
the US, we have 25 different ones.
I call on Member States to prove that they really mean what they say in
their Sunday speeches about growth and jobs. We can cut a lot of “red
tape” in spectrum management by trusting more market forces and by
replacing 25 administrative models with a light agency with EU wide
responsibility. I, as Europe’s ICT Commissioner, will certainly address
again and again the need for more courage in this important sector.
2) Better regulation: a more consistent application of the EU telecom
rules
You probably know that the Commission checks the regulatory measures proposed
by national regulators through the so-called ‘Article 7’ procedure.
So far we have processed, since July 2003, more than 450 notifications from
national regulators.
To reduce the administrative burden at present still involved in this
procedure, I would like to simplify the notification requirements for certain
draft national measures. Our idea is that regulators should continue to
conduct market reviews and undertake national and European consultations, but
that for certain market analyses and notifications the level of detail would be
less and in some cases, a simplified notification procedure could be introduced.
My objective is to allow regulators both at European and national level to
focus resources on issues of substance rather than procedures.
Also, during the Review 2006, I want to make a decisive step towards the
completion of the internal market. In the telecom sector, where neither
technology nor economic interest nor consumer behaviour know national borders
any more, I see a clear, long overdue need to make the internal market a reality
also in regulatory terms.
Above all, we need greater consistency and effectiveness in the application
of remedies to avoid distortions of competition in the internal market. We need
this consistency, not for the Commission but for the market and the consumer,
and I hear this all the time from telecom companies that are trying to break
into markets beyond their home country.
Variations of regulatory approach are today an obstacle to the internal
market and to effective competition: If a national regulator in country A
applies the EU rules vigorously to the operators on its market, while the
national regulator in country B adopts a more lenient policy towards the
dominant operator by adopting remedies later or in a less efficient way, this
gives companies in country B an unfair competitive advantage over companies in
country A. In Europe’s internal market, this is unacceptable.
I therefore believe that the Commission should be able to ensure consistency
in remedies proposed by national regulators to enhance competition in market
dominated by one or more operators. This is a logical adjunct to our current
role as regards market definitions and market power assessments.
I also plan to tighten up the timescales in which regulators must act, in
order to avoid the long delays that we have seen in some countries.
The most effective way to achieve a real level playing field for telecom
operators across the EU would of course be to create an independent European
telecom regulator that would work together with national regulators in a system,
similar to the European System of Central Banks. In such a system, national
regulators would continue to act as direct contact points with operators and
could directly analyse the market. At the same time, a light European agency,
independent from the Commission and from national governments, could ensure by
guidelines and, if necessary, instructions that EU rules are applied
consistently in all Member States. I have personally insisted that the idea of
creating a European telecom regulator is also included as a policy option in the
impact assessment of the Commission Communication that I will present this week
to allow a broad debate on all these issues.
In parallel to the review of the five Directives of the regulatory framework
for electronic communications, I also propose, in close cooperation with
Commissioner Kroes, to revise, by the end of the year, the markets listed in the
Commission Recommendation on Relevant Markets of 2003. This
Recommendation at present identifies those 18 markets where, in the analysis
made in 2003, ex-ante regulation is justified and which therefore need to be
analysed by national regulators under the guidance of the Commission.
It is a remarkable success of the regulatory framework that already today,
after just three years of market analysis and regulation, the Commission is
optimistic that we will be able to say at the end of the year: competition has
increased in a number of these markets, and therefore, we can already expect to
reduce the number of these markets by at least one third. For these markets
– which are mostly retail markets – I intend thus to propose at the
end of the year to phase out sector-specific ex-ante regulation and to leave
control of this sector to competition law and authorities.
You should see this as a clear indication of my political will to ensure
that telecom regulation will remain limited in time. The Commission will
continue this work, phasing out regulation progressively as effective
competition is established on the remaining markets. We are not there yet: two
thirds of the way remains to be covered. But if telecom regulation could
become even more efficient than it is as present, I believe that the next Review
of the framework could prepare the end of sector-specific regulation also on the
remaining markets where our intensive work continues to be required for the
years to come.
3) The debate about “regulatory holidays” and structural
separation
An important subject for political discussion in the Review 2006 is certainly
the debate about the best way to enhance competition and investment on
those markets where specific ex-ante regulation is still needed. In the public
debate so far, two proposed solutions have been particularly prominent: the
so-called “regulatory holidays” – a debate which has a
particular German background – and structural separation as a possible
remedy under the EU telecom rules.
Let me start with the idea of “regulatory holidays”. I
understand of course that some incumbent operators are under a lot of pressure
because of economic challenges and technological developments such as Voice over
IP. However, I firmly believe that the response to these challenges must be
new and more successful business models, and certainly not protection, by
regulators, from competition. I simply do not buy the argument that
investment will only happen if we stop regulating monopolies. In particular in
network-based economies, effective competition does not prevent, but drives
investment. The EU rules do not permit “regulatory holidays”
precisely to prevent the re-monopolisation of markets. Any move in that
direction would be a step backwards. It would open the door to higher prices
and less choice for consumers.
It is my firm belief that “regulatory holidays” are not
a policy option for the Review 2006, where we want to pave the way for
completing the successful process of market liberalisation. We cannot go into
the future in reverse gear.
It this context, a few words are necessary on the German proposal for a new
legislative provision in Germany on “new markets”, the so-called
“Paragraph 9a TKG”. The proposal says, in simple terms: New
markets should only be regulated if there is a problem for sustainable
competition “in the long term”. The objective of this is apparently,
as several German politicians have confirmed to me, to allow for a regulatory
exemption of the new VDSL network currently built by Deutsche Telekom.
It is important to understand what EU law says on this issue: The EU rules of
2002 say clearly that so-called emerging markets are not exempt from
regulation, but that they should not be subject to “inappropriate
regulation”. The reason for this open approach is to allow time to decide
whether markets that are new and fast-moving satisfy the criteria for
ex-ante regulation. Under EU law, a market is only considered new where
there is supply and demand for products or services which are not substitutable
for already existing products or services. In other words: a faster service,
the label “triple play” or the use of fibre technology instead of
copper will not by themselves suffice for the recognition of a new market.
Against this background, I have serious concerns as regards the
compatibility of the German approach reflected in the wording of Paragraph 9a
TKG with EU rules:
- First of all, I see no evidence yet that the VDSL network in Germany would
really lead to services or products which are, from the consumer’s
perspective, not substitutable with already existing services or products.
- Second, I am worried about the word “in the long term” used in
the German draft law. The underlying assumption appears to be that effective
competition is the enemy of investment. Let me be very clear about this: On
the telecom markets, the Commission is concerned about all obstacles to
competition, whether today, tomorrow or in the long-term. We therefore do not
accept monopolistic situations even if we are promised that they would
“only” last 4 or 5 years.
- Third, the new German law is creating a lot of regulatory uncertainty. I
have not yet heard of one operator or consumer on the German market seeing an
added value in the new draft law. I instead note that the new German law
could have the effect of making investment on the German telecom market more
difficult than in the past, in particular for new market entrants. This is why I
have already stated publicly my intention – which I reaffirm today –
to start infringement proceedings against Germany if the draft should become law
without substantial changes. I also see that legal disputes in national
courts about the compatibility of the new law with EU rules could substantially
weaken the attractiveness of the German telecom market – which is of
crucial importance for growth and jobs in the entire EU – for
investors.
- Finally, I am worried about the unilateralist attitude behind the
German approach. Under the EU telecom rules, agreed by the European
Parliament and the Council of Ministers, the decision of whether or not to
regulate a market is based on the market analysis of an independent national
regulator, approved by the Commission. It is therefore not a unilateral
political decision of a single national government whether competition problems
need to be addressed by regulation or not. The German approach therefore sets
a very dangerous precedent: If other governments choose to follow the German
“Sonderweg” for telecoms on the energy markets, then I am
pessimistic about the chances of more liberalisation in these important markets.
I hope that the German Parliament will still adapt the draft law to the
requirements of EU law in the ongoing legislative process.
I also expect the German regulator not to be influenced by the current
approach of the German government when looking, in these days, on the issue of
bit-stream access on the German broadband market. Bit-stream access is,
as you know, a key tool for opening competition in the broadband market. It
enables competitors to offer their own state-of-the-art products to consumers.
However, unlike in nearly all other Member States, in Germany competitors still
do not have a real chance to get bit-stream access. This is due to the fact that
up to now the German regulator has not imposed a bit-stream access obligation on
Deutsche Telekom even though the incumbent is considered, in the analysis made
by the German regulator last December, to be dominant on the broadband market.
This is particularly disadvantageous for Germany, as unlike in other Member
States, hardly any alternative broadband infrastructures exist. Cable television
networks, for example, are only slowly being upgraded. The effect of the
present status of non-regulation of bit-stream access is thus that of a
“de facto” regulatory holiday which lasts, under the present system,
as long as the German regulator does not opt for an efficient remedy. I am
therefore expecting a credible notification of this important issue from the
German regulator in the weeks to come.
Broadband penetration in Germany is 12.5%, which is just the average of the
25 EU Member States; hardly the level of performance one would expect from this
leading economic and technological nation. It is only half the rate of
Europe’s leading nations in this field and has been overtaken by Estonia,
a new Member State which has chosen a pro-competitive approach for regulation of
the broadband market. Germany therefore has no time to lose in the broadband
market.
Germany, as the largest economy in the EU with a very important telecom
sector, certainly has a particularly responsibility for the European economy as
a whole. And until recently, my understanding had been that not the word
“Regulierungsferien”, but the word “Ordnungspolitik” was
a German invention.
While my opposition to the idea of “regulatory holidays” is
well-known, the Communication to be discussed by the Commission tomorrow for the
first time considers the policy option of “structural
separation”. Structural separation means that telecom regulators could
require a dominant operator to provide non-discriminatory access to all
operators by separating infrastructure provision from service provision to a
greater or lesser extent. Today, the EU rules in force do not foresee structural
separation as a regulatory remedy on the telecom markets. But I see that the
United Kingdom, which has opted for a form of structural separation at national
level, has made good experiences with this remedy.
Incumbent telecom operators are often asking me to look to the regulatory
model of the United States. I note that in the US, the opening up of the telecom
monopoly of AT&T started, in 1984, with the most radical intervention a
regulator has ever chosen: with the break-up, by means of competition law, of
AT&T into the so-called “Baby Bells”. One can certainly discuss
the advantages and disadvantages as well as the sustainability of this decision.
However, facts speak for themselves. Today, we have in the US a situation of
infrastructure competition on the broadband market with two competing
infrastructures: While 38% of subscribers have broadband access via DSL
technology offered by telecom companies, 55% have broadband access via cable.
Consumers therefore have a true choice in the US. In Europe, DSL is still the
technology used by more than 80% of subscribers, which shows that we still have
some way to go until the process of market opening is completed.
I believe that the policy option of structural separation could answer
many competition problems that Europe’s telecom markets are still facing
today. Perhaps we have to be as radical as regulators were in the US in the
1980s to make real progress? Of course, we will have to find our own European
solutions, adapted to the needs of our continent. But “a European way of
structural separation” is certainly a policy option that needs to be
discussed intensively in the forthcoming months. This option is therefore also
raised in the economic Impact Assessment attached to the Communication the
Commission will adopt this week.
The Review process ahead
With the Communication to be adopted by the Commission this week, I will
launch a public consultation lasting up to the end of October. On this basis,
and by listening carefully to all stakeholders, the Commission will present
legislative proposals at the end of the year.
I would invite you at BITKOM – both the trade association itself and
its diverse members – to participate actively in the review process. The
competitiveness of the European Union depends on the development of effective
competition and a true internal market in the ICT sector which is crucial for
growth and jobs in Europe. Your input and the input of your competitors and
clients on the policy options presented in the documents to be published this
week will be a decisive basis for the Commission’s final assessment.
I wish you a pleasant evening.
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