Member of the European Commission responsible for Information Society and
Conference of the International Telecommunications Union (ITU):
“Telecom World 2006”
Ladies and Gentlemen,
It is a pleasure to be here today at the opening of ITU Telecom World 2006, with global leaders from the private sector and policy-makers. The ITU provides the leading world stage for policy debate on electronic communications and the importance of such debate is greater today than ever. First, convergence is creating a clash of cultures in our sector, which will force a change in the business models of our major telecom operators. Second, we are witnesses to a wireless revolution that will finally make communications the key to the global village that we have been talking about for 40 years.
The clash of telecom cultures
Today, the ICT sector faces the most important technological and market shake-up that it has ever seen. Today, we can no longer see clearly where telecommunications end and content services begin. Telcos are broadcasting (IPTV), cable TV is going towards triple play (TV, Telephone, internet). Internet players are buying their way into communications market through VOIP. This is real convergence and it is already causing clashes between these different business cultures and models.
These changes call for a set of rules that takes account of these new patterns of competition. In Europe, the European Commission plays a dual role as both initiator of new EU laws and as an independent supranational watchdog that looks over the functioning of the regulatory regime and ensures consistency of regulatory approaches in all 25 (and soon 27) Member States. The Commission is assessing on a regular basis market reviews and remedies notified by national regulators. We are also at the moment in the process of looking at the functioning of the legal framework under which competition is ensured in Europe's electronic communications markets. Ahead of the final decisions that the Commission is going to take in this respect in the first half of 2007, I would like to share with you today some of our more general conclusions about how to regulate for convergence. Our experience may be useful for other regulators and market players.
The EU has a strong position in communications with world leading technology firms and leading telecoms operators. Europe’s market for electronic communication services amounted to some 273 billion Euro in 2005. At 45 billion Euros in 2005, European investment in the sector has overtaken investment in the US and the Asia Pacific Region.
Broadband – sine qua non of convergence
This means that the European Union with 25, and soon 27, Member States is a pillar of global telecom policy, with substantial experience on how to regulate for convergence.
Let us look at the essential building block of convergence: broadband. In some cases, Europe is a world leader, with countries such as Finland and Denmark having subscriber penetration rates of 30%. It also has some lagging performers with penetration rates below 5%.
If we try to diagnose this picture, the first conclusion we can draw is that the most significant factor enabling broadband growth is the existence of alternative infrastructures, in particular cable. In all six Member States which have exceeded 20% broadband penetration, cable has an important market share and this regardless of the effectiveness of regulation
However, the wider conclusion for public policy makers is that regulation still plays a very important role in the investment ladder, especially in Member States with no or weak infrastructural competition. In these cases, regulation still plays a crucial role. Because despite a gradual decrease in their market shares, incumbents continue to be the main players in the DSL market.
Under our current telecom rules, there has been on average a very significant move up the ladder of investment. In July 2003, 52% of new entrants were offering broadband services through simple resale and only 27% through full or shared access (Local Loop Unbundling). In July 2006, resale has gone down to 36% and full or shared access has gone up to 46%. This progress is certainly due, to a large extent, to the effective implementation of the regulatory framework.
If we look at each Member State individually, we will see a more mixed picture, which simply confirms that in countries where there has been more effective implementation of the framework, including enforcement of full or shared access rules, there has also been more progress up the investment ladder.
This result underlines the basic principle of the European regulatory approach: competition and open markets drive investment and innovation, not monopolies. That is also why, when we look at Next Generation Networks, notably fibre networks, rolled out by incumbents, the mere installation of a new technology or new infrastructure cannot in itself change existing access obligations. This is why the European Commission is against "regulatory holidays" for Next Generation Networks; regulation must be phased out when competition is effective, but not to privilege investment into the networks of dominant players. Such "regulatory holidays" may only (if at all) yield short-term benefits, but will not lead to sustainable investment, growth and consumer-benefits in the long run.
Next Generation Networks
Of course, we have to answer the question whether mandating access drives value out of the market. In the short run this reduces prices for consumers, which is good, but, so the story goes, over the longer term makes it harder for network operators to recoup their investment in new networks.
It is true, that Telcos in Europe are seeing their average revenue per user declining from their fixed line business (in real terms from 33.50€ per month in 1998 to under 31€ in 2005 on residential markets, while average business revenues have declined from 78€ to 63€). This does raise some questions about their capacity to attract the long term investments needed to build Next Generation Networks
Now, when we talk about Next Generation Networks we generally mean two things: very fast access networks – pointing towards fibre optic very near to the premises; and – most importantly – an end to end Internet network.
For traditional telecom operators full IP networks represent a serious hazard, because it means that services can be platform neutral: we can expect the IP business model of flat rate charging to become increasingly important in traditional telephony as well as added value market.
In short: while the decline in revenue from fixed line users has been so far been somewhat offset by the rise of broadband subscriptions, operators are now faced with the VoIP business model that will expose them to a new frontier of competition on their core voice revenues. This might explain some of their reluctance to invest.
What we have also observed is that IP opens the way for a logical separation between the passive networks (cables and ducts) and the more active elements (including hardware such as servers and routers and the service layers).
In fact, this conceptual separation is starting to appear as a potential business model separation as some firms (and regulators) start to recognise that the incentives for investing in services and passive infrastructures are somewhat different. In fact, investments in the passive infrastructures (cables and ducts) require a long term strategy that calls for long term predictability. This is problematic if the business model is tied up with highly volatile and fast changing service markets.
That is why I am noting with great interest some of the experiments around the world, notably in the UK, New Zealand, and now also in Italy and Ireland, where there are attempts to functionally separate the regulation of access loop of the incumbent – the key bottleneck assets – from the rest of the business.
The key to this process seems to be defining incentives so that the separated network operator functions independently from its parent. The attraction of such solutions is that the risks for investors in new infrastructures would be more clearly demarcated. There would be greater legal certainty and, if the separation would be implemented properly, access would be assured for all players in the service markets.
That is why I believe that functional separation, which is a specific form of separation, could indeed serve to make competition more effective in a service-based competition environment where infrastructure-based competition is not expected to develop in a reasonable period.
It is certainly not a panacea. It has to be looked at on a case by case basis. And it would have to be done well, in ways that do not distort competition, neither at home nor in neighbouring markets.
The wireless world of the future
Let me turn to a further important element for the development of the global information society: the future of wireless.
The expanding global economy is running on communications networks. This economic growth would not be possible without them. It is remarkable that the ICT take-up is now leaping ahead in all developing nations – even in the poorest communities – because of wireless technologies. Mobile phones are becoming a bootstrap for development. Wireless is starting to provide a scaleable route into an "Information Society for All".
For policy makers the implication is that the regulation has not only to ease the transition to IP-based services but also to open up to the wireless economy.
I want to give just two examples of areas where we have to come together as policy makers and regulators to kick start the wireless revolution: standards and spectrum.
The GSM standard was a landmark decision which paved the way for the global take-up of 2nd Generation cell phones. From its launch in Europe, where 94% of Europeans today have GSMs, this market is still growing at phenomenal rate, penetration is at 33% worldwide with 2.2 billion subscriptions, which projected to reach 3 billion in 2008 or one half of the planet!
The GSM standard became a global standard because of a strong cooperation between European Governments in 1987 and its rapid formal recognition as a standard in 1989. Today, the picture is now much more complex: more sophisticated technologies, more markets, more international competition. It is much more difficult for governments to make a viable case for choosing one particular standard. Certainly, we cannot do this in a way that pits one region's standards against another's. So except where we have a real chance of a global accord on a single standard, we have instead to move towards competition between several open standards.
Taking some examples, if we look at Mobile TV standards, there are already a number of accepted alternatives vying for position. Which one is best?
The same is true when we look at the emerging competition between wireless broadband solutions. I believe it should be up to businesses to define attractive business models that will entice consumers to opt for the standard they like best.
In addition, governments are not usually best placed to decide between competing technologies. We know that the choice of the wrong standard can lock our economies into long periods of economic underperformance, while market led solutions have consistently provided a much better environment for technology selection.
But governments do have a role to play. Most important, we have to provide certainty where we can. We have a duty to eliminate uncertainty by insisting that standards setting procedures are open, streamlined and independent. We have a duty also to make sure that the standards that are adopted are open and interoperable.
Governments can also help the process of standard setting by working with standards agencies to adapt legal systems to combat problems such as "patent ambushes". Standards should also offer legal certainty as to the IPR rights that are embedded in standards to make sure that they are fair, reasonable and non-discriminatory.
Governments also have a duty to reduce unnecessary uncertainty and delays in standard setting procedures. We should certainly all condemn the abuse of standards as a non-tariff barrier to market access. If we can achieve this, we will have taken off an important brake on development.
I mentioned the emerging wireless economy. We are seeing a massive increase in economic potential of radio spectrum. At the same time, we are developing technologies that will free-up spectrum that is currently occupied and that will reduce substantially the problems of interference management. This could be a very large win for development, and we should not squander the opportunity by making the wrong choices.
For example, new digital techniques such as digital television are expected to increase the efficiency of the use of broadcast spectrum six fold. This means that we can have a lot more channels and choice. It also means that these prime frequency bands could be made available for the new services that are now coming onto the market. This "digital dividend" gives us a once-in-a-generation opportunity to rethink the way we use this valuable natural resource.
Already today, wireless-based services are estimated to represent 200bn€ or 2.5% of the European economy. Emerging services include mobile television broadcasting and the various different types of wireless broadband such as cellular networks, mesh networks, WiFi and WiMax, as well as the services that will exploit the coming "internet of things" that will network together all radio-based devices such as detectors, sensors, actuators and identifiers.
We have to make a fundamental change now, if we want to get the benefits of the "digital dividend" globally. We have to look for economies of scale which means agreeing common spectrum allocations worldwide, just as in 1986 European governments agreed to reserve 900MHz spectrum band for GSM, and on common approaches to spectrum management.
It is also important to recognise a second point: the way we manage the allocation of spectrum has to change. Just as governments today should not be in the business of mandating standards, with spectrum we should get out of the present rigid command-and-control system and move to a flexible approach based on market principles.
The digital dividend bridging the digital divide!
As I noted at the start, wireless provides the best hope we have to bridge the digital divide. We have seen this in the imaginative use of GSMs in developing countries, not just as a means of talking on the phone, but for example the way that pre-paid cards can act as a way of monetising credits for people without access to traditional forms of financial services such as a simple bank account.
The development of services such as mobile broadband and Wi-Max offer scaleable solutions for true broadband access, not just in low income communities but also in sparsely settled areas in developed communities. For this to happen though, it is essential that we sweep away barriers to the development of these services. In particular, we need enough flexibility in spectrum allocation so that high speed broadband can be offered using wireless. We are a long way off this at the moment. However, the barriers are bureaucratic not technical. That is why we politicians should be able to remove them! We have a responsibility to take them down if we want globalisation to bring us to the global village.
Open access to the global village is indispensable
To close, I would like to address a crucial element for the future growth of the global village. ICT is a sector which, for technological reasons, transcends borders, whether we talk about radio spectrum, the internet or satellite communications. For the ICT sector, it is therefore even more important than for other sectors that political and economic borders disappear progressively. We in the European Union have seen tremendous growth resulting from the dismantling of the borders between our 25, and soon 27 Member States' economies. This has allowed, and continues to allow, economies of scale to develop in Europe.
I believe in the benefits of open markets and of free trade for the global ICT sector, and in the need for making further progress in multilateral trade relations in the context of the WTO, especially as regards trade in services. The global village must be open, and this not only for economic reasons. With artificial economic borders disappearing, we free up the flow of talent, ideas and knowledge to finally realise the global village. I therefore believe that the ability to cross a road in the global village should not depend on nationality or origin, and that non-discriminatory market access must become the rule of the game in this village.
Europe is a strong player in the ICT sector, and we will focus our attention even more in the future on the global dimension of the Information Society. I therefore plan to propose a new strategy on the international challenges for Europe's ICT industry that could be adopted, in the form of a Commission Communication, in 2008. To allow for an intense debate on this important issue, my intention is to start a broad public consultation on the subject, with a particular focus on questions of market access, in the second half of 2007.
Ladies and Gentlemen,
Here in Hong-Kong, we see probably more clearly than anywhere in the world how Information and Communication Technologies can help to overcome cultural, geographic and even political borders. For me personally, Hong-Kong is therefore a microcosm of the global village.
At the same time, the Hong-Kong experience also shows how much personal freedoms and democratic rights are the cornerstone for successful economic and societal development. It is in this sense that I hope that Hong-Kong will, in the near future, become a point of reference for a new, open and democratic global village. Because open borders must in the end be paralleled by open minds.