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Viviane Reding

Member of the European Commission responsible for Information Society and Media

Better Regulation for a Single Market in Telecoms

Plenary meeting of the European Regulators Group
Athens, 11 October 2007

Ladies and Gentlemen,

dear colleagues regulators,

I have been asked to address you this evening. Let me first say that I am grateful to have been invited by the ERG to join you at your plenary meeting here in Athens. I know well that a few years ago, it was certainly not the rule that a member of the European Commission participated in an ERG meeting. I may even say very frankly today that the ERG rather preferred to be left alone in its first years, while the Commission not always made enough use of the potential added-value of the ERG. I am grateful to be with you today here in Athens and able to say that our relationship has changed a lot over the past two years. Today, thanks to the efforts made on both sides, the ERG and the Commission work together in closer partnership.

Of course, we do not always agree on everything. Of course, we often have intense discussion about the right way forward – you amongst yourselves and the Commission with you, as it should be, in my view. But, in contrast to some years ago, there is today a functioning working relationship between the ERG and the Commission. When I look into this room, I see many familiar faces, either from bilateral exchanges of view or from previous ERG meetings. I thank all among you who have made this positive, constructive development possible. It serves Europe well and brings us closer to our common aim of better regulation.

Your plenary meeting today comes at an important moment in time, and this is what your discussions here in Athens are mostly focussed at. We are just a couple of weeks before the European Commission will decide, on 13 November, about the reform of the EU telecom rules, of the regulatory framework which guides today the work of national regulators and of the European Commission in the 27 EU Member States.

You and I have worked together a lot over the past months to ensure that this telecom reform of 2007 becomes a good, balanced package. You have told us honestly when our ideas needed improvement and where new technological and market developments needed to be taken into account. I would like to thank all of you today for the very helpful input given by the ERG collectively and by many of you individually to the new telecom package. Your expert advice has found its way in the text of the package as it is currently discussed, in a last round, inside the European Commission.

A “glass half full” – but important competition problems remain

This year's reform of the EU telecom rules will first of all reaffirm many of the principles you and I believe in. It will especially reaffirm the need for effective competition on the telecom markets in Europe and make sure that national regulators are even better equipped to deal with competition problems than they are today.

It is true that in some sectorial markets, competition has evolved in the past years thanks to your effective work, the offer has increased and prices have gone down. This is the reason why we in the Commission believe that on around 50% of the 18 regulated markets today, the case for ex ante regulation is no longer apparent and competition law alone can be relied upon in those markets.

To be clear about this: This will not exclude national regulators from regulating those markets. However, in the future, national regulators will have to make a convincing case why in such markets, regulation is needed to ensure effective competition and that competition law alone cannot achieve this. The Commission of course will stand ready to assist, together with the ERG, national regulators who still have to cope with important competition problems in these markets. We are fully aware that many markets no longer need regulation, say in Denmark or in Sweden, but still require it in, say, Greece, Ireland, Poland or Slovakia.

The fact that the Commission no longer sees a need for regulation on around 50% of markets regulated today does not mean that we believe that everything is fine in telecoms. It shows that the glass is half full, but that there is a lot still to do. I know that some have been saying to us in the past weeks that competition would already be "perfect" in the telecoms sector and that therefore telecoms regulation would no longer be needed at all. Such arguments are certainly understandable at a moment where the lobbying in Brussels is at a peak. However, the facts are quite a different story. If we just have a look at direct access competition in Europe – an area which is, to some extent, also crucial for the development of broadband – , only 10,5% on average of the market is today in the hands of alternative providers which provide their services via their own network, via cable lines, unbundled lines or wireless access. 89.5% on average of direct access is however still dominated by legacy providers, the former incumbents. It is true that there are two Member States – the United Kingdom and Denmark – where more than 20% subscribers use an alternative provider for direct access. But at the same time, in 5 Member States, the proportion of subscribers on alternative network providers is 0 or essentially 0 in 5 Member States (Malta, Slovakia, Finland, Greece, Cyprus). This alone shows that in spite of a lot of progress, there is still some way to go to achieve effective competition and in particular true infrastructure-competition in the EU. This is why the European Commission continues to see a strong need for ex ante-regulation in the telecom sector, especially in the access market and especially in view of the development of Next Generation Networks which should be capable of delivering innovative and high-speed broadband services to most of the population. We should therefore certainly not give up ex ante regulation on the critical access markets, but rather make it more effective and faster in its application.

New instruments for ensuring effective competition

This also means that new instruments are needed to achieve effective competition faster. As you know well, my intention is therefore to strengthen the independence of national telecom regulators in the new telecom rules. Because I believe that truly independent regulators, which are well equipped and have an expert staff, are the best guarantee for effective and speedy regulation in case of competition problems. To be able to rely on independent national telecom regulators is for me a key element of better regulation in the telecom sector.

Secondly, following last year’s public consultation and especially the expert input from the ERG, and after many discussions with my colleagues in the Commission, I have come to the conclusion that the instrument of functional separation should be added to the remedies tool box of national telecom regulators, to be available for the stubborn cases where other remedies have been tried, but have failed to deliver the desired regulatory outcome.

This remedy has been debated widely in the public, in academia and amongst regulators over the past year. Functional separation is, as the ERG has shown itself in its recent opinion on the matter, a tool that, if used well and in appropriate circumstances, can solve competition problems by opening bottlenecks to competition, while at the same time encouraging investment, not just by the incumbent but also by new entrants. In this way broadband penetration can be increased. The figures from the UK bear out these statements. As a direct consequence of functional separation in the UK, there has been a substantial increase in the volume of orders for access from alternative providers. Prior to the acceptance of the relevant undertakings by British Telecom in September 2005, there were just 105,000 unbundled lines in the UK. In June 2007, this had grown to 2.42 million unbundled lines. That in parallel the share price of BT went up and network investment was substantially intensified refutes the myth that functional separation would be harmful for investment, on the contrary: if used well, functional separation should trigger new investment.

Functional separation means that inside a company, without changing its ownership structure, a clear line is drawn – and supervised by the regulator – between the access business and the services branch of the company, while non-discriminatory access is granted to service providers to the access network. Functional separation is in my view the right tool for the telecom sector, which is a network economy with continues to show a number of structural competition problems, but at the same time, because of the potential of technological change, is more dynamic than the energy sector.

Of course, even though every national regulator should in future have the instrument of functional separation at its disposal, that does not mean that all national regulators will see the need to use it. In a country such as the Netherlands, to mention just one example, infrastructure competition is already developing in a way that in all likelihood will make it neither necessary nor justifiable to rely on this additional instrument. However, the Commission will be there to support all national regulators in markets where this instrument is, following a sound market analysis, both necessary and proportionate in order to ensure effective competition. I know well that following the first implementation of functional separation in the UK, now also Italy and Sweden have started to go into this direction, and that also the Polish regulator believes in the added-value of this remedy. The Commission will be there to work with you to help ensuring already today that this process, which is bound to be politically controversial, takes place in a smooth way, in full respect of the EU rules and with due regard of the need to ensure effective competition and investment in new networks. In addition, I hope that in addition, national regulators starting the way towards functional separation will also make use of the unique forum provided by the ERG to exchange best practices and experiences already made.

Unfinished business: the single market for telecoms

A second main pillar of the EU telecom reform that the Commission will propose on 13 November is the completion of the single market for telecom operators and users. The telecom reform package itself is the flagship of the Single Market Review that Commission President Barroso will present also on 13 November. Our objective is to open the Single Market with its 500 million consumers for business – and to ensure that economies of scale, cross-border services and increased competition lead to innovation, new services and tangible consumer benefits.

There are several instruments in the telecom reform package that seek to achieve this objective: the reform of radio spectrum management, for example, which should enable a more efficient use of this valuable resource across Europe, including for trans-national and pan-European services.

For many, a symbol for the single market for telecoms is the creation of the new European Telecom Market Authority which will be an integral part of the reform package. Some like this proposal and already applaud the creation of a “European FCC” which will level the playing field for telecoms in the EU. Others criticise it as they fear unnecessary centralism and new bureaucracies, often summarised under the term "Super-Regulator" preferred by some tabloid newspapers for the Commission's plans.

Dear colleagues,

I know well that institutional reform is always a subject bound to trigger a lot of controversy. In such debates, questions of power and of governance sometimes risk becoming more important than the problems of substance that need to be solved. Let me say therefore some explanatory words about the underlying principles of the proposals.

First of all, we in the Commission believe in the importance of national telecom regulators. You are close to the market. You know the market participants and consumer needs in your countries. This means that every system that we create for better, more efficient telecom regulation in Europe must and will be built on the national telecom regulators, on your knowledge and on your expertise. Corrado Calabrò, the President of the Italian Regulator AGCOM, in this context often speaks about a "European System of independent regulators". I agree with him. Centralism has no place in Europe. Instead, decentralisation is a guiding principle of European law, of competition law as well as of the regulation of network economies. We therefore build in these areas on what has been achieved at national level and rely on strong, independent national authorities, following the principles of subsidiarity and respecting existing national differences. I fully agree with the ERG when it says: there is no "one size fits all" solution in a Europe of 27. There isn't. This is why you will also find that the future system of telecom regulation in Europe builds on the 27 national telecom regulators which will become even more important in the future. The new European Telecom Market Authority will only be effective if it can work together with the national telecom regulators. And if it will be able to draw on the working groups which have emerged in the past years in the ERG and delivered a lot of valuable work.

Secondly, the ERG itself has been and will continue to be the most important laboratory for the future European Telecom Market Authority. In the past years, the ERG has started to create a joint regulatory culture and many useful initiatives have been initiated by your working groups, be it in the field of Mobile Termination Rates or as regards the effective application of the EU Roaming Regulation. I believe firmly that under its current institutional set-up, the ERG has achieved much more than one could have expected at the time the ERG was created. It is therefore, in my view, unfair to criticise the ERG for some shortcomings such as the often quoted "lowest common denominator approach". With its current institutional status, the ERG simply could not be given the tools, neither the procedures nor the staff, to make a sufficient contribution to harmonisation in the single market. This will be changed now by the reform which will put the ERG on a sound legislative footing, to be approved by the European Parliament and by the Council. The Board of Regulators of the European Telecom Market Authority will in many instances be an "ERG plus plus", which will have the institutional capability to arrive faster at more ambitious common positions.

That will have a small, but permanent expert staff at its disposal. And that will be accountable, in the person of its Executive Director, to the European Parliament, which should give the new Authority also the necessary political legitimacy for its important work.

Thirdly, let me say a word about the future relationship between the European Telecom Market Authority and the Commission. The future European Telecom Market Authority will have in many ways a role similar to the European Medicines Agency in London. It will allow a true and effective partnership between expert regulators and the Commission. The national regulators through the new European Telecom Market Authority will contribute to this partnership their expertise and experience. For its part, the Commission will contribute the authority it derives from its powers under the Treaty to build a real internal market. You as national regulators can't on your own build a functioning internal market. But surely, nor can the Commission, acting on its own. It's a fact of life. We need each other if we are to build an internal market from which European citizens and businesses can benefit. I know that some critics always suspect the Commission of seeking new powers at all price. But the creation of the European Telecom Market Authority will show that the Commission's better regulation policy means also that we do not have to do everything ourselves. That better regulation also means a more effective division of labour whereby the Commission can rely on expert advice where this expert advice is informed by the market conditions on the ground. This will in turn allow the Commission to take better decisions for competition, in the interest of our industry and of our consumers.

Ladies and gentlemen,

The Commission's deliberation about the telecom reform, which has taken quite some time due to the importance of this reform, is shortly to end. I believe that the text of the telecom reform package as it stands today, strikes the right balance between decentralisation and harmonisation, between effectiveness and speed and the need for flexibility. After 13 November, it will be the task of the European legislator; this means the European Parliament and the Council of Ministers, to decide to put the Commission’s proposals into law.

Back to work

Dear colleagues regulators,

The telecom reform package will certainly take until early 2010 to enter into force. However, the world of telecoms will not stand still until then, but will continue to move at high speed. Until 2010, the telecom sector will continue to need good regulation both at national and at European level.

The cooperation between the ERG and the Commission therefore can not stop with the Commission proposals on 13 November, on the contrary. We will need to continue our joint efforts. There are many important challenges ahead where a coordinated or even a harmonised European response will be required already in 2008 and 2009. Let me mention just 3 of them:

  • Mobile Termination Rates: Even though we all agree about the need to regulate these wholesale tariffs, and even though the principle of cost orientation for such tariffs is part of EU law, the cost of mobile termination ranges from 16.49 in Poland to 2.25 in Cyprus – a difference that is to a very large extent the result of regulation and not of different market conditions. Not only that, but the price trend is not even moving in one direction across Europe. I am therefore grateful that the ERG has started, in a project team under the leadership of ARCEP, to work on this issue in order to avoid serious distortions of competition.
  • Voice over IP is another issue where both market participants and consumers expect the ERG and the Commission to arrive at a common regulatory approach as soon as possible. In the US, 9/11 was necessary to achieve this. I hope regulators in Europe can arrive at a common approach without such tragic incentives.
  • The third "to-do"-item on the list is the important question of geographic segmentation, which means the possibility of regulatory measures differentiated between different regions of a country depending on the degree of infrastructure competition achieved. I have some sympathy for such an approach, but at the same time, I see the inherent risk of an even further fragmentation of our single market if geographic segmentation takes place in an uncoordinated way. I would therefore call on the ERG to work, as a matter of priority, on a joint approach on the issue of geographic segmentation to ensure that such measures, if they are taken, follow the same principles and are applied in a similar fashion by national regulators. Let us also not forget that not every market is already ripe for such a move! We will therefore need clear criteria when and under which conditions geographic segmentation could be an option. Without a solid, clear and operational ERG position on this, it will be difficult for the Commission to endorse geographic segmentation.

The three challenges which I have mentioned by way of example demonstrate how much the relationship between the ERG and the Commission will have to evolve further in the two years to come. Market participants will expect us to work even more closely together, to pave the way for the entry into force of the reform in 2010 and to guarantee a smooth transition. For me as European Commissioner, this also means that the Commission will have to make more use of instruments adopted under Article 19 of the EU Framework Directive in cases where there is a need for a more harmonised approach already today. I will of course closely involve the ERG and seek its expert advice in the preparation of such measures.

Let me finally stress that my door will be always open for further intensifying the relationship between the Commission and the ERG. I value your expert advice and would like to continue to draw on it in the next 2 years. I am also open to discuss with you how, within the margins of what is institutionally possible, amendments to the ERG decision could allow the ERG to grow smoothly into the role foreseen for the European Telecom Market Authority. In any case, work is already well under way on an amendment to the ERG decision to allow you to take better account of the participation of the Romanian and Bulgarian regulators since January this year.

Ladies and gentlemen, dear colleagues regulators,

It is a pleasure for me to be with you tonight and now to continue discussions with you over dinner. Let me end by thanking our gracious hosts from the Greek regulator for their kind hospitality. Professor Alexandridis is a wonderful host, and he and his team are to be complimented on the good work that they are doing, under not always easy circumstances, in the Greek market.

Professor Alexandridis has also to be thanked for hosting this ERG plenary here in Athens just at this important moment in time. Greece has always been the cradle of the European idea. What better symbol could there be for what you and I want to achieve than our joint meeting this evening here in Athens!

Thank you for your attention.

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