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SPEECH/10/610

Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

Competition policy for an open and fair digital economy

Second NEREC Research Conference on Electronic Communications

Madrid, 29.10.2010

Ladies and Gentlemen:

I would like to thank NEREC and Guillermo de la Dehesa for having invited me to participate in this conference.

The digital economy is one of the main engines of our still uncertain recovery. Few industries have the same potential to foster Europe’s potential growth and long-term competiveness.

When you think that the professions that will be most sought after in 2030 do not yet exist; that a hundred and fifty million mobile phones ring every second – the potential of information and communication technologies becomes even more meaningful.

In Europe we need to equip ourselves to meet the requirements of future professions and to prepare ourselves to foster and use technologies that have not yet been created.

The European Commission is paying a lot of attention to the developments in the field of information and communication technologies. Our economic, social and environmental strategy for the next decade – the EU 2020 strategy – gives great prominence to the Digital Agenda for Europe as one of the key pillars of our pattern of growth.

As policy makers, we must remain open to the voices that come from the industry and from civil society – more so than in other fields. We can tap the economic and social potential of the digital revolution only with the full engagement of all stakeholders.

This is the reason why I consider this conference as a very interesting initiative

For me, as the responsible for competition policy in the European Commission, the biggest challenge is to understand the complexities of the digital landscape and to ensure that a competitive environment is not only respected but fostered.

In an environment that is highly innovative it is of utmost importance to preserve the opportunity of new firms to enter a market and challenge established players.

We need to safeguard a level-playing field and access to markets.

This will have implications on how we examine access to distribution and service platforms, access to data and intellectual property that are useful in developing new and innovative digital products and services in Europe.

Firms in the digital world should compete on the basis of their merits in terms of quality, price and innovation. The internet and digital environment relies on a technology that has brought extreme interconnection with consequences on scale, business models and innovation. It is in this new and challenging environment but we will continue to act against abuses of dominance when they occur.

But because a case by case ex-post intervention is not always efficient to deal with structural problems, competition and sector regulation will need to work hand in hand, pursuing the same objectives through complementary means.

My assumption is that European citizens and business will benefit from innovative digital services on two conditions:

  • that broadband networks are widely available at reasonable costs, and

  • that digital markets remain competitive and open to innovation.

Next generation infrastructure

How can we get broadband networks available?

Fast internet is a prerequisite in today's fast paced world.

Through successive regulation and a series of antitrust cases, we have built over time a strong legal environment that promotes both solid investment and competition. In preparing the Commission's latest initiatives in this field, we had to strike the right balance between the need to create the right incentives for expensive investment and the need to guarantee a fair game for all the players involved, including potential market entrants.

We have now entered the next investment cycle in telecommunications. Optical fibre networks are being developed in many European countries and their impact is expected to be quite dramatic.

Depending on the technologies that will be used, several hundred billion euros will be spent to upgrade broadband access networks with fibre throughout the EU and to achieve our target of bringing faster services to half its households by 2020 – with connection speeds at 100 megabits per second.

The level of investment we are talking about is huge. Several hundred billions, compared with the turnover of the telecommunications markets in the EU: about €350 billion, with a share of about 15% for broadband.

This massive deployment of optical fibres in the access networks is not without risks, though.

If the roll-out mainly covers affluent and densely populated areas – where returns are quicker and larger – a new digital divide may open.

This would be an unwelcome result of a promising development. People who do not live in cities – or rich neighbourhoods, for that matter – would be at risk of economic and social exclusion.

Ensuring universal broadband coverage and the uptake of faster internet access is a major challenge for the industry – and this is understandable. Most likely, market forces alone will not be able to deliver what citizens and business – especially small business – need.

Given the enormous economic and social implications of the fibre roll-out, we will need to use an array of policy tools, including smart regulation and enforcement, public policies, and targeted investment.

I can see ample room for cooperation between the private and the public sectors to make sure that the roll-out does not leave anyone behind and preserves a good competitive environment in the infrastructure.

What market players need most to sustain long-term investment in networks is a predictable regulatory and enforcement framework. The Commission's Next Generation Access Recommendation published last month was designed to meet this need.

I would like to recall three of its main features:

  • First, it continues to mandate network access when a dominant player operates in a given market. This measure gives national regulators excellent tools to support market entry and competition based on infrastructure.

  • Second, when calculating the price for mandated access to networks, the Recommendation rewards specific network investment risk.

  • Finally, access providers and access seekers are encouraged to share risk and cooperate to enhance competition.

One significant difference between optical-fibre and old copper networks is that all market players are making simultaneous investments. Already a number of European operators – both entrants and incumbents – are testing co-investment schemes.

These agreements could prove very important outside densely populated areas, but there are risks of re-monopolization and co-investment schemes need to be carefully designed to ensure that they avoid the risk of infringing competition law.

From the competition standpoint, we will remain vigilant. Co-investment schemes should remain as open as possible and in no circumstance can they be used to keep competitors out or raise barriers to entry. In this context, we will also continue to assess how best to enforce competition rules and, if possible, avoid more intrusive regulation.

Europe cannot afford to lose the benefits of over a decade of liberalisation, especially at a time when we all look at digital technologies to help us sustain the recovery and create jobs.

As I said earlier, the social and economic benefits of faster internet access are large, and the risks of exclusion too great, to leave this to market forces alone. Public authorities will have to step in when and where operators are not willing to invest.

This is why the Commission encourages the use of public funds to extend and modernise broadband infrastructures. It goes without saying that the form of the public support will have to comply with strict conditions.

The first condition is that, generally, public funds can only be used in areas where private operators are unlikely to invest on commercial terms.

Secondly, all broadband networks should be open to competition, but those built with public subsidies must be a model of openness; subsidised operators will have to offer access to others.

Fostering the digital economy

Moving beyond broadband networks, I will now turn to the broader policies that can promote the development of the digital economy.

Since its birth, the digital revolution has symbolised competition and innovation. But now that the industry has grown out of its pioneer stage, it is vital to preserve this character.

To this end, we need to extend and deepen the digital single market in Europe and remove the remaining obstacles.

Creating a digital single market is one the Commission's priorities.

If we are serious about looking for fresh sources of growth, jobs and competitiveness in Europe, it seems to me that we don’t need to look much further to find one of these sources.

This is why we will intervene when needed to keep the digital world a source of innovation open to all.

But open networks are of little use without competitive prices, and we will keep this under close review.

To take an example, back in 2003 we found that Deutsche Telekom charged competitors wholesale prices for access to its network that were higher than the prices for retail access. Earlier this month the European Court of Justice confirmed our decision that, in so doing, the company abused its dominant position.

In addition, limiting the availability of interoperability information can be used as a technical means to stifle competition, and we will continue to carefully scrutinise companies’ actions in this area as well.

It is also crucial to ensure that standard setting procedures work well, and that access to standards is available, on fair, reasonable, and non-discriminatory terms - the so-called “FRAND” commitments. In the IPCom and Rambus cases for example, we have shown that we are ready to intervene under competition rules to enforce such principles.

We are currently reviewing our Guidelines on Horizontal Agreements –a review to be adopted before year’s end- and in particular providing more analysis of standardisation agreements. We will bring-in experience learned from cases such as the ones I just mentioned.

Our merger control work also ensures that competition is maintained and encouraged. In this context, I refer you to cases such as the spectrum divestiture in T-Mobile/Orange that aimed to ensure competition in the future 4G market, the Cisco/Tandberg interoperability remedies on video conferencing systems, and the recent modification of the Sky Italia commitments to ensure more competition in the free-to-air space.

Beyond enforcement

Moving beyond competition law enforcement, how can public policy promote these developments? I can think of a number of regulatory and policy measures.

First, we need to strengthen our single market for content in the EU.

The distribution of online content across the EU is expensive, difficult, and primitive if compared to the technology we now have.

In particular, we need to address the persistent market fragmentation for online rights management, which harms consumers, right-holders and everyone else in between.

We need to open access to content, simplify copyright clearance and the management of cross-border licensing, make cross-border transactions straightforward, and encourage innovative methods of online payments.

Last Wednesday the Commission announced, in our Communication about the new Single Market Act, that wet will table legislative proposals regarding copyright management. The aim of such proposals is to improve access to content and the transparency of rights management across the EU.

Innovation and the next frontier for competition policy

As to innovation, there is a question that deserves a clear answer. Why don’t we all have intelligent homes and remote healthcare? These innovative services have been under development for years, but they have not moved beyond the pilot phase to widespread take-up.

One reason is that our networks so far did not have enough bandwidth to take applications like these to end-users. Now that we have – or will soon have – the capacity, we should take advantage of it.

The resulting internet ecosystem will bring about more changes than intelligent homes; in fact, it will change the way people organize their work and the very form markets will take in the future.

Networked organisations are emerging that organise work around tasks rather than corporate structures. Also, as more and more people migrate to online activities, multi-sided markets are appearing.

The multiple interactions that are typical of multi-sided markets are radically different from the one-on-one transactions we are familiar with, and new business models are being developed to create value from them.

Examples include search engines, application stores, and video-sharing portals. These are all meeting places for large numbers of end-users and service and content providers.

Platforms like these bring about network externalities, which benefit platform operators, providers, and end-users. To make sure that these positive externalities deliver their full potential, digital platforms must remain as open as possible.

These business models and markets are the next frontier of competition authorities worldwide. How shall we determine the size of markets? What will it take for a player to have a dominant position?

These are difficult questions, no doubt, but competition law enforcement is a flexible tool that can adapt to market developments and we are studying these developments as they happen.

We also keep a constant dialogue open with academics, industry representatives and other public authorities. I have no doubt they will come up with adequate answers as they have done so many times in the past.

Network neutrality

Another hotly debated issue in this debate is net neutrality. In a neutral internet, service providers, governments and other authorities would pose no restrictions on the content, sites, or equipment that uses the networks they operate or control.

Flouting the neutrality principle could have negative commercial implications. For instance, a provider may block traffic from competitors to sell its services. But there are other implications as well; quite a few governments around the world restrict access to certain sites on political or moral grounds.

I have a simple message: the Commission is committed to preserving the open and neutral character of the internet in Europe.

Of course, operators can always differentiate data to guarantee quality of service or to protect their networks from congestion and security threats.

But, apart from these forms of maintenance, I will not accept practices that distort competition and discriminate among market players.

Our regulatory system of network access reduces the concerns about discriminatory behaviour – customers will usually have an alternative they can switch to – but it does not eliminate those concerns altogether.

In particular, I believe that the people who want to switch to mobile broadband should be able to use the features and services of an open internet.

Customers should be free to choose the provider they want, so that companies – including fixed and mobile incumbents – can compete to attract them, especially through innovation.

Existing competition rules already give us the tools to look into network neutrality issues. I will intervene every time the conduct of a dominant operator causes harm to competition and consumers.

Close

Ladies and Gentlemen, let me conclude.

We are monitoring closely market and technological developments in this fast-changing sector. No new investment cycle should raise barriers around a market or reduce the incentives to innovate.

We will use EU competition rules to keep the digital economy open and fair and to secure access to market to the companies, platforms and information that make innovative products and services possible.

In line with the EU 2020 strategy and the Digital Agenda, we will contribute to the development of a modern, widely available, and open internet infrastructure in Europe.

The digital economy will continue to drive growth, create jobs, and stimulate innovation. As in other sectors of the economy, competition policy remains crucial to reach these goals.

Thank you.


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