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Neelie Kroes

Vice-President of the European Commission responsible for the Digital Agenda

Delivering investment and effective competition in broadband markets

ECTA Regulatory Conference

Crowne Plaza Brussels, 30 November 2010

I have spent every day of my time at the European Commission – six years now – to make markets work for consumers. With some notable outcomes as you are no doubt aware. Now it is time for us to deliver results when it comes to the provision of superfast broadband.

Superfast broadband is, after all, the heart of the Digital Agenda. Dramatically increasing access to such networks will take a mix of players and mix of technologies. It cannot happen without ECTA members having the chance, and taking on the responsibility, to play a full role. We all know that a level playing field is required for competition to flourish. But we know also that the telecoms sector must identify its common interests in order to work together to reduce the costs of investment.

You will be well aware by now that the Commission’s NGA Recommendation sets out key principles of how to promote the roll-out of superfast broadband.

I hope you agree that we have created a text that protects the competitive process, while accepting that we also need to incentivise fibre investment amongst both your members and incumbent operators. We developed this approach always with our ultimate goal in mind: to deliver tangible benefits to European consumers.

The Recommendation is only ‘step one’. But further steps are necessary to make the difference between words and real investments. The investment itself is largely to be made by the private sector of course. But certainly the Commission has a role to create the best conditions for these investments.

In that respect I would like to talk about two ways to spur market access and the investment process:

1) actively offering further guidance on the application of key remedies

2) exercising strong regulatory oversight so that there is a genuine level playing field across the EU.

In relation to the first point, we have identified the need to come to a closer and shared understanding of how we impose regulatory remedies.

After all, achieving the necessary EU wide level playing field revolves around our shared understanding and the consistent application of the regulatory toolbox.

This relates in particular to:

1) fair prices for third parties that require network access; and

2) effective implementation of the principles of non-discrimination for vertically integrated network operators.

We will work closely with BEREC, national regulators and industry to come up with a set of key principles for both these remedies that will help regulators to apply them more consistently across Europe. Like BEREC, we are keen to avoid any inconsistencies between Member States in implementing the new rules. This is both a matter of fairness and of maintaining the best possible investment climate.

For example, getting the access price right has to work on several levels. Income gained from selling access needs to be at levels that would not stop the seller from investing in the transition from copper to fibre. Some argue that regulators need to force lower copper access prices in order to cut margins.

In that line of thinking fibre becomes a more attractive investment, and there is more competition on copper networks. Perhaps. We need to bear in mind, however, that much cheaper copper prices may erode broadband retail prices. This would make fibre based products less attractive to invest in, rather than more so.

We cannot afford to lose sight of the bigger picture. We should consider that it might be unwise to “save” a small amount on broadband access today, if the long term effect is to reduce future income because of poor networks.

At the same time, however, we cannot put ourselves in a situation where unreasonably high access prices kill off infrastructure-based competition. In such a scenario poor networks and services will again be the likely long-term outcome.

What I believe matters most is that access prices are set at a fair level reflecting the underlying cost. They should be set consistently and on good modelling principles. This is, however, not what I observe across Member States.

Consistency means that access prices for products which are part of the same value chain should be calculated according to the same cost standard. Only then can we ensure that we get both the incentives right for a migration to NGA and ensure access seekers can still climb the ladder of investment.

Good modelling principles mean, for example, that regulators should be faithful to the costing model chosen. Take, for instance, an NRA which chooses as a cost standard an operator which builds a completely new network.

This is in principle a good idea since we do not want to compensate the dominant operator for costs which are caused by inefficiencies of the past. If indeed an efficient operator is the benchmark, then we cannot assume that its new network breaks down as often as a network built 30 years ago.

We have made our position clear on some of these principles in a recent case where we did not believe a rise in the price for the local loop was fully justified.

Moving on now to the second remedy: fighting discrimination against access seekers. Vertically integrated network operators should not discriminate against competitors in favour of their own downstream business.

What is most important is reducing the incentives and ability of such players to discriminate. We are kidding ourselves if we think that non-discrimination remedies have fully eradicated discriminatory behaviour of dominant operators. If given the opportunity, dominant firms have the short-term incentive to discriminate against their competitors.

That is why strong enforcement is always an essential regulatory tool and I urge national regulators not to hesitate to take action against any company found doing this. Today’s divergence in approaches to applying and enforcing non-discrimination creates an underlying problem. Why? Because such divergence is impeding competition and holding back the creation of a genuine Single Market in electronic communications.

The goal has to be that similar regulatory challenges are met with similar tough rules and remedies in all Member States. This is not about creating a "one-size-fits-all" approach, it simply saying that “27-sizes-do-not-fit-Europe.”

Let me give you an example. Downstream competitors often need to have access to an appropriate wholesale offer before the dominant operator’s retail offer is launched, and they need to have access to the same quality of service. Otherwise there is no fair competition. In the Commission's view for superfast broadband this means access at least six months in advance.

Similar considerations apply to all access markets. The wholesale supplier needs to provide equal quality of service for the access seeker and the incumbent’s downstream arm and at the same time. Both are fairly clear principles. It would not be acceptable to have 27 or even 10 or 20 separate approaches.

Furthermore, equal access to information is another key principle of non-discrimination. Where the dominant operator shares between its wholesale and retail arms commercially sensitive information about the network, but withholds it from access seekers, this could grant the retail arm of the dominant operator an anti-competitive advantage

Last but by no means least, NRAs need to measure how successful their non-discrimination obligations are in practice. With the right performance indicators, for example, they could detect more easily potential differences in fault repair times, the number and frequency of faults and so on and act upon any misbehaviour they discover.

As you can see, there is still some work to be done for all of us and I have asked my services to look at these issues. We will ensure guidance is ready for consultation with all stakeholders as soon as possible in 2011.

Now to the second way in which we can help to spur investment and ensure access to networks. Of course, we must also have systems ready for instances where the guidance may not work as planned. To this end the revised framework grants the Commission the power to open a second phase investigation on the appropriate and consistent application of remedies. We are ready to use this new tool in our toolbox.

This warning about Article 7 is not abstract. I can assure you of that. There have been recent notifications, for example on infrastructure access that, with the powers at our disposal from May 2011, could have been pursued beyond mere comments.

Once the new framework is in place we will work hard alongside BEREC, who have a very important role to play here, to iron out any serious inconsistencies in the NRAs’ application of remedies. Such inconsistencies in similar conditions could, otherwise, undermine the internal market in electronic communications we are all striving for.

In conclusion, let me say that the Commission is fully aware of the scale of the task ahead. That means we will be there to crack down if some choose to mess up the playing field for others. But more than that, we are also committed to helping those who want to invest and helping all parts of the sector to build on common interests. I look forward to working with you in 2011 and beyond.

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