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Neelie Kroes

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

Incentives to invest in the future: creating an open, competitive telecoms market

Speech to ECTA (European Competitive Telecommunications Association)

Brussels, 28 November 2011

Ladies and gentlemen,

Good evening to you all; and thank you for inviting me to speak here.

We are at a time of unceasing uncertainty, soaring unemployment, sclerotic growth. We must solve the immediate problems of economic stability.

But that is not all. We must also ask ourselves: what kind of economy do we want for the future? And then we must go out there and build the foundations for that economy.

We cannot afford to wait. Here in Brussels, and across the EU, we must wake up to this hard economic reality.

The most forward-looking European industries need to know we will have infrastructure and tools for the decades to come. The most innovative European businesses need to know whether, in ten years' time, Europe will still be a creative and competitive continent. European citizens need to know whether the next generation will have challenging and creative jobs.

All of them turn to public authorities and demand to know what we are going to do about it. And rightly so.

To me, it is clear that ICT is a big part of the answer. Increasing broadband penetration by 10 percentage points could increase growth by 0.9 to 1.5%. One point five percent: on its own that's three times the total growth we predict for next year.

These figures are just too important to ignore. If we provide the right ingredients to let this technology catch on, then it could fuel the economy for decades to come, setting us free from our current economic stasis.

Getting every European Digital is an important project, with high stakes. So important, so high, that public authorities cannot be expected to step back and let it happen by chance.

But, at the same time, it is not public authorities, not the European Commission, who have the primary role to deliver this change. It is not us who dig up the roads to lay down new cables. It is not us who come up with the new attractive content that will make people demand to come online. And it is not us alone who will deliver all the investment we need.

We are at most an enabler, a catalyst. To deliver the digital agenda, we rely on our delivery partners: people like you. You can be more innovative, more effective, more hands-on than we could ever be.

So we must balance the need to act - with the need to let others act. Let me set out how we are striking that balance.

First, in some cases, it is public authorities who need to provide public goods: spectrum, for example. We have already achieved a success with our Radio Spectrum Policy Programme, which promotes a more efficient use of this valuable resource.

This gives us better and more creative tools to anticipate and meet rocketing demand. Just imagine the leap forward if public and commercial users could share spectrum on a large scale; another benefit of our programme. And now that the legal framework is clear and agreed, investments can flow in to aid a quick and easy transition to 4G.

Second, in some areas we can regulate to ensure a minimum service. But not if we unduly distort the market, or unduly burden the telecoms sector. That is why I announced last week that we should be careful before imposing broadband at a specific speed as a universal service obligation. And in any event, we should not put all the cost on the shoulders of the telecoms sector.

Third, we can provide some level of public funding.

The Commission has consulted on changes to the State Aid rules - to see if it can be made easier for national and local governments to do this. To tackle market failures without crowding out private investment. Over the coming months we will consider our response to that consultation.

And we can put some of the EU's own money on the table. The Connecting Europe Facility proposes at least 7 billion euros for broadband investment, which could all together leverage investment between 50 and 100 billion euros.

That's a substantial proportion of the total investment we need to get fast broadband for all. A substantial proportion: potentially over one third.

But we recognise that it is private investment, not public, that will provide the majority of the funding.

So where we do provide EU broadband funding, we will focus on places where the market cannot deliver on its own – like suburban and rural areas.

And we will make most use of innovative private sector leverage. The Connecting Europe Facility will engage not just the usual suspects, not just traditional telecoms providers. But new players – like utility companies, institutional investors and equipment manufacturers.

Our funding will enhance credibility, crowd in private investment, and all together could mean tens of millions more households with high-speed broadband access.

So we, public authorities, can do all this. But this will still not be enough to deliver the real transformation that Europe's economy needs.

Because, in particular, the Internet of the future will need next generation access, or NGA. Future growth, future apps, future services will be increasingly hungry for bandwidth. And in ten years time, those without NGA will be like those today who still struggle in the dial-up dark ages.

Our international competitors are really speeding up in bringing NGA networks to the home. The US, Korea, Japan, China, even Russia. Because, in spite of the wider economic benefits, market players in Europe often find it hard to justify NGA investment.

So, most of all, we need to create the right environment for them. An environment which is open, competitive, and transparent. An environment where operators have the incentives, certainty, and confidence they need to invest. An environment which helps you build the business case to make the transition to tomorrow's technology.

That won't happen on its own. It needs clear, European-level action.

We have spent a lot of time talking to the sector about the right way forward to create this environment. Clearly there is a difference of opinion amongst you: that is understandable.

But NGA investment cannot be put on hold: it is an economic imperative. And where there is no consensus, it is our job to find a constructive way forward.

In my speech to ETNO eight weeks ago, I set out a possible approach. Our two consultations, on access prices and non-discrimination, set out to explore and test possible models that could help us achieve our goals.

The ideas we put forward in those consultations were not weighted in favour of one or other group of stakeholders: I was surprised that some interpreted it as such. Because it is not in our business to pick winners.

Rather, they set out to balance the concerns of all parties. Our target is to ensure that markets know that NGA investment is profitable for the long term. To hit that target, it seems to me that we will need more than one string to our bow.

So we are exploring whether copper prices could be gradually adjusted after a certain time. While allowing higher wholesale and retail prices for NGA products, and possibly also copper products for a transitional period, if operators commit to invest.

In fact, we should not forget that, in some places, copper and NGA are in a close competitive relationship. Where consumers haven't yet seen what fibre offers, they might still be unwilling to pay a premium. In that case, fibre prices mirror copper prices; and lowering copper access prices would send us in the wrong direction.

That's why we consider that, in places where there is a firm and credible commitment to invest in NGA, it may not be appropriate to reduce copper access prices. Instead they could be an anchor for higher returns on fibre. That is the first plank of the approach we are exploring.

Alongside that, you'll know that I want markets to be competitive. I want fair access for all, certainty for the industry, and the best deal for consumers.

Because investment needs competitive pressure: we cannot return to the monopolies of the eighties.

And we are also testing out ideas to deal with the issue of discrimination.

Vertically integrated operators should not discriminate against competitors seeking access. They get an unfair advantage when competitors cannot get to wholesale offers before retail offers are launched. They inhibit competition when they give their own retail arms preferential access to commercially sensitive information.

I want to explore the capacity to act here. In particular, to act in a consistent way across the EU. Because it is troubling to have a geographical lottery where the same problem meets with different rules, different remedies, in different Member States.

You'll know that the two consultations closed today. I am grateful to those of you who responded; be assured we will examine your input carefully.

Alongside these measures, you know that we will continue to insist on regulators using costing models built on sound principles, designed consistently, and applied consistently.

And I am open to exploring the better use of innovative tools: like co-investment, risk-sharing and innovative pricing schemes. Because these can take into account the risks of NGA investment.

So this is the motivation behind our action. Because with the right pricing approach, with the right competitive pressure, we will have the incentives to invest in the future.

And while I'm on the subject of opening up markets, and delivering the best deal for consumers, let me touch on mobile roaming.

My proposal on roaming will mean a definitive end to outrageously high and unfair prices. It will solve the problem not by indefinitely legislating a complicated series of retail price caps: but by promoting market competition, and market innovation.

That will open up new market opportunities. Opportunities for our citizens, who will be able to choose the best roaming provider and will no longer face invisible cost barriers when they travel within the Single Market. And opportunities for roaming service providers willing to take the initiative. Ultimately, roaming reform is not just an issue of consumers; it is also an issue of growth. Because people use wireless devices to engage with a whole array of services and applications, and expect to do so wherever they go in Europe.

I am aware the mobile industry is debating possible ways to implement our proposed roaming decoupling. And indeed I welcome that constructive input.

Let me stress our proposal is technologically neutral. And in principle I am open to examining these different ways to implement it.

But not if they fail to bring sufficient competition into the market. For all types of consumers: from infrequent roamers to heavy data users. That's why I'm looking at options which allow not only the entry of roaming resellers, but also for heavy data users to connect, or "break out", to local networks when they travel abroad.

Ultimately, the solution must support alternative providers in coming up with competitive roaming offers. It must make it easy for the end user to shop around. And it must be agreed quickly, because our timetable is tight.

I am pleased with progress so far: we have had constructive discussions with BEREC and positive indications from Council and Parliament. So I am confident that we will be able to introduce real competition to this market, and deliver a better deal for our citizens.

In summary, ladies and gentlemen, my message is that the crisis underlines all the more the need to transform our economy, and establish the basis for future growth.

The path we take now will determine the future shape of our economy. And we must make the right decision.

Getting every European digital is a powerful opportunity, perhaps a unique opportunity, to do this. For our part we will do what we can: through public funding, regulation and supplying infrastructure.

But our best chance of delivering is to build a market which provides the right incentives for investment; a market of regulatory certainty; a market which is fair, open and competitive.

My determination to build this market is strong. And I hope I can count on your support.

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