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Neelie Kroes

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

The right regulatory environment for rolling out Next Generation Networks

Fibre to the Home Council Europe Conference,

Milan, 10 February 2011

Ladies and Gentlemen,

It is great to be here with you looking at our digital future. I hope to find new 'digital buddies' today, and that we will be able to implement the Digital Agenda and build a better future for Europe together.

At the heart of the Digital Agenda is ensuring that Europeans can get all the advantages and benefits that come from access to superfast broadband. Succeeding in this ambition is central to our economic future.

Maximising broadband access obviously takes a mix of players and a mix of technologies, and the role of fibre is central. You are not our only consideration, but you are absolutely key. It not possible to maximise access while failing on fibre. That is how seriously we take your issues.

While the EU broadband market is moving towards higher speeds because of fibre and cable, time is against us. The current rate of new connections – now down to 25,000 a day – is simply not enough to meet our 2020 targets. So we have to intensify our efforts and get higher investments on the ground.

I am convinced that regulatory clarity is crucial for such investments. That's why one of the first key actions of my mandate as Digital Agenda Commissioner was the adoption of the long awaited NGA Recommendation.

The NGA Recommendation indeed brings more clarity for both regulators and investors. It ensures a consistent regulatory approach across Europe. This clearer framework should help make the choices and investments that will lift Europe’s overall competitiveness.

The Recommendation is carefully drafted to preserve investment incentives for the roll-out of next generation networks. But at the same time it ensures that such networks remain open to alternative operators, in order to allow competition in broadband services for the benefit of European consumers.

You might ask: “how will the Recommendation help us increase investment?”

First, in setting cost-oriented prices for third-party network access, regulators will have to take investment risk fully into account by means of a risk premium. That would mean regulated firms could continue making attractive margins and earn very solid returns on capital invested. In the present climate of lower yields in many asset classes, this increases the attractiveness of NGA investments.

Second, the NGA Recommendation allows regulated firms significant price flexibility when they deploy Fibre to the Home (FTTH). In particular, the Recommendation allows setting lower access prices to the unbundled fibre loop in return for up-front long-term or volume commitments. It does this while ensuring that efficient competitors are not squeezed out of the market.

These provisions strike a good balance between investment incentives and the need to protect competition. It took long and intense discussions with stakeholders to agree on these principles. So in my view, everybody should now play by the rules.

It is disappointing to see that some NRAs have departed significantly from important provisions of the Recommendation. And that includes regulatory measures in large Member States which clearly deviate from the core principles of the Recommendation.

There are NRAs which believe that we do not need price control and cost orientation for access to the fibre network. Other NRAs make such access subject to scarcely justified conditions. And then we see cases where symmetric regulation goes so far that non-dominant operators appear to face a disproportionate regulatory burden. Whatever may be the variations in local conditions, I am afraid that these highly diverse national approaches will not contribute to a stable European approach to NGA roll-out and competition.

The Commission will work hard to improve on this. And to turn the good provisions of the Recommendation into good practice, we will provide our full support to NRAs and BEREC.

We want all players to have access to the same fair investment conditions, and we want to make sure there are good consumer offers from the start. That is why the NGA Recommendation places special emphasis on competition, in particular:

  • fair access prices; and

  • strictly-enforced non-discrimination obligations imposed on dominant vertically integrated network operators.

In relation to both these points we will work closely with BEREC, NRAs and you, the industry, to come up with a set of key principles. Consistency across Europe is essential.

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 prohibit the seller from investing in the transition from copper to fibre.

Some argue that regulators need to force copper access prices lower 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 and, as a result, make fibre based products less attractive to invest in.

We cannot afford to lose sight of the bigger picture. We have to see that it might be unwise to save a small amount on broadband access today, at the expense of future developments - and many euros of lost income - because of poor networks.

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

What I believe matters most is that access products need to be priced in a consistent manner and along some good modelling principles.

Consistency means that access prices for products which are part of the same value chain should be calculated according to the same cost standard. And good modelling principles should induce regulators to be as faithful as possible to the costing model chosen.

Only then can we ensure that we get both: the right incentives for a migration to NGA and the prospect that access seekers can still climb the ladder of investment.

In line with that effort, it is also critical that we strictly monitor the actions of dominant network operators which are vertically integrated. Too often such firms tend to discriminate against competitors in favour of their own downstream business. This is quite predictable, but never acceptable. I urge national regulators not to hesitate to take action against any company found doing this.

But giving guidance is not the only way in which we can assist. The revised telecom framework confirms the central role of the Article 7 procedure in promoting a competitive Single Market. Indeed, it now grants the Commission the power to open a second phase investigation on the appropriate and consistent application of remedies. And we are ready to use this new tool to ensure a properly functioning market.

This is not a warning but a request for deeper cooperation. Once the new telecom framework is in place, we will work hard with the BEREC and individual NRAs to iron out any serious inconsistencies in the application of remedies. Such inconsistencies in similar situations could, otherwise, undermine the internal market in electronic communications which we are all striving for.

Across the board, we take the view that similar regulatory challenges should be met with similar tough rules and remedies in all Member States. Europe does not need 27 approaches to NGA challenges.

In conclusion I say that neither regulators nor operators can address our broadband challenges alone – we need each other. For my part, while I drive a hard bargain, I am also your biggest supporter. Thank you.

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