Viviane Reding, the EU Commissioner for Information Society and Media, has called for a number of changes to regulatory procedures, including the forced separation of an incumbent’s retail services from its wholesale unit.
Reding also took the opportunity to again launch a scathing attack on the German government and the German regulator over its plans to exempt Deutsche Telekom AG’s new 3bn euro ($3.5bn) high-speed fiber-optic network from regulation for two to three years.
She outlined her thoughts of the 2006 Review of the EU telecom rules during a speech in Brussels at the annual meeting of Bitkom, a German trade association of ICT players,
Reding said she wants to tackle three core issues. First, the issue of spectrum and how the EU can use it more efficiently. Reding is calling for a more market-based approach to spectrum management, which is likely to mean the removal of spectrum management from local regulators such as Ofcom, with the creation of a European Spectrum Agency.
The second issue Reding wants to look at is better regulation. At the moment, the EU checks all regulatory measures proposed by national regulators through the so-called Article 7 procedure. Since July 2003, the EU has processed more than 450 notifications from national regulators but Reding wants to simplify the administration burden this creates, and remove the variations of regulatory approach, which she said is creating an obstacle to the internal market and effective competition.
If a national regulator in country A applies the EU rules vigorously to the operators in its market, while the national regulator in country B adopts a more lenient policy towards the dominant operator by adopting remedies later or in a less efficient way, this gives companies in country B an unfair competitive advantage over companies in country A, she said. In Europe’s internal market, this is unacceptable.
She said she therefore proposes to create an independent European telecoms regulator that would work with national regulators to create a level playing field for telecom operators across the EU.
The third issue Reding addressed is the debate concerning regulatory holidays and structural separation. Reding has clashing repeatedly with the German regulator and the draft law going through parliament that will allow a regulatory holiday for two to three years of Deutsche Telekom’s new high-speed fiber-optic network.
The spat began in November last year when the Bonn, Germany-based carrier lobbied the new coalition government of Chancellor Angela Merkel over its new network to ensure it achieved adequate returns. It said it would spend 3bn euros ($3.5bn) over two years to upgrade large parts of its network. The upgrade meant stripping out large parts of its old copper wire network and replacing it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. The roll-out would cover 10 unnamed German cities by mid-2006, and by 2007 this would reach 50 of Germany’s largest cities.
During her speech, Reding was damning of Germany and its proposal for a new legislative provision on new markets. Reding said that even though she understands the economic pressures facing incumbents, especially from technological developments such as VoIP, she believes the response to these challenges must be new and more successful business models, and certainly not protection, by regulators, from competition.
I simply do not buy the argument that investment will only happen if we stop regulating monopolies, she said. The EU rules do not permit ‘regulatory holidays’, she added, before confirming that she intends to begin infringement proceedings against Germany if the draft law should become law without substantial changes. Reding pointed to the fact that broadband penetration in Germany is only 12.5%, which is just the average of the 25 EU member states. This is hardly the level of performance one would expect from this economic and technological nation, Reding said, pointing out that Germany had been overtaking by Estonia in this regard.
Reding saved the most controversial element of her speech to last, when for the first time she discussed the policy option of structural separation of European incumbents. By this, she means that local telecom regulators would require a dominant operator to provide non-discriminatory access to all operators by separating infrastructure provision from service provision. She cited the UK where BT Group Plc has had its retail services operation, BT Openreach, separated from its network operation, BT Wholesale, in order to spur competition.
Reding then went on to to cite the breakup of Ma Bell in 1984 in the US, and how this has benefited the US market where 38% of subscribers have broadband access via DSL from telecom operators, and 55% have broadband access via cable. Consumers therefore have a true choice in the US, she said. I believe that the policy option of structural separation could answer many competition problems that Europe’s telecom markets are still facing today. Perhaps we have to be as radical as regulators were in the US in the 1980s to make real progress?
Reding’s proposals are to go before the European Commission at the start of July, as the EU is currently undergoing a Policy Review and a period of public consultation, which is scheduled to finish in October.
Whatever happens, Reding’s last point concerning structural separation is sure to raise the hackles of many European incumbents, and a response from them is sure to follow.
Reuters quoted Michael Bartholomew, director of the European Telecommunications Network Operators Association, who said Reding has not done her homework. ETNO dismissed Reding’s assertion that she was rolling back regulation, and said companies will not upgrade networks if they are forced to open them up to competitors.
However, her proposals have received backing from the European Competitive Telecommunications Association, ECTA, which welcomed Reding’s proposal to strengthen competition in the telecoms sector. In particular, ECTA welcomed the debates on separating incumbents’ infrastructure and services businesses and on broadening the availability of radio spectrum. However, ECTA cautioned that the proposals to reduce regulation in the retail sector before competition is sustainable could backfire.