New rules for a digital single market?
12 - 13 October 2015, Brussels
On October 12-13 WIK organised a conference ‘New rules for a Digital Single Market?’ to debate the future framework for Europe’s telecom networks and digital platforms. The first day of the event was devoted to a discussion on the evolving digital value chain and implications for regulation, while the second day focused on the review of the EU framework for electronic communications, which was formally launched with the release of an online consultation by the European Commission in September 2015. The conference included keynote presentations by Commissioner for the Digital Economy Gunther Oettinger, BNetzA Vice-Chair and incoming BEREC Chair Wilhelm Eschweiler, and chair of the European Parliament’s Internal Market and Consumer Protection Committee (IMCO) Vicky Ford, MEP, amongst others.
The state of Europe’s digital markets
The conference opened with presentations from Cisco and IDATE on trends in digital services. Pastora Valera from Cisco highlighted that video is a significant driver of bandwidth demand, while the main driver for connectivity is now coming from ‘things’ – for machine to machine applications. These reinforce the role of broadband as an essential platform. Meanwhile, Christoph Pennings from IDATE noted that within the digital value chain, the main growth in revenues was coming from Internet services and devices. However, the value of telecoms services did not appear to have been affected in aggregate. Pennings concluded that the industry was experiencing a volume shift rather than any significant value shift. He noted however that in order not to lose value going forwards, it was important to reinforce incentives to compete on dimensions other than price.
Different dimensions of the level playing field
The level playing field debate has traditionally been presented in terms of the tension between telcos and OTT players, as traditional service revenues are eroded by OTT. However, Scott Marcus highlighted that traditional industries did not have a right to preserve historic revenues and suggested that a more important debate concerned whether there was a level playing field for digital services between Europe and its major trading partners such as the US. For his part, Marc Lebourges from Orange focused on discrepancies in the rules applied to traditional telecom services (ECS as defined in EU legislation) compared with OTT services. On the basis that these services were now substitutes, Lebourges suggested that these ‘digital services’ should be subject to the same light touch regulation, and that the scope of the EU Framework for electronic communications should be limited to electronic communications networks and Internet access services. This view of a light touch framework for digital services was largely echoed by Theo Bertram from Google.
What next for net neutrality?
In a panel devoted to discussing the implications of net neutrality legislation, Peter Eberl of the European Commission stressed that the work on net neutrality in Europe was far from finished. He noted that the preparation of Guidelines by BEREC following the adoption of the Telecoms Single Market Regulation, would be key to ensuring a harmonised approach. Traffic management, the treatment of specialised services as well as commercial agreements and practices were areas in which there would be further debate and need for clarification.
New challenges in online platforms
The approach to handling dominance in emerging online platforms was a theme that emerged in several of the debates. While Stefano Quintarelli, a member of the Italian Parliament, and Lebourges of Orange suggested that ex ante legislation may be necessary to avoid discrimination or unfair contract terms by powerful players in the online world, Nicolai van Gorp of e-Conomics raised concerns in the other direction that it was difficult to distinguish anti-competitive motives from normal business strategies and costly to make a mistake. He therefore suggested relying less in the application of traditional indicators used in anti-trust such as market shares and profit, and instead using indicators that concern contestability.
The review of the EU Framework for electronic communications
Anthony Whelan, Director for electronic communications at DG Connect, the European Commission, opened the second day of the conference to raise some thought-provoking questions around the ongoing review of the EU Framework for electronic communications. Key amongst these were:
- Should the framework retain its existing objectives or should focus more on concrete policy goals such as widely available connectivity?
- Is there scope to simply wholesale access – and should alternative operators be ‘pushed’ to climb the investment ladder, and if so how?
- Is SMP-based ex ante regulation central going forwards or are there advantages to alternative horizontal models, or simpler approaches eg to termination rates?
- Does the existing focus in the framework on non-discriminatory access adequate motivate investment by first movers, or could an alternative approach be to reward first movers providing there is a possibility for co-investment?
These questions proved to be central points in the subsequent ‘keynote’ session involving Commissioner Gunther Oettinger and BNetzA Vice-President and incoming BEREC Chair Wilhelm Eschweiler.
An important point raised by Commissioner Oettinger was that current market regulation does not effectively provide tools to support investment in challenge areas, where there could be at most one network. In these cases, he noted that one possible approach might be to support competition ‘for’ the market. Commissioner Oettinger also suggested that regulation should take into account the state of technological development and number of networks, and that pricing flexibility could provide an important incentive for upgrading networks to higher speeds. Oettinger flagged that spectrum was an important input for the digital union, but that measures were needed to streamline allocation, and support more flexible access, as well as shared access, trading and refarming as needed. Lastly, he highlighted that it was not his ambition to centralise regulatory functions by increasing the Commission’s powers.
For his part, Wilhelm Eschweiler supported the existing focus of the EU regulatory framework by emphasising that, in his view, competition was a key factor supporting both investment and end-users. He observed that competition induces market entry and the development of new services, and also in doing so stimulates demand. He noted regulatory bottleneck markets was an important aspect in supporting competition, but at the same time, the least intrusive measures should be used.
These regulatory themes were further explored by experts and academics over the course of the day. Ilsa Godlovitchfrom WIK presented evidence supporting the role of infrastructure-based competition in supporting NGA investment, and asked whether adapting the existing ladder of investment to mirror approaches taken in France and Spain (which focused on duct access and fibre terminating segments rather than active access to the incumbent network) could foster greater deployment in FTTH networks. Meanwhile, in a session devoted to ‘oligopolies’, there was a heated debate over whether there is reliable evidence that consolidation boosts investment and Ulrich Stumpf of WIK summarised the pros and cons of potential alternatives to SMP regulation. He also proposed an option of linking the existing symmetric and asymmetric regulatory regimes whereby symmetric access could be assured up to the terminating segment with SMP regulation used only if downstream bottlenecks persisted.
The conference closed with a discussion about potential methods to foster broadband and NGA deployment in uneconomic areas, chaired by Vesa Terava, Head of Unit at DG Connect, the European Commission.
As we finalise publication of WIK’s newsletter, the Commission’s consultation on the review of the EU Framework for electronic communications has just come to a close. We hope that the debate at our conference helped to inform and inspire policy-makers and market participants. Commissioner Oettinger has announced that the Commission’s proposals for the reform of the EU framework for electronic communications will be issued in the Summer of 2016.
The presentations of the conference are available for download.