The Single Market and Future Framework for Electronic Communications
17-18 March 2014, University Foundation, Brussels, Belgium
On 17-18 March, WIK held a conference in Brussels on the single market and future framework for electronic communications. The topic was particularly relevant at a time in which merger activity in the telecoms sector (both mobile and fixed) has accelerated and European policy makers are debating proposals from the European Commission for a Regulation aimed at completing the single market for telecommunications. The conference also addressed the subject of whether the EU telecoms framework as a whole remains fit for purpose, or should be subject to a root and branch review – as has now been proposed by MEPs in the context of the ITRE committee’s vote on the Telecoms Single Market Regulation.
The conference began with a keynote presentation on the subject of the ‘EU competition model: success or failure’ by William Kovacic, who has transatlantic experience as both a professor at George Washington University and as a non-executive Director of the UK ‘Competition and Markets Authority’. A clear take-away from Prof Kovacic’s presentation was that policy-makers and regulators could benefit from investing in ‘research and development’ to ensure that their contributions remain current and relevant to the sector.
Robert Pepper, VP for Global Technology Policy as Cisco, followed with a presentation of trends and forecasts of the evolution of networks, applications and devices in Europe and globally. Cisco is in particular forecasting significant growth in bandwidth demand, which will be driven by increased take-up and usage of tablets, smartphones, Internet-enabled TV and machine to machine communications. The predicted explosion in the number of machine to machine devices (which are projected to reach 42% of all connected devices by 2017) was particularly striking. As regards networks, Cisco forecasts that 4G will grow to reach 24% of connections in Western Europe by 2018, but Europe will lag the US, Japan, Korea and Australia which will have achieved more than 50% take-up of 4G by this stage. Another key trend was the expected expansion of video traffic which is anticipated to account for more than 70% of all IP traffic in 2017. One consequence of the increased demand for bandwidth will be trends towards offloading from mobile devices. Robert concluded by noting the need for spectrum to be a core focus in policy discussions around the single market.
Pierre Larouche noted that we are often unclear in expressing what we mean by a Telecoms Single Market, what we want, and why we want it. Larouche provided both a policy and a legal perspective on how to approach these issues.
In his keynote address, Corrado Sciolla, President for European and Latin America at BT Global Services described the ICT requirements of multi-national corporations and how business communications providers connect the disparate sites of corporate customers across the EU and beyond. Corrado highlighted challenges in meeting the needs of corporations in a fragmented European environment in which the conditions of access regulation – both as regards price and service levels vary widely. In a subsequent heated debate in which other business providers challenged this perspective, Corrado suggested that business operators with strong positions in their home markets as incumbents might be protecting these positions against potential competition from providers based elsewhere.
In session II of the conference, Zoltan Papai from Infrapont Economic Consulting, Kip Meek from Everything Everywhere and Manuel Kohnstamm from Liberty Global, discussed recent developments towards consolidation in both mobile and fixed markets. Zoltan described research in which he had found that the entry of a fourth mobile player (especially where Hutchinson was the entrant) had led to price reductions, but the effect of mergers from 4 to 3 was more ambiguous. He warned against a focus on numbers alone – highlighting other factors that affect market dynamics. Kip Meek echoed this sentiment, and described the UK situation in which intense competition amongst variously 4 and 5 players had been associated with relatively low EBITDA margins and return on capital. He noted that number of operators was not an end goal in itself and warned against political interference in the process. Manuel noted the importance of scale for competition and consumer benefits and described the process of consolidation in the cable industry in which Liberty has gained critical scale by acquiring cable operators within and cross-border – although 6,000 cable players (many very localised) remain. He also raised the prospect of further cross-market mergers and arrangements across the value chain and fixed, mobile and content propositions become increasingly intertwined.
In Session III of the conference devoted to discussing current and future legislative change, Roberto Viola, Detlef Dauke and Goran Marby presented the perspectives respectively of the European Commission, the German Government and BEREC on the Telecoms Single Market Regulation. Mr. Dauke provided a balanced and very comprehensive review of the Telecoms Single Market Regulation. Mr. Marby highlighted that many of the bottlenecks affecting communications were outside what is currently viewed as the telecoms sector – including ‘access to capital’, copyright, data protection, privacy and domestic market access in the context of increased global M&A activity. Marby highlighted the need to ensure that regulation does not hamper innovation on the service layer and to promote markets based on openness and competition. Following these presentations, Ilsa Godlovitch from WIK discussed the findings of recent studies by WIK, TNO and RAND Europe for the European Parliament, which highlighted the need to clearly identify where harmonisation is and is not needed for the single market, and identified a number of possible alternative (less complex) options to achieve goals of consistency, sustainable competition, and universal broadband coverage.
In Session IV of the conference, shifting ‘value chains’ and the implications for regulation were discussed. Marc Lebourges of Orange called for consistent treatment of electronic communications services and currently unregulated information society services, favouring an approach of ‘levelling down’ sector specific regulation, and where necessary reinforcing common law. Sharon Gillet from Microsoft noted – with reference with historic services and applications – how barriers were more enduring in networks than in services, and that network policy needs to guard against market positions being used to foreclose service innovation. Lorena Boix Alonso from the European Commission described how ongoing consultations concerning the future approach to content had implications for the telecoms sector.
In Session V, there was a series of presentations, followed by a heated debate on the subject of SMP regulation and what the future might hold. Philippe Distler, Board member of ARCEP described the symmetric regime of FTTH network sharing in France, and noted how premium rate service regulation and call termination could move towards a symmetric framework. Peter Alexiadis of Gibson Dunn, noted the pressure being placed on the existing SMP framework with the consolidation in the industry towards oligopolistic structures. Ulrich Stumpf, Director of WIK, noted a number of areas in which the existing SMP approach is or may become quasi-symmetrical including two player markets in which the cable and FTTx network owned by an incumbent are not substitutable at the wholesale level. Ulrich also echoed concerns about difficulties of effectively applying the joint dominance concept in an increasingly oligopolistic environment.
In Session VI, which focused on mobile aspects of the single market, independent consultant Richard Feasey criticised an excessive focus by European policy-makers on cross-border consolidation, given that many services are produced and consumed locally and supply chains often remain local. He noted that the primary challenges remaining in Europe were to regain ground in 5G and spectrum release in general and to better embrace what is currently seen as an ‘IP threat’. In his presentation, drawing on recent reports for the European Parliament by WIK, TNO and RAND Europe, WIK Director Scott Marcus noted that the rationale for the objective in the EU Framework of ‘trans-European networks’ had never been clearly expressed and that there were no specific measures to promote them. Scott also highlighted the practical challenge of meeting policy objectives to bring down roaming charges to equal domestic charges in Europe.
The conference was closed with a keynote presentation from Malcolm Harbour, Chairman of the European Parliament IMCO committee. Mr. Harbour, who is not seeking re-election and was thus making one of his last public appearances as an MEP, provided a wide-ranging assessment of the state of European policy for electronic communications, addressing both the progress that has been made to date and the further progress that is still required. He happily closed with the news that the Parliament’s ITRE Committee had just that morning passed the heavily amended Telecoms Single Market Regulation, following in most respects the recommendations of Ms. Pilar del Castillo, the Rapporteur.
The presentations of the conference are available for download.