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European regulatory decisions become mission critical

By Andy Tarrant, Director of Regulatory Affairs, European Competitive Telecommunications Association (ECTA)

Andy Tarrant is Director of Regulatory Affairs at ECTA and is based in the Brussels office. Previously he was a senior competition and regulatory lawyer with BT Ignite. From 1995 to 1997, he was European Policy Advisor and then Head of the International Section at the UK telecommunications regulator, OFTEL. He qualified as a solicitor with Herbert Smith solicitors and has a degree in Modern History and Masters in European Law and in European Politics. Publications include articles in ECLR on significant market power and dominance in telecommunications and on accounting separation.

We are currently at a transition point in telecommunications regulation as the national regimes gradually adopt to the new EU Framework for regulation. Currently, nine out of fifteen Member States (Austria, Denmark, Finland, Ireland, Italy, Portugal, Spain, Sweden, UK) have transposed the 2003 Framework into their national legislation and two of the fifteen (Finland, UK) have almost finished the market reviews. The latter is the process by which relevant product markets are analysed and if the national regulatory authority ("NRA") finds that there is a dominant provider or significant market power operator ("SMP operator") on the relevant market imposes ex ante regulatory obligations ("remedies") to prevent abusive behaviour with respect to those products. Market reviews were required under the Framework to be completed as soon as possible after 25 July 2003. The most tardy country, Germany, it is to be hoped, may have completed this process by Autumn 2004! Delays in most countries relate to slow legislative processes. Germany, however, is being slow because the new Framework should in principle give regulatory powers to an independent regulator and it requires this regulator to analyse markets properly and impose "appropriate" regulation. This would mean tighter regulation of Deutsche Telekom, which continues to fail to provide wholesale products which NRAs require of incumbents in virtually every other country in Europe, such as interconnect leased lines and bistream access. It would also require the NRA to regulate fixed to mobile calls, which currently appears to have been ruled out at a political level in Germany.

Although, the overall framework is evolving, the actual regulation applied should look very similar since the issues of market power have not changed greatly in most markets in the last few years. ECTA in conjunction with the law firm Jones Day and the telecoms consultants SPC Networks Consulting Limited will be publishing a Scorecard during Spring 2004 which analyses the effectiveness of European regulatory regimes. It represents an update of the report conducted in 2002.The report measures a wide number of parameters including, inter alia, the resources available to the regulator and comparative prices of wholesale products. The findings of the research show that effectiveness in practice varies considerably between Member States of the EU. Furthermore, there has been some changes in the ranking of regimes. The UK continues to have the most effective regime. However, it is now closely followed by Italy. Germany has dropped away. What is noticeable is that the regimes in which the incumbent operator continues to have substantial state ownership are those which have the worst scores. Just as with the 2002 Report, a strong correlation has been found between the amount of investment in telecommunications per capita and the degree of effectiveness of the regulatory regimes. Noticeably, Germany is falling behind in the rollout of broadband. ( See the latest ECTA DSL Scorecard, available at www.ectaportal.com.) The report will also note the very significant sums that have been invested in new entrant infrastructure since 1999, something that is sometimes not appreciated and which has already had an impact on price and innovation competition.

An element that was not tracked in the 2002 Report was the effect that national appeal systems have on the application of effective regulation. This is covered in the 2004 Report. In some Member States, lengthy appeal procedures of up to 5 years are combined with ease in obtaining injunctions. In these countries the NRAs can find themselves hamstrung for any relevant time period. ECTA lobbied for this to be examined by the European Regulators Group in their 2004 programme and the latter have agreed to look at this and consider what would be best practice. ECTA will be holding a seminar on this issue in the European Parliament in April and we expect about one hundred significant stakeholders to attend, including representatives of national regulators, Commission officials, regulatory experts and politicians.

ECTA is also publishing scorecards relating to specific individual products:- interconnect leased lines, bitstream access and fixed to mobile termination. What is noticeable, particularly with respect to the first two products is that incumbents, while meeting regulatory requirements to supply the product, are adding discriminatory supply conditions to hamper or prevent competitors from actually using them. (For a copy of these scorecards, please contact Jonna Byskata at jbyskata@ectaportal.com.). The European Commission is working on a recommendation on supply conditions regarding leased line products. We would also like to also see this approach applied to broadband products such as bitstream.

The key issue for how telecommunications develops in Europe in the future relates to how the Member States regulate broadband. Incumbents have lobbied heavily for "new" broadband networks to be considered emerging markets and not to be regulated. However, what many of them mean by a "new" network is in fact a copper loop network upgraded from ADSL to VDSL. Their ambition is then to switch all voice and data traffic on to this network and use their inherited economy of scale to remonopolise the market. It is unlikely that many regulators would be impressed by this argument, however some politicians seem to find it attractive. One of ECTA’s principal activities in 2004 will be to combat this argument.

While national legislatures have been slow in implementing the new regime, the regulators themselves have been swift in participating with the Commission in a collaborative body, the European Regulators Group in order to work on best practice in regulation. The main work of this body in 2004 relates to agreeing and producing a paper on how regulators ought to apply remedies. This is a state of the art analysis of the structural issues that arise in telecommunications and the remedies that should be applied once those issues have been identified. The ERG held a meeting with European industry associations and a further full public hearing to discuss the Remedies paper in January. For a copy of ECTA’s response to the ERG consultation and a further response to the ERG draft, please contact Jonna Byskata at the e-mail address above. Unsurprisingly, the Member States where the politicians want to retain control over the detail of regulation rather than transferring this power (as required by EU law) to the NRA are fighting a rearguard action to be able to participate in the ERG. The Commission and the independent regulators were hostile to this. As of February 2004, it was unclear who would win this tussle.

In Autumn 2004, the Commission will undertake its own 10th Implementation Report which will be examining the extent to which the European rules have been properly implemented in each Member State. ECTA will be feeding in material from its latest Scorecards to assist the Commission. For the first time, the Report will also be covering the new Accession countries. ECTA will be assisting its members from those states in making their input. By the time we get to December, it will be possible to make an overall assessment of implementation in the whole enlarged EU and this may well suggest new policy avenues which should be explored at EU level. This will certainly be one of the issues discussed at the annual ECTA Regulatory Conference in Brussels on the 8th - 10th December; the largest conference of its kind, attracting just under 250 delegates in 2003.

ECTA’s activities are not however restricted to regulatory lobbying. At the end of March 2004, ECTA will be holding a conference that will discuss a number of critical commercial issues including outsourcing, cost reduction and financing for communications companies. A highlight will be a number of CEOs giving their verdict on how to manage these issues successfully. If you are interested in attending, please contact Marcus Benson at mbenson@ectaportal.com.

ECTA is fortunate in the amount of time that CEOs of its member companies are prepared to devote to its activities. A further notable example will arise in March when a group of representative CEOs are meeting with Commissioner Liikanen of DG Information Society of the European Commission to discuss a number of issues including those mentioned in this article. This will be the highest level delegation that ECTA has ever taken to see the Commission. It is a reflection of the mission critical nature of regulatory decisions that will be taken this year, ones that will shape the long term development of the communications industry in Europe.

For more information: Please contact: Andy Tarrant, atarrant@ectaportal.com
Or visit: www.ectaportal.com

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