Scorecard update

Innocenzo Genna, Chairman of the European Competitive Telecommunications Association (ECTA) talks to Intercomms about the findings from the latest scorecard looking at broadband take-up and competitiveness in Europe

Q: What are the main conclusions from your latest broadband scorecard?
A: The main point is that in those countries where access regulation, especially unbundling and bitstream, have been enforced most effectively also have the best results in terms of competition and broadband penetration. These countries comprise the Nordic countries, Netherlands, UK and France. In Germany, unbundling was launched in 1998, making it one of the first to do so.

Paradoxically however, because of a competitive environment which was not always functioning well for various reasons, broadband penetration is now actually behind that the UK, which started much later but had functional separation that was very effective. This lesson to be learned from this is that where there is an effective access regulation, especially unbundling and bitstream, there you have very good results in terms of competition and broadband penetration.

Q: What have been the reasons for the slowdown in broadband penetration across Europe?
A: There are a couple of important reasons. The first reason is that while leading countries are achieving quite good results in absolute terms, some slow down in inevitable. You can't expect constant high growth forever. The Europe-wide slow down however can be compensated for, if the countries which started later were also achieving good performances in order to compensate. This however, is not happening. There are still a lot of countries which have issues with the effectiveness of regulation. I am not talking about the degree of regulation, because ECTA isn't pursuing overregulation. What ECTA is asking for is that if there are rules that are considered necessary then they should be effectively applied, otherwise, they are simply not useful. Regulation only on paper is not effective. The second reason for the slowdown is that there is some uncertainty regarding investment in Next Generation Networks (NGN). On one side, there is clear support from the Commission and ERG that NGN will be subject to proper regulation. In case of bottleneck issues, Commission and ERG said it doesn't matter if the service is via fibre or copper, there will be the same regulation if you have a competitive issue.

This is a position which ECTA is supporting very strongly. In practice however, you see that there are some national regulators who are proposing approaches that can diverge from this principle. France, Spain and Germany to different degrees have been proposing measures, which may in fact lead to deregulation of NGN because their proposals are very limited. In order to overcome a bottleneck issue in NGN you must have a bouquet of remedies to solve a problem, including access to fibre, access to ducts and bitstream, then the concrete implementation will show which remedy is concretely necessary. If you limit your options to just one remedy, then you may not be able to address to concrete competitive issue. This discrepancy between the clear message from the Commission and ERG and weak proposals from the regulators has created uncertainty. In this situation, alternative operators, which are the ones currently investing most in NGNs rather than the incumbents are being affected because they don't know that the incumbent NGN will be appropriately regulated and consequently any infrastructure investment may be at risk. This uncertainty favours the incumbents because they prefer to wait and see.

Q: The report says that duplication of access lines in the last mile is very limited. Do you anticipate this changing?
A: You expect some potential duplication in some specific areas, where you may have two or maybe three alternatives if you are very lucky but then I think a big majority of each country will rely on a single infrastructure because of economies of scale and level of investment. This is something that we've learned from the past. During the Internet Bubble there had been companies who had been inventing massively in fibre backbone and now most of them no longer exist. They had been duplicating backbones but the market was not able to sustain that. Investment must be appropriate and if you know that duplication can't be supported in a certain area, you have to accept that it is better to regulate access to a single infrastructure instead. Only limited metropolitan areas might support anything else.

In most cases, replacement and upgrading of the current network will occur. This provides big advantages for the incumbent. The big advantage is not just in the cost of fibre, it also lies in having technical knowledge of the network. You may also find a company which is investing in new infrastructure. There may also be new households in an area or a population who can afford such investments but we are still only talking about a few selected areas.

Q: How has the Commission responded to the Scorecard?
A: It was quite positive because the final outcome of the Regulatory Scorecard reflected the assumptions that the Commission has in proposing a change in the framework. The first assumption is that sometimes you don't actually need further regulation or more detailed regulation, you just need what you have in place to work more effectively. The Scorecard shows that with the same EU framework, countries are going at different speeds. This is a matter for implementation, not rules. What the Commission is now proposing is better regulation; a bouquet of measures which are aimed at making the existing rules more effective and better functioning. The other aspect which the Commission has appreciated is that the different speeds from country-to-country also showed that there is not only a lack of implementation but also a diversity of implementation. This is because regulators take measures which are inconsistent with measures taken by other regulators. The ERG has been doing good work in collecting the data and collecting information on regulatory practices, but until now, it has not been able to force its members to be consistent with best practices. Something needs to be changed. The Commission's agency proposal is targeting that issue. ECTA would like to support any proposal, whatever is the institutional shape, which is effectively targeting that issue.

Q: What difference does this make to operators and consumers?
A: There is a problem because pan-European operators are operating in a fragmented environment. They can't develop efficient crossborder services, so the operators can't achieve the success they could in the US because of a lack of regulatory harmonisation. You can't however do the same in Europe. There is also a problem where consumers in one country see their interests aren't being met because they cannot get the good access that is available in other countries, where regulation is more effective and working better.

Q: How have individual countries responded to the Scorecard?
A: Our idea is not to make list of good and bad guys. We want to show that there are only better and worse implementation rules and also affects on the market and consumers. Our goal is to show how the situation is and it is down to the government and regulators to learn to lessons. There are some government who do act very offended. I won't name them. They feel offended and one large government even told us that our Scorecards are affecting investment in that country. We have said that we were sorry because we are not actually recommending investment or not in a country. That's not our target. You can already see some correlation between our Scorecard and ICT investment data from OECD, but this is not because of the Scorecard. The Scorecard just reflects the situation, we are not the causeAt the end of the day, its credibility that makes our Scorecard what it is. We try to be cooperative. We meet with governments and explain how the Scorecard works, even getting suggestions and comments. We took these comments in order to rectify the Scorecards, when it was justified, although I must say that the final scores didn't change very much. We tried to make the government understand that our ultimate aim is to benefit to the consumer.

Q: What about the implied criticism of regulators for the Scorecard?
A: There have also been regulators who have been a bit annoyed. There we said that sometimes the bad results on the Scorecard don't depend on the regulator. The rules which have been enacted by the government and the powers that have been given to the regulators may not be sufficient. The Scorecard is also evidence that can be used by regulators to return to governments and parliaments and demonstrate to them that the powers they have are insufficient. We try to be very constructive and we talk a lot with regulators and government which were annoyed to try and deliver benefit to that market.

For more information:
Email: mbenson@ectaportal.com
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