Despite massive steps across the EU to level the regulatory playing field, outside observers see little chance of a change in the status quo and little chance of real liberalization in the telecoms industry
Telecoms rules set by the European Union are designed to create a level playing-field in a 25-country market that's home to more than 450 million people, with a ripple effect felt far beyond that. But is it working‾
In many respects, the way in which telecoms policy set in Brussels polarizes opinion is a mirror of the wider debate over the existence of a pan-European 'super-state'. European telecoms regulation is loved and loathed in equal measure with sentiment shifting according to the issue of the day. One man's harmonization is another's unwarranted interference.
We see telecoms regulation as an instrument of industrial policy, trade policy, competition policy, economic policy and social policy. Just occasionally, it becomes an instrument of technology policy, too.
Without question, the 'golden age' of EU telecoms policy came with market liberalization. January 1, 1998 saw markets opened to full competition across the then 15 member states. That landmark was the culmination of a decade-long process that saw many monopoly telcos and their state owner/backers dragged, kicking and screaming, along the path to open and competitive markets. This was an ideological battle, with the EU's free market preferences bitterly opposed by the statist instincts of some of the biggest names in the operating sector.
Before then, pan-European telecoms regulation had largely been a matter of technical harmonization and standards. This did produce some milestones: pan-European type approval for equipment was a major step forward for manufacturers and the concentration of technical standardization in the European Telecommunications Standards Institute (ETSI) has re-enforced single-market objectives that befit a trading bloc of this size.
Most striking of all, the EU gave impetus to the nascent GSM pan-European mobile standard in the 1980s and 1990s. Arguably, it took the galvanizing efforts of Brussels to promote GSM first within Europe and then globally. Since then, this has become a hallmark of most European technology policy and the regulations in support of it: cohesion at home and attempted domination in global markets. That strategy has met with patchy success. Many feel that GSM's global success was a happy accident that policy-makers and regulators belatedly claimed credit for and have tried, in vain, to emulate in other technological areas ever since.
Having fought and won the battle to open Europe's telecoms markets to competition, the EU placed its liberalization template in the hands of the national regulatory authorities (NRAs) in each of the member states. Working on the principle of subsidiarity, this gave the individual NRAs a degree of autonomy and independence when implementing new regulations and statutes and then in policing the market.
In a number of cases this has proved to be a dismal failure. NRAs, newly constituted at best and barely constituted at worst, were made up of state lackeys often drawn from the legal departments of the national monopolies they were intended to regulate or from other, often completely obscure, arms of the civil service. In Greece, for instance, the first telecoms regulatory board comprised a handful of retired navy generals. Other regulatory figureheads were drawn from telecoms ministries which had, until recently, been the agents of ownership for the PTOs they were supposed to control.
The resulting incestuous relationship between NRAs and the principal market actors produced a dubiously grounded marketplace for new entrants.
This state of affairs was conflated by the fact that, during the later years of the 1990s, investors were eager to fund second carriers in the major markets. When the technology boom imploded, this arguably left the former monopolies in a stronger position than ever and wiped many new entrants - based on other utilities or camps of private investors, for instance - off the map.
Belatedly, Brussels has been forced into taking a tougher stance with national regimes. The approach that has emerged in the last few years rests on two pillars. Internally, the European Commission fights on behalf of its consumers, lobbying for lower or less abnormal prices and conditions. This often works to the detriment of indigenous industrial players and is thus controversial in individual EU markets. Externally, Brussels will fight on Europe's behalf. This champions the cause of European players on the global stage but causes a different flavor of controversy, especially in the US with which the EU somewhat obsessively compares itself.
A quick review of a selection of issues that the EU has singled out (see xxx on page xx) demonstrates this new dichotomy of aims. The responsibility for spearheading these actions at the European Commission level is shared at present by two formidable women: Viviane Reding, the Commissioner for Information Society and Media from Luxembourg, and Neelie Kroes, the EU's Competition Commissioner from Holland.
At least until 1998, and for some time afterward, the Competition Directorate made the most sweeping interventions in telecoms policy, covering merger approvals and market abuse, for instance. By contrast, the Telecoms Directorate spent most of its time wrapped up in more mundane technical matters. The balance of influence has shifted of late, thanks in no small part to Reding's redoubtable personality and the desire of EU chiefs to assert its position in the domestic and global information society and its self-penned e-economy initiative.
For some, the problem remains at the national level of individual member states and their NRAs. Many of these are hopeless. Goalposts have also been moved with the creation of converged regulators: Oftel, the UK's long-established telecoms regulator, has been subsumed by Ofcom, whose competence extends to broadcasting and media; likewise the metamorphoses of France's telecoms-only ART into ARCEP and Germany's RegTP into the Bundesnetzagentur, which regulates all networked utilities. Critics argue that these over-arching regulators have a less effective dialogue with Brussels than their predecessors had.
It is nonetheless simplistic to assume that dysfunctional relations between the EU center and its member state satellites is only due to obdurate protectionism on the part of different countries. There may now be one Europe, but psyches, legal interpretations and regulatory cultures differ hugely across today's EU. These contrasting top-down (often referred to as 'ex ante') or more bottom-up, laissez-faire, approaches (characteristic of, say, Scandinavia), are obstacles to harmonized regulation.
Not all bad
This may be changing. 'We might have been best in class before,' says Bengt Mîª™leryd, senior telecom analyst at Nordea Markets in Stockholm. 'But now the PTS [Post & Tele Styrelsen, Sweden's NRA] looks much deeper into the market. It has become more heavy handed than light handed.' Ironically, if inadvertently, this places Nordic countries closer to 'dirigiste', interventionist administrations like France.
There is, of course, a European Regulators Group (ERG) for telecoms that purports to bring the NRAs together to discuss trans-border issues. Yet they speak different languages, if not literally then philosophically, which all but rules out the implementation or execution of harmonized market controls. Indeed, the ERG is far less cohesive than the ex-monopoly club ETNO (European Telecommunications Network Operators) or the competing carrier club ECTA (European Competitive Telecommunications Association).
Which leads us to the nuclear option. Ever since the EU started to flex its muscles in telecoms circles, some groups have lobbied for a European equivalent of the FCC in the US. Thanks to core principles such as subsidiarity, it's the regulator that dare not speak its name. Reding has at last begun to show signs of speaking out about it, out loud, and in public.
She said: 'Over and over we had been told that there was no consistency of approach and interpretation between different national NRAs under the old framework. To solve this problem we were even asked to create a European regulator. As you know, we chose instead to use a body, with regulators from each member state, to act as a center of expertise and regulatory excellence to try to achieve a consistency of approach that would help the commission deliver an internal market to the EU, while allowing each regulator the prerogative to discharge its responsibilities in its own territory.'
Kroes on the other hand comments: 'The European Commission believes that the only way forward is through a partnership which mobilizes support for change by bringing together stakeholders at all levels - institutions, member states, businesses, citizens. A partnership to guarantee that the EU's economic development is both sustained and sustainable. Every one of us in the European anti-trust community has a part to play in that partnership.'
So, little chance of a change in the status quo, and little chance of real liberalization of the European telecommunications market.
Five cases where Brussels gets angry (and occasionally loses the logical thread in its argument)
VDSL in Germany
Deutsche Telekom's planned ‾bn investment in a 50Mbps broadband access network in major centres brought forth the ire of EU officials when it was revealed that the investment would be in part tax exempt and out of bounds to loop competitors for a period of three years. Jî¶°gen Grî¶²zner, head of the Association of Telecommunications and Value-Added Service Providers, said: 'No other land in Europe has carried out for so long such a unilateral policy in favour of an ex-monopoly.'
While hostile to the 'pump-priming' of DT's broadband ambitions, the EU is itself not averse to a bit of the same. In March of this year it announced plans to subsidise the provision of broadband services in rural areas of the EU. 'Where there are genuine market failures, the EU Structural Funds play a vital role in stimulating investments in broadband infrastructure and services, boosting competitiveness and innovation and enabling all regions of Europe to participate fully in the knowledge economy', said Danuta Hî¶ ner, EU Commissioner responsible for Regional Policy.
The EU authorities are locked in combat with Microsoft. Brussels believes that the US-based software behemoth is behaving anti-competitively in a tryst running back some two years or more. 'When the Commission issued its Statement of Objections on December 21, 2005, the Commission and its experts had not even bothered to read the most recent version of those documents which Microsoft had made available on December 15, 2005', said Microsoft in February 2006. The EU had got its retaliation in first: 'I have given Microsoft every opportunity to comply with its obligations. However, I have been left with no alternative other than to proceed via the formal route to ensure Microsoft's compliance', said Neelie Kroes in late December 2005.
Biting the hand that feeds it‾ After successive warnings, the European authorities are on the verge of stamping out excessive fees charged for transborder roaming by mobile telephone users (see this month's News Analysis). There are sharp echoes of efforts in the 1980s to bring down outrageous leased-line prices in the pre-resale era. GSMA CEO Rob Conway said additional regulation is 'unnecessary and could have unforeseen consequences' after the EU's 28 March, 2006 announcement.
Europe's 'cultural cringe' in obeisance to America has never been clearer than in it efforts to promote the '.eu' suffix for Internet addresses and domains. 'I expect Europe's top level domain .eu to become similarly important as .com', said Commissioner Reding in December 2005. For all Europe's pre-eminence in cellular technology, it is lagging behind in the Internet space. Cosmetic alterations are unlikely to change that.