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16th Jul 2018

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Competition must prevail in the quest for telecoms investment

  • The Commission estimates that enhanced connectivity due to 5G could generate €113bn of additional benefits annually in four industries - automotive, healthcare, transport and utilities. (Photo: Sandia Labs/Randy Montoya)

With the proposal for a European Electronic Communications Code, the European Commission has expressed its ambition to rewrite EU regulation to enable the arrival of the Gigabit Society in Europe. This ambition covers both fixed and mobile networks and ties in with a strategic action plan for advancing 5G, the next generation of wireless technology in the EU.

The move towards network infrastructures of very high capacity (VHC) promises wider social and economic benefits for public authorities, business and citizens alike.

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The Commission estimates that the enhanced connectivity due to the delivery of 5G over such networks alone, could generate €113 billion of additional benefits annually in four industries - automotive, healthcare, transport and utilities.

The creation of networks for the European Gigabit Society requires changes to how networks are built, operated and managed. It requires technical sophistication, planning forethought, and responsible management of the transition from legacy to VHC networks. And ultimately, necessary network development requires investment.

Investment in electronic communications

Investment is not a new challenge in telecommunications. Indeed, the industry has historically been among the most demanding network industries in terms of investment requirements.

Meanwhile, the EU has not only seen next generation access emerge, but also steady progress in fibre deployment. In the EU28, half the homes passed in 2017 were within reach of fibre connectivity.

These developments represent the success of market regulation under the current regulatory framework.

By promoting competition and providing safeguards against former monopolists' significant market power (SMP), the framework has been critical in incentivising network deployments along the ladder of investment. In the EU, alternative operators have thus assumed leadership in driving fibre rollout.

Incentivise investments

Competition has thus driven, and continues to drive, investment. What, then, is the concern?

According to the association representing the interests of former monopolists, regulation today is the principal cause of hampering its members' investments. Therefore, the main concern of regulatory reform under the Code should be to incentivise these investments.

However, just like investment is not a new challenge to the electronic communications industry, neither is today's regulatory framework blind to its promotion. In fact, since its creation in 2002, that framework has entrusted regulators with a responsibility to encourage efficient infrastructure investment.

The principal concern of key developments since – legislative amendments in 2009 as well as subsequent Commission guidance – has been precisely to promote further investment by incentivising former monopolists to engage more actively with delivering the next generation of connectivity.

Most recently, the Commission in 2014 shortened the list of markets recommended for regulation to five - down from the original 18 - thus further loosening the leash on which SMP operators find themselves.

20 years after the full liberalisation of electronic communications in the EU, the freedom of former monopolists has thus increased significantly, due to the combined benefits of competitive entry and adaptations of market regulation.

Nevertheless, former monopolists and their representative association unceasingly continue to call for additional regulatory relief to provide them with investment incentives. The essence of these calls seems to be that - only if entirely freed from the shackles of regulation - can they hope to do what competitors have already been doing for years: invest in first class VHC networks.

Transitioning to gigabit connectivity

Reality, however, presents a different picture. The application of existing tools to incentivise their investments has already allowed former monopolists to make significant strides towards re-monopolising markets and removing themselves from competitive pressure.

The fact that such interventions may stifle competition in fibre deployment irrefutably demonstrates that future EU regulation of electronic communications must not be based on `incentives´ that reinforce already significant market power. To the contrary, significant market power, where it exists, must remain tightly regulated.

In the transition to VHC networks, the responsibility of regulators – just like the Commission's - reaches a new plateau.

Only if regulators carefully choose appropriate remedies to address competitive concerns, and remain capable of doing so, and if the Commission diligently exercises its power of scrutiny, both ex ante and ex post, will that transition successfully move markets further towards effective competition.

Substantial differences in market power remain, notably in resource endowments between former monopolists and alternative operators. Granting those with significant market power leave to sidestep their responsibility contradicts today's framework.

To insert regulatory lacunae into that framework, prospectively allowing such release from responsibility, creates only one type of investment incentive: for investors seeking to eschew competition and reap windfall profits.

Therefore, the Electronic Communications Code must remain thoroughly pro-competitive. Otherwise, VHC connectivity may come at a high price indeed.

ECTA, the European Competitive Telecommunications Association, is the pan-European pro-competitive trade association that represents more than 100 of the leading challengers across Europe. Our members have been and are among the leading innovators in internet services, broadband, business communications, entertainment, and mobile.

For 20 years, ECTA has been supporting the regulatory and commercial interests of telecoms operators, ISPs and equipment manufacturers in pursuit of a fair regulatory environment that allows all electronic communications providers to compete on level terms.

ECTA members are united in their belief that competition is the best driver of efficient investments and the greatest enabler of innovation, choice and benefits for citizens and businesses, as well as for the European economy overall. This is the key message that ECTA and its members promote in the discussion about a European Electronic Communications Code.

Disclaimer: This article is sponsored by a third party. All opinions in this article reflect the views of the author and not of EUobserver.

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