infoTECH Feature

October 24, 2014

New EC Digital Economy Commissioner Confirms Shift of EC Telecom Policy

If you have followed European telecommunications market for any time, you might well agree that a major shift in regulatory thinking has happened in the European Community, which for decades has been more concerned with promoting competition than promoting investment in next generation networks.

In theory, both goals can be pursued in tandem. In practice, EC regulators have mostly promoted policies that increase competition in ways that create disincentives for rapid investment in next generation facilities.

Specifically, regulators have encouraged affordable wholesale access to the former-monopoly telecom networks, in a variety of ways. It is hard to argue with the results.

Incumbent market share across the EU-27 in 2010 was 38 percent. In other words, competitors had gained 62 percent share of the fixed network market.

But that degree of competition has come at a price. The EU is in danger of failing to make its announced goal of 30 Mbps by 2020, a target that originally was set before the launch of Google (News - Alert) Fiber, which has changed market dynamics and investment in the U.S. market, for example.

Regulators should ease up on IT and telecommunications companies to allow them to compete with rivals around the world, said Guenther Oettinger, new European Union digital economy commissioner.

"So far, we have ensured that consumers benefit from the liberalization of telecoms markets,” Oettinger said.  “From now on our actions must be more geared more toward allowing companies to make fair profits."

That represents a huge change in thinking. The main point is not that the EU has decided to take a “North American” or “U.S.” approach. Instead, the big shift is the recognition that promoting competition and promoting investment can become rivaling and mutually-exclusive goals.

The way competition is promoted can lead to greater investment, or less investment. As the former incumbents have argued for years, mandating wholesale access at rates favorable to wholesale customers—while effectively promoting competition—has created disincentives for investment in upgraded next generation networks.

Though the financial cost and risk is borne by the firm building the networks, wholesale customers can reap the advantages without any capital investment in the core network, at all, though they might face the requirement, or have the option, of investing in some access network elements.

The shift to thinking about policies to incentivize investment in access networks is a huge shift in thinking.

Edited by Alisen Downey

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