EU plans for telecoms regulation fuel controversy

The European Commission has decided not to force telecoms operators to cut the costs they charge for wholesale access to copper telephone networks. Understandably, the decision has pleased incumbent operators, but has frustrated the region’s competitive telecoms providers.

Jul 17th, 2012

The European Commission has decided not to force telecoms operators to cut the costs they charge for wholesale access to copper telephone networks. Understandably, the decision has pleased incumbent operators, but has frustrated the region’s competitive telecoms providers.

The decision was part of a package of proposals for European telecoms regulation that will apply until at least 2020. The proposals, delivered by Neelie Kroes, vice president of European Commission for the Digital Agenda, aim to encourage private investment in telecoms infrastructure as the region makes the transition from copper-based ADSL broadband to high-speed fiber access networks. “The transition to an expensive new generation of high-speed networks, co-existing with the old, poses special challenges,” she said. “Though the public sector can help, the real heavy lifting must be done by private investment.”

Recognizing that the regulation of next-generation access (NGA) networks requires a new approach, the Commission introduced new guidelines in September 2010, which build on the harmonized European telecoms regulation introduced a year earlier (see “European FTTx regulatory uncertainty may be clearing”).

Last October, the Commission launched two public consultations regarding regulated wholesale access to telecoms networks: one on cost methodology and another on non-discrimination. Those consultations sparked considerable debate about the role of regulation in promoting competition and investment in a period of technological transition.

The question whether a rise or fall of copper prices would spur NGA investment is complex, says the Commission. However, having examined all the evidence, and given the significant competitive relationship between copper and NGA networks, it was not convinced that a phased decrease in copper prices would spur NGA investment. On the contrary, the Commission found that fiber investment is progressing relatively well in some Member States where copper prices are around or above the EU average. Regulatory authorities were also concerned that an approach linking the copper price to NGA investment commitments would be difficult to enforce in practice, and could be abused.

The upshot is that the Commission is intending to introduce a recommendation on cost methodology for regulated wholesale prices for network access that is based on a long-run incremental costing method, including an appropriate amount for common costs. (A recommendation is a non-binding text that Member States should take into “utmost consideration” when decided upon local regulatory policy.)

The other main thrust of the proposal is a recommendation on non-discrimination. “Although often undervalued in today's regulatory practice, securing truly equivalent access by alternative operators to incumbent networks is probably the most important guarantee of sustainable competition, on existing and new networks,” said Kroes. This could be costly in existing networks, so regulators will have to carefully consider how to apply the rules in such cases, but there is no excuse, in the Commission’s view, not to achieve this standard in new systems.

National regulators will be expected to establish key performance indicators in areas such as ordering, delivery, fault repair, and quality of service. This would be supported by service level agreements or guarantees; and by a technical and economic replicability test, so that regulators can check that an efficient operator would be able to compete with the incumbent's retail product on the basis of the same wholesale access products provided.

ETNO, which represents incumbent operators, supports the Commission’s proposals. Luigi Gambardella, chairman of the ETNO Board, declared, "ETNO considers that today’s statement will contribute to end a long period of uncertainty in the sector. Investors need a stable regulatory framework and the announcement by vice president Kroes is an important step towards building investor trust.”

ECTA, on the other hand, an organization that represents competitive providers, is not at all happy. “As a result of this approach incumbents will not only be allowed to regain full monopolies on future networks, they will also be allowed to continue overcharging consumers and starving competitors on existing networks," warned ECTA chairman Tom Ruhan in a statement. The lobby group anticipates that alternative operators will have a limited ability to invest in new networks, because they must continue to pay higher fees for wholesale access to legacy networks.

As the next step, the Commission intends to produce regulatory plans for validation as soon as possible in the autumn. “I want all industry players to receive the signal loud and clear – that they can invest profitably in the future connectivity of Europe, and compete on the basis of their investment,” concluded Kroes.

The new recommendations will complement other measures to stimulate investment in NGA networks in Europe, including the sharing of best practice, the radio spectrum policy program, and the Connecting Europe Fund (see “European Commission proposes €9 billion broadband investment program”).

For more information on FTTx/access systems and suppliers, visit the Lightwave Buyer’s Guide.

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