Home EuropeEurope I 2002 Accession Countries and Telecoms: The EU’s Impact on Regulatory Trends

Accession Countries and Telecoms: The EU’s Impact on Regulatory Trends

by david.nunes
Michael BartholomewIssue:Europe I 2002
Article no.:2
Topic:Accession Countries and Telecoms: The EU’s Impact on Regulatory Trends
Author:Michael Bartholomew
PDF size:24KB

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Article abstract

The European Union’s Information Society goals are challenged by the telecom sector downturn and today’s limited capital availability. The 13 Eastern European countries hoping to join face the challenge of upgrading their telecommunications to EU levels. Europe’s major communications players will have to invest time, money, labour and expertise if this endeavour is to succeed. Regulators must strike a balance between regulation and the market and recognise that a fair and clear guarantee of return-on-investment is vital.

Full Article

Europe’s telecom companies are operating today in a harsh environment that has been with us for more than two years. Access to capital is limited. Many of our member companies are engaged in large-scale cost-cutting and consolidation efforts. Total fixed-line revenues are expected to continue their worldwide decline from 94 billion euros this year to 91 billion euros by 2005. In addition, third-generation license auctions in Europe saw some 165 billion euros transferred from Europe’s telecom sector to public treasuries. Only now are governments admitting that those auctions have had a devastating financial impact on our industry. These challenges have direct implications for the eventual success, or failure, of Europe’s Information Society goal and the EU’s new 2005 eEurope action plan. Hasty, short-term policy measures with unpredictable effects will not bring the Information Society’s intended benefits to Europe’s citizenry, or economy, in a timely fashion. But a consistent and harmonised market, that offers a level-playing field for all competitors, will go a long way toward that goal, for both the EU’s current and future member states. Thirteen countries are currently being considered for membership. Each of these must transpose into its own national legislation the EU’s standing corpus of law, known in Brussels jargon as the “acquis communautaire”. The acquis is split into 20 or so chapters, covering everything from farm policy to transport laws. The purpose of the telecommunications acquis is twofold: First, to create legal, social and economic compatibility within this sector between the EU and a candidate country, and second, to ensure that the telecommunications market of a candidate country has converged sufficiently with that of the EU’s internal market prior to joining the Union. Most of the candidate countries have now closed their acquis negotiations on telecom and information technologies. They are making good progress towards market reform in order to compete within the EU’s telecommunications sector. Significant regulatory changes, though, still lie ahead for them and the EU’s present 15 member states. In Latvia, for instance, the government has recently wrapped up its EU accession chapter on telecommunications and has just approved a strategy to auction third-mobile operators licences. These will allow license holders to offer next-generation UMTS services as well as the current GSM standard, thus opening up new markets and furthering the EU’s Information Society objectives. In the Czech Republic, fixed-line operator Cesky Telecom is expected to launch high-speed ADSL (Asymmetric Digital Subscriber Line) technology by the end of June. Plans also are underway in Prague to strengthen the independence of the Czech Telecommunications Office, which regulates the country’s telecoms sector. Progress has not been smooth everywhere across the region, of course. Market developments in Poland, Bulgaria and Romania are still moving in fits and starts. Poland’s introduction of the UMTS standard is being delayed a year until 2005, while a new and sweeping set of draft telecoms amendments, already behind schedule, is moving slowly through the country’s legislative machinery. In general, the accession countries of East and Central Europe are making impressive progress in adapting their physical and regulatory telecom infrastructures to EU norms. According to estimates by the Commission’s Information Society Directorate General, the applicant countries have harmonised 80 percent of their telecommunications laws to EU legislation. The average number of households with fixed telephone lines now stands at 77 per cent in the applicant countries versus 86 per cent in the 15 EU member states. EU Telecom policy: key issues ahead From a regulatory perspective, two inter-related issues now occupy centre-stage in Brussels. One is the so-called eEurope initiative. The other is the EU’s newly-adopted Communications regulatory framework, whose implementation is now getting underway across the 15 member states. Liberalisation of the EU’s telecom market is by no means new. Starting in 1989, the European Commission has gradually liberalised all segments of this sector, culminating in full liberalisation of services and infrastructure in January 1998. Once this liberalisation was in place, telecom services became the fastest-growing sector of the European economy. Acknowledging the economic importance of this sector, EU leaders at their Lisbon summit in March 2000 agreed the ambitious goal for the EU “to become the world’s most competitive and knowledge-based economy”. That goal is commonly referred to as the eEurope initiative. But by no means has its potential been fully realised-it awaits a new political impulse. Fortunately, that support is underway. The increasing importance of Europe’s Information Society goals was recognised at the Barcelona Summit in March where EU leaders re-iterated that eEurope will largely depend on deploying broadband infrastructure and the incentives to invest in it. The Commission is now developing a new eEurope action plan that will run until 2005. This will be presented to EU leaders at their Seville summit in June. But responsibility for making eEurope happen goes far beyond the EU’s present borders. The candidate countries also endorsed it, and launched the eEurope + action plan in June 2001. This plan also aims to accelerate reform and modernisation of their economies, though tailored to the situation of each candidate country. Ensuring that policies and markets converge to fulfil the eEurope plan of attack is not just for the politicians and regulators in candidate countries and the EU to manage. Without industry-without the substantial investment in time, money, labour and expertise that Europe’s major electronic communications players will have to commit to this endeavour-eEurope will not succeed as envisioned by our political leaders. In his May 23 report on the EU’s economy, Erkki Liikanen, European Commissioner for Information Society, noted that Europe’s growth in labour productivity during 1990-2001 fell behind that of the United States. Liikanen attributes this difference to under-investment in information and communication technologies (ICT). Between 1992 and 1999, for example, ICT spending was 5.6 per cent of the EU’s GDP versus 8.1% in the United States. Encouraging higher ICT investment requires incentives and the right policy support from Europe’s leaders. Needless to say, this calls for close contacts and cooperation between the telecom industries of candidate countries and the 15 EU member nations. Promoting Investment: The Critical Factor ETNO member companies are major investors in broadband infrastructure-both fixed and mobile-and they play a pivotal role in turning the Internet’s potential for the new economy into reality. In Europe, our companies have already contributed substantially to the development of the Information Society. They are fully committed to a competitive broadband market in Europe. However, building broadband networks requires massive private-sector investment under market-driven conditions. It is therefore crucial for regulators to reach a balance between regulating the sector and letting the market do its work. Regulators must recognise that, without a fair and clear guarantee of return on their investment, telecom operators will not invest in further infrastructure development. This means promoting investment in various competing electronic communications infrastructures, underpinned by a supportive regulatory approach. It especially applies to the implementation of the EU’s new electronic communications package. Operators must be encouraged to invest, which demands a light, stable and predictable regulatory framework. Last December EU telecommunications ministers adopted their new telecoms package. This consists of: a framework directive, one for authorisation, another on universal service and a directive covering access-and-interconnection procedures. The package also included a draft directive on data protection, now in the final stages of approval. The original aim of the regulatory package was the rollback of sector-specific regulation as a key plank in the effort to create a harmonised marketplace for e-communications based on competition law. If all telecoms players are to compete across Europe, then there must be a level playing field. This principle is all the more important because the new package gives national regulatory authorities (NRAs) much more flexibility and autonomy in the marketplace than ever before. But the EU’s new telecommunications regulatory package does not fully adhere to this principle. It is based on a less-than-clear mixture of so-called ex-ante regulation and competition-law principles. Ex-ante regulation is sector-specific, a priori regulation that stands in sharp contrast to competition-law regulation applied ex-post or after a market failure is identified. Not only is this mixed approach a recipe for ambiguity, it risks over-regulating the telecom sector. And that would contravene the whole idea of simplifying the EU’s telecom regulatory structure in the first place. Indeed, ex-ante regulation should not apply to technologies and services that have been deployed in a fully competitive environment. It is worth noting that US broadband policy is shifting away from regulation towards a more market-led approach. The success of the Internet in the United States and the success of GSM in Europe were achieved in an unregulated competitive environment, untouched by sector-specific regulation. It is critical that policymakers bear this in mind as they consider ways to develop Europe’s Information Society. Another important factor is convergence, which in communications technologies is racing ahead. Open and vigorous competition among all communications platforms-fibre, advanced DSL, cable-based access, fixed wireless access, UMTS and whatever else may appear on the horizon-should be our regulators’ goal. ETNO strongly believes that it is crucial to avoid regulatory interventions that favour one technology over another. The broadband technologies vital to making eEurope a success have to be built-up by fostering competition between infrastructures. Europe’s policymakers and regulators should not run roughshod over that simple principle. Nor are they and business the only actors who will influence the spread of eEurope. The Public Sector’s Role The public sector has multiple responsibilities here. First, it should be a sort of eEurope player itself. That is, public administrations-national, regional and local-can promote new broadband applications by incorporating them into their own day-to-day functions. Such provision of government services and communication with Europe’s citizenry and society at large is loosely known as eGovernment. Second, it should create broadband incentives for customers and providers alike. These could take the form of favourable fiscal policies or specific aid. Finally, the public sector has the obvious role of establishing the right regulatory and political framework. This framework should foster investment and innovation in different platforms, eliminate current regulatory barriers and promote awareness and confidence in Europe’s telecommunications market. Conclusion The Information Society’s success largely hangs on the provision of innovative content, services and applications. There are other factors at work, of course. The take-up of Internet is highly dependent on computer literacy, for instance, and PC-penetration rates in the home. And the development of secure, user-friendly procedures for e-commerce and interaction on the Internet with public services is important. But we are still in a chicken-and-egg quandary across the industry regarding broadband content. Content providers are waiting for infrastructure availability, and infrastructure providers are waiting for demand from consumers and business. This wait-and-see game has got to come to a halt, and start registering real progress if eEurope and Europe’s Information Society are to become reality. Thus, the sector faces a sobering gamut of economic, regulatory and policy challenges to overcome if Europe is to fully realise its e-Europe aspirations. These apply as much to Central and Eastern European countries as to EU member states. Above all, the EU’s new telecoms package demands vigilance from our industry to ensure that its interpretation by national and EU regulators does not veer from what should be its ultimate purpose-a harmonised borderless marketplace for e-communications. At this point, there is no guarantee that process will necessarily unfold in smooth and transparent fashion. But despite the economic difficulties our industry has recently suffered, I remain nevertheless fully convinced that the telecom sector remains a growth engine for Europe as a whole. ABOUT ETNO: The European Telecommunications Network Operators’ association in Brussels represents 42 major European telecommunications companies in 33 countries, including all major EU and Central European operators. Its specialised working groups of member-company experts produce common positions on regulatory and technical standards in telecoms as well as trade issues, e-commerce and other critical topics, which are then communicated to EU policymakers, the public and press.

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