European Telecommunications Policy on Liberalisation

Introduction

This paper critically discusses the European telecommunications policy which is mainly intended to liberalise all telecommunications goods and services. Telecommunications policy is concerned with fixed telephone network, telephone (voice) service, other services based on the telephone network, mobile telephony and electronic information network services such as the internet. Communications technologies services serve as a vital link between industry, the services sector and market as well as between peripheral areas and economic centres.^[1] There is therefore no question as to the importance of having a telecommunications policy in place to ensure industrial competitiveness and economic and social cohesion. What cannot, however, escape comment is the kind of telecommunications policy introduced in Europe by the European Union.

Background information

European telecommunications policy started with a Council Decision and Resolution on standardisation of in the field of information technology which was adopted in 1987.^[2] The aim of the Decision and Resolution was to create a European market in telecommunications equipment. This was meant to ensure that competition prevails across member states and also to ensure exchange of information, the convergence of industrial strategies and the creation of exploitation of a vast European information technologies and telecommunications market. A Directive was issued in 1999 to establish a single market for radio equipment and telecommunications terminal equipment. The Directive also prescribes the mutual recognition of their conformity based on the principle of the manufacturer’s declaration.^[3]

In order to succeed in creating a single market in telecommunications services it was realised that telecommunications markets had to be liberated so that user would be able to procure and connect terminal equipment without the obligation of applying to a single national telecommunications authority. To this end, member states are therefore required to bring an end excusive and special rights remaining in the telecommunications, the restrictions on the installations used for mobile networks as well as the interconnection between such networks. Suppliers of telecommunications services are also entitled to use capacity on cable television networks for all communications services, main data communications, closed corporate networks and multimedia services. Complete liberalisation of voice telephony and telecommunications infrastructure was are intended to be achieved. National regulatory authorities are also required to contribute to the development of the internal market by way of co-operation with each other and with the Commission to ensure the consistent application in all member states.

In 2002, a Directive^[4] was issued for the establishment of a harmonised regulatory framework for electronic communications networks and services throughout the European Union. The Directive takes account of all electronic communications networks and services within it scope. The electronic communications networks and services include transmissions system and routing equipment as well as other resources which permit the conveyance of signals by wire, by radio, by optical or by other electromagnetic means. They also include satellites networks, fixed and mobile-terrestrial networks, electricity cable system networks used for radio and television broadcasting, and cable television networks.

There is also what is known as the “telecoms package” under which four specific directives were issued. One of these Directives concerns access. It is intended to provide a framework for rules that are applicable to specific products or service markets in particular geographical area. It is also intended to address identified market problems between access and interconnection suppliers.^[5] For example, it gives operators of public communications a right and also impose obligation on them to negotiate interconnection with each other for the purpose of providing publicly available electronic communications services, so as to ensure provision and interoperability of services throughout the European community.

One of the specific Directives also concerns authorisation. It is intended to implement an internal market in electronic communications networks and services through the harmonisation and simplification of authorisation rules and conditions in order to facilitate their provision throughout the community. ^[6] The Directive requires member states to ensure the freedom to provide electronic networks and services, subject to certain conditions set out in the Directive. Member states are therefore obliged not to prevent an undertaking from providing electronic communications networks or services without proper reasons.^[7] The Directive also stipulates that the general authorisation system should apply to all such services and networks irrespective of their technological characteristics and should limit administrative barriers to entry into the market to a minimum.

Another of the specific Directives concerns universal service and users. It is intended to ensure universal service provision for public telephony services in an environment of greater overall competitiveness, with provisions for financing the cost of providing a universal service in the most competitively neutral manner and for ensuring a maximum of information transparency.^[8] Also, the Directive is intended to ensue the interoperability of digital consumer television equipment and the provision of certain mandatory services. Furthermore, the Directive establishes the rights of users and consumers of electronic communications service.

The fourth specific Directive concerns the processing of personal data and the protection of privacy in the electronic communication sector.^[9] It harmonises the provision of member states required to ensure an equivalent level of protection of fundamental rights and freedoms and in particular the right to privacy. It also ensures the free movement of such data and of electronic communication equipment and services in the community.

There is an axis of the European telecommunications policy called the “technological development in telecommunications, which is pursued by research in advanced communication technologies and services. European research technological development policy is directed towards strengthening the scientific and technological basis of community industry and encouraging it to become more competitive at international level, while promoting all the research activities considered necessary by virtue of other chapters of the Treaty.^[10] Other axis is known as “trans-European telecommunications network”. The networks are national digital networks which aim to introduce innovative trans-European services in the general interest. They also aim to contribute to the development of the information society in terms of growth, employment, social cohesion and participation for all in he knowledge-based economy.^[11]

Assessment of the policy

The European telecommunications policy is said to have contributed greatly to the development of the telecommunication industry.^[12] A member of the European Union Commission responsible for information society and media also claims that:

“… good implementation of the EU framework is paying off. EU countries that have applied the EU rules in a timely and efficient manner, following the principle of competition, have clearly achieved the best results in terms of investment in new networks and take-up of new innovative services It is rare for issues to arise where social justice and economic reality go hand in hand. I believe this is the case for the Information Society. All countries will have to liberalise their telecom networks in the end. This is unavoidable. Those that fight against it often do so in the name of social justice. They argue that liberalisation will reduce economic and social cohesion. The rich will get richer and the poor will be poorer. However, there is no inherent conflict between liberalisation and social justice in the field of the Information Society.”^[13]

According to the Commissioner, Variations of regulatory approach are today an obstacle to the internal market and to effective competition: If a national regulator in country A applies the EU rules vigorously to the operators on its market, while the national regulator in country B adopts a more lenient policy towards the dominant operator by adopting remedies later or in a less efficient way, this gives companies in country B an unfair competitive advantage over companies in country A. In Europe’s internal market, this is unacceptable. The Commissioner expressed belief that the Commission should be able to ensure consistency in remedies proposed by national regulators to enhance competition in market dominated by one or more operators. This, the Commissioner said was a logical adjunct to the Commission’s current role as regards market definitions and market power assessments.

The Commission has three functions within the telecommunications area: the promotion of European telecommunications policy; regulation of competition and as a watchdog on the application of the Treaty of Rome. The commissioner’s remarks show that the aim of the policy has not been fully achieved. It is correct to say that, the European telecommunication policy has its shortcomings. First of all, one wonders how a policy which has separate national regulators for each member country can be said to be effective. There is no doubt that if the EU wants to achieve a real level playing field where telecommunication operators can compete satisfactorily with one another then there must be an independent telecommunications authority whose duty would be to ensure efficient implementation of the rules across member states. Such an authority would have the authority to require national regulators to co-operate with it. It is argued that the creation of a centralised authority was successfully prevented by member states even though centralisation was regarded as a necessary step in the process of liberalisation and promotion of an integrated enfrastructure.^[14] One criticism directed at the policy is that the regulatory regime has evolved which is framed and instructed by European guidelines but varies from member state to member state in several respects without a short-term or medium-term perspective to converge on a single regulatory model.^[15]

Alabau (2006) also argues that one does not have to analyse it very hard to realise that what the Commission wanted to do was simply to impose a single European licence, making services subject to the same policy that it applied to the free movement of goods. That was why the Framework Directive referred to Article 8 of the Treaty. In his view, the Member States were not going to give way on the mutual recognition of licences. Granting licences for operating telecommunications services in their territory represented an area of sovereignty that they simply were not prepared to give up. This situation, which might have made sense in the case of value added services, verged on the unreasonable when the decision to liberalise voice telephony services and infrastructures was made.^[16]

It was revealed during the EU telecom conference in Geneva in 1999 a number of issues could be identified. The first was the degree of independence enjoyed by national regulators. At a minimum, regulated authorities must be independent of the telecommunications operator(s) if any liberalisation of services is to be successful. Competitors should not enter a market unless the dominant operator is subject to independent regulation to ensure that monopoly services are provided to competitors at a price that allows them to compete effectively. Second, it was observed that notwithstanding the progress that has been made in many market segments, incumbents still largely dominate national markets. The biggest problem in this respect is their overwhelming dominance in local access networks. Some member states are believed to have already responded to this by forcing the incumbent to unbundle the local loop. Third, wide variations in the degree of competition between Member States are inevitable, given their different starting points. However, this is also the result of differences in the regulatory framework, which in some areas is not consistently applied.

It is for European Commission to set an overall telecommunications policy framework in the distribution of licenses. The duty of the National Regulatory Authorities (NRAs) was to implement such objectives through specific legislative measures. All member states awarded more than one license in accordance with EU competition rules. However, while some states preferred to award licence through auction, others opted for what is known as the “beauty contest”. There are a number of flaws associated with either of these options.

In any member state where auctioning was preferred, it emerged that the auctioning was problematic. The licence fee is said to be extremely high. “The danger of an open-ended auction is that the companies, in trying to outdo each other, will drive up the costs ridiculously.”^[i] The ‘ridiculous costs’ of licenses may generate a chain of events with profound implications on 3G services and on overall economic welfare. One argument against auctioning states that due to the high cost of spectrum, telcos are forced to pass these costs on to consumers via higher prices, which in turn, retards the development of mobile data services due to lower mobile uptake by consumers). Ultimately, the deceleration in development will have wide-ranging implications for national economies as a whole”.^[17]

Auctions is also said to favour well-capitalised incumbent telcos which can afford to pay high premiums for spectrum, while smaller, possibly more innovative telcos who may be able to develop products faster while providing it at a better service, are left out due to capital constraints. Consequently, fewer competitors will exist in the market, keeping prices higher and products and services less innovative.^[18] With regard to licence fee, the British Government has been criticised. It observed that higher prices to the consumer and the threat of investment stifling in 3G networks were both risks that might delay the rollout of 3G services and ultimately, adversely affect a country’s economic development. Many governments, including Ireland, have chosen not to use an auction to avoid the aforementioned risks.

According to Professor Peter Cramton from the University of Maryland, beauty contests suffer from several problems. First, they are extremely slow and wasteful.^[19] Second, beauty contests lack transparency. It is difficult to see why one proposal won out over another. Worse yet, the ability of the regulator to successfully identify the best proposals is limited.^[ii] The Radio communications Agency, which manages the UK’s radio spectrum, admits it considered various options for 28GHz, including a beauty contest. But in a report on the two processes, it concluded that with a beauty contest it would be difficult to keep the selection procedure 1) objective, 2) non-discriminatory and 3) transparent, as required by the EC Licensing Directive.^[20]

It argued that the danger of utilizing beauty contests as a basis for assigning licenses for 3G mobile networks is that the criteria may be influenced by subjectively biased national factors that may prejudice open decision making.^[21]

Conclusion

It will be unfair to say that the European telecommunications policy has not achieved any success. One may to a large extent agree with the assertion that the policy has contributed greatly the development of the telecommunication industry. However, as seen above, the policy is far from perfect. The entire blame cannot be shifted to the European Commission. The unwillingness on the part of member states to have an independent European telecommunications authority has contributed to the problem. Having identified this as a problem herself, the EU Commissioner responsible for information society and media stated at the 2006 European Competitive Telecommunications Association conference that the most effective and less bureaucratic way to achieve a real level plying ground field for telecom operators was to replace the present system by an independent authority that will act like European Central Bank. One cannot but only that in future member states will realise the need to have such a system in place.

References

Chapman, Matt. “Auction of Radio Spectrum Comes Back to Haunt Telcos,” Network News, Sep 6, 2000

Eliassen, Kjell, A. and Sjovaag, Marit. European Communication Liberalisation. London: Routledge. 1999

Lehr, W. and T. Kiessling. (1999). Telecommunication Regulation in the United States, Europe: The Case for Centralized Authority. In S. Eisner Gillett and I. Vogelsang, eds, Competition, Regulation, and Convergence. Current Trends in Telecommunications Policy Research. Mahwah, New Jersey: Lawrence Erlbaum Associates, pp. 105-20.

Reding, Viviane, Review of the EU Telecom Rules: Strengthening Competition and Completing the Internal Market”. 27 June 200<http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/06/422>

Schneider, Volker and Werle, Raymund, Telecommunications Policy. In Graziano, Paolo, and Vink, Maarten, eds Europeanization: New Research Agendas.

Basingstoke: Palgrave Macmillan (2006). Chapter 20 Nourafchan, Raphael. The Political Economy of European Telecommunications Policy: auctions versus Beauty Contests

Footnotes

^[1] Moussis, Nicholas, Access to European Union: Law, Economic Policies. Rixensart, Belgium: European. Union Services

^[2] Repealed, see Council Decision (1999/468 EC)

^[3] Directive 1999/5/EC

^[4] Directive 2002/21/ EC

^[5] Directive 2002/19/EC

^[6] Directive 2002?20/ EC

^[7] The reasons are set out in Article 46(1) of the Treaty

^[8] Directive 2002/22/EC

^[9] Directive 2002/58/EC

^[10] Decision 182/1999/EC

^[11] Decision 336/97/EC

^[12] Liikanen, Erkki, Telecom 1999 Conference, Geneva, 1999. 07 August 2007. <http://ec.europa.eu/archives/commission_1999_2004/liikanen/media/speeches/19991010.htm>

^[13] Reding, Viviane, Review of the EU Telecom Rules: Strengthening Competition and Completing the Internal Market”. 27 June 2006. <http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/06/422>

^[14] Lehr, W. and T. Kiessling. (1999). Telecommunication Regulation in the United States, Europe: The Case for Centralized Authority. In S. Eisner Gillett and I. Vogelsang, eds, Competition, Regulation, and Convergence. Current Trends in Telecommunications Policy Research. Mahwah, New Jersey: Lawrence Erlbaum Associates, pp. 105-20.

^[15] Schneider, Volker and Werle, Raymund, Telecommunications Policy. In Graziano, Paolo, and Vink, Maarten, eds Europeanization: New Research Agendas. Basingstoke: Palgrave Macmillan (2006). Chapter 20

^[16] Alabau, Antonio, “European Union and its Electronic Communications Policy; Thirty Years In Perspective”

^[17]Nourafchan, Raphael. The Political Economy of European Telecommunications Policy: auctions versus Beauty Contests

^[18] Ibid.

^[19] Even with streamlined hearings, it took the FCC an average of two years to award thirty cellular licenses. Competitors Spend vast sums trying to influence the regulator’s decision (Peter Cramton 2001).

^[20] Chapman, Matt. “Auction of Radio Spectrum Comes Back to Haunt Telcos,” Network News, Sep 6, 2000

^[21] Telecoms Standards & Approvals Review, “3G Licensing: France to Use Selection Process,” Jun 20, 2000

^[i]

^[ii]