National egos thwart single market

Many of the French who voted ‘No’ to the EU constitution in May 2005 did so to protest against a Europe where there was "trop de marché". But recent analyses, including the European Commission’s internal market review, demonstrated that the single market is not yet a reality in many industries.

One of the main problems is that, despite the perception that the EU has accrued too much power at central level, policing of the internal market at national level is still largely the responsibility of national regulators. Both the Commission’s sectoral inquiry into the energy sector and the review of the telecommunications regulatory framework have highlighted the lack of a properly functioning single market for energy and telecoms services across the 27 member states.

In the energy sector regulators have widely varying powers and degrees of independence from governments, meaning that in some countries, such as the UK and the Netherlands, strong regulators have been more successful in creating a competitive market and lowering barriers to new entrants.

In the telecoms sector, Information Society Commissioner Viviane Reding’s view, based on responses to a public consultation into the regulatory framework, is that "we still do not have a single market for telecoms" because the single market is "fragmented into 27 regulatory systems". Businesses were not able to operate effectively throughout the EU because of "inconsistent implementation of the framework by national regulatory authorities", she told a conference last week.

Tackling the problems identified in these crucial business sectors has prompted a similar set of reflections despite the differences between the two industries.

For energy, the Commission maintains that requiring power-generating companies to sell off their stakes in transmission networks is the most effective way to ensure a competitive, open market. But failing that it is arguing for an independent transmission system operator with stronger powers and greater independence for regulators. This will probably involve a formalisation of the European energy regulators group ERGEG and additional powers over cross-border issues such as interconnection as creating a seamless energy market will require massive investment in interconnection.

But the changes will be contested, as the Spanish government’s efforts to shield its energy major Endesa from a takeover by Germany’s E.ON showed.

To the irritation of the Commission, the national energy regulator CNE recommended a series of conditions to the deal. The CNE’s members are appointed by the Spanish government.

For the telecoms sector, the challenges and solutions are similar, although there are important differences from the energy industry. Reding will propose an overhaul to the regulatory framework for telecoms this summer, based on the progress towards creating a single market since legislation in 2002.

The European Regulators Group for Electronic Communications sent Reding their views on the best way forward on Tuesday (27 February). There is reluctance among members of the group to giving the Commission additional powers or setting up a new EU super-regulator. Reding has floated plans for a European Communications Network Authority (ECNA) or European ‘FCC’, a reference to the US Federal Communications Commission. This body, she insists, would not replace existing national regulators, which would continue to be responsible for overseeing national markets. But she says it is essential that either the ECNA or the Commission gains powers over remedies which national regulators impose to address market failures and over market analyses which assess the degree of competitiveness in a particular market.

Andrea Renda, a senior researcher into regulatory and competition issues at the Centre for European Policy Studies in Brussels, believes that an "institutionalised European regulators group" is the most likely scenario. He points out that there were several national regulators with strong powers, such as the UK’s Ofcom, which opposed a powerful new pan-European body while several smaller member states, such as the Baltic countries, would prefer to maintain their autonomy over their national markets, given the different market structures and different approach to issues such as the development of next-generation networks.

The Baltics might, he suggests, want to skip a generation in telecoms infrastructure developments and move directly to WiMax - which promises to combine the speed of broadband internet access with the ubiquity of mobile phones - or a mobile broadband system rather than concentrating on improving the fixed line network.

Again the issue of boosting the regulatory powers at EU level will prove politically contentious. The Commission has launched an infringement procedure against Germany over its regulator’s intention to grant Deutsche Telekom a regulatory holiday, basically freedom from competition, on a planned ultra-high bandwidth fibre optic cable network.

Fabio Colasanti, director-general of the Commission’s department for information society, stresses the differences between the telecoms and energy sector. While the telecoms market is rapidly changing, driven by constant innovation and technological development, the underlying technologies of energy transmission have not radically altered, he says. For telecoms, markets and services can come and go in a space of a few years.

"We’re grappling with Vo[internet telephony] while four years ago it was a remote possibility," he says. This rapidly evolving environment was reflected in the regulatory approach with an emphasis on flexibility.

But, Colasanti says, there was a risk, recognised at the time, that this flexibility might lead to a lack of consistency in application of regulation. The Commission had proposed wider powers over issues like remedies but this was not accepted at the time, he says. "Whenever there has been a need for greater integration, it has always bumped into political opposition," he adds.

Colasanti says that was why "Jean Monnet’s idea at the beginning was to pursue political integration through economic integration", referring to the French official credited with getting the European Economic Community off the ground in the 1950s.

Ironic then that the French public now feel hostile to an EU where there is "too much market" and not enough politics.

Many of the French who voted ‘No’ to the EU constitution in May 2005 did so to protest against a Europe where there was "trop de marché". But recent analyses, including the European Commission’s internal market review, demonstrated that the single market is not yet a reality in many industries.