Regulating without strangulating

Two MEPs discuss regulation of the telecommunications sector

Catherine Trautmann says a new regulatory climate must be created which favours the development of new investment - as in the US.

The information and communication technologies (ICT) sector represents only 6% of the EU’s gross national product, but it constitutes 25% of overall growth and 40% of productivity gains.

Investment in the ICT sector is key to European competitiveness, particularly in the services sector, in sectors such as banking, insurance and property, which are the motors of European growth.

Having experienced a sluggish period linked to the dotcom slump at the beginning of this decade, the ICT sector is today confronted with growing demand for innovative services of a social, interactive or mobile nature (high-definition television, security services, health, etc). The development of these services will require networks that have increased fixed and mobile capacity.

Development of the ICT sector, a necessity for the economic growth and competitiveness of the whole of Europe, will only be possible if huge amounts are invested in telecoms infrastructure over the coming years - yet investments in this sector in Europe have nose-dived.

The gap between Europe and other developed economies (US, Asia) is a source of worry. Is the EU regulatory framework for telecoms and e-communications up to the job?

Regulation of the telecommunications sector was an exceptional challenge, aimed at the development of competition in a sector which was made up of long-standing state monopolies. This was achieved by opening up access to infrastructure owned by entrenched monopolies to create a highly competitive market with positive results (France, which boasts high-capacity services at prices which are among the lowest in the world, is a good example). The task was successfully accomplished in some cases.

But, should this approach necessarily be maintained? The networks being put in place will no longer be reliant, in the main, on the infrastructure of incumbents due to the sheer diversity of access technologies (fixed line and ADSL, mobile networks, and wireless solutions such as wi-fi).

The companies capable of building these networks are reticent when faced with the current regulatory framework. Inadequate regulation may deprive them of the benefits of heavy and risky investment. There is a risk that these investments may not be made (as was the case with Telstra’s projects in Australia). This state of affairs has to be taken into account.

We are therefore left with the choice of continuing past regulation or creating a climate which favours the development of new investment.

The United States opted for the second solution in order to boost the competitiveness of their economy, while funding research and development in the ICT sector. Operators are throwing themselves into new infrastructure projects, concentrating in particular on laying fibre optic cables.

The review of the regulatory framework is the perfect opportunity to recognise the ephemeral nature of current legislation and to make the necessary transition towards the competitive market that was the original vision of EU legislators.

Such a market would be entirely for the benefit of consumers. Competition creates incentives for all market players, guaranteeing a level playing field and punishing anti-competitive behaviour. It is the end result of a process which was launched in 1987 with the green paper on liberalisation of the telecoms sector.

In sum, it creates the stable conditions that Europe needs to plug its competitiveness gap. All this is for the benefit of EU citizens, the interests of whom must be at the heart of any attempt to reform the legal framework for telecommunications. The side-effects of flexible legislation would be increased commitment to research and harmonious network coverage.

• French Socialist MEP?Catherine Trautmann sits on the Parliament’s committee for industry, research and energy.

Piia-Noora Kauppi says regulation is often helpful but must be toned down while competition law is applied more rigorously.

Telecommunications is a market whose future developments are difficult to anticipate.

These developments are based on investments that carry high risks from new forms of competition and uncertain demand. Considering the potential of this rapidly developing market, we have to create a certainty for investments and to avoid over-, or incorrectly applied regulation which place restrictions on the industry’s capacity to exploit its potential. This sets an enormous challenge for the European Commission to conduct an adequate review on the New Regulatory Framework for Electronic Communications that should be implemented in the member states in 2009-10.

The success of each participant in the value chain depends upon the deployment of capital by the industry. Although capital is available to the European ICT industry, it constantly faces competing demands particularly from high growth developing markets outside of Europe such as the US. It is therefore vital that the Union’s policies support the investment climate within Europe. The regulatory review should be about enabling European businesses to develop in an open and competitive environment that facilitates efficient businesses delivering innovative products at fair prices. To compete in the global economy, especially against generally loosely regulated markets such as in the US and Asia, Europe has to strive for the best economic environment. While regulation in such an industry can be beneficial, it should not be applied with the rigidity of the current framework. The added value for EU regulation in the field of electronic communications draws from the economies of scale of the internal market, guaranteeing a level playing field for the market players on one hand and allowing consumers to benefit from mobility and competitive pricing on the other. These are illustrated by the aims of the Commission for symmetrical interconnection pricing of the operators, and by the Commission proposal to lower roaming rates. In the long run both initiatives lead to healthier competition and more affordable pricing to end-users.

But in addition to establishing regulation, the Commission and the national authorities need to apply competition law principles and economic analysis more rigorously than has been the case to date to ensure that sector-based regulation decreases in line with the Better Regulation agenda of the Barroso Commission.

The guiding principles that should underpin the regulation include that healthy and sustainable competition will deliver the most benefit for all the participants in the value chain, from manufacturers, to operators, service providers and customers.

The electronic communications market is currently evolving and changing towards an all-IP (internet protocol) world. Therefore there is a need to act carefully concerning the review of the regulatory framework, so as not to inhibit or stifle the development of new market models.

After the new framework is in place, the Commission, National Regulatory Authorities (NRAs) and National Competition Authorities (NCAs) must ensure its effective implementation. And we as legislators have to make sure that they have the necessary instruments for follow-up, and if needed, the possibility of imposing substantial sanctions in case of failures.

The objectives of the New Regulatory Framework are based on promoting a competitive environment and reducing regulation. It is also supposed to set out a comprehensive set of regulatory tools for businesses to invest with certainty and stability. Research shows that regulatory uncertainty is an important aspect that affects investment decisions negatively.

As legislators we need to look forward and even beyond what is possible to expect in the decades to come in the ICT sector, when we now conduct the review of the New Regulatory Framework. If we do not, we risk tying our European industry to segmented rules characterised by detailed regulation, and by that holding back potential investment. Instead, we need to give the tools to the ICT sector; to continue to be an essential motor for productivity, job creation and growth in Europe.

• Finnish centre-right MEP?Pia-Noora Kauppi sits on the Parliament’s committees for economic and monetary affairs, and legal affairs.

Two MEPs discuss regulation of the telecommunications sector