Recent experience tells us that the latest round of European regulatory debate will pit politicians against the industry in various permutations. The users? What on earth has it got to do with them? 

The world of ICT regulation is an odd one. The European Union visits the subject in five-year cycles. These interminable cyclical debates sit ill in the context of an industry that moves at the speed of light. Critics say that five year plans have been discredited since the time of Stalin. Not in Brussels, apparently.

That’s a slightly simplistic view. The EU does hack away at regulatory issues on a day-to-day basis. Given the pace at which Brussels moves, perhaps that is better described as a ‘month-to-month’ or a ‘year-to-year’ basis.

Its technical regulatory arm, once known as DG-XIII and now headed by that spiritual daughter of Boudicca, Viviane Reding, slaves away on standards and the trade issues that arise from them.

The EU’s arm of competition regulation, once known as DG-IV, runs the rule over mergers and acquisitions and generally polices anti-competitive behaviour. Reding’s spiritual cousin, Neelie Kroes, runs that show.

This is important in terms of perspective. Two slightly mad middle aged women are running EU telecom regulation. Far worse, however, is the fact that hundreds of slightly mad middle-aged (and late middle-aged) men are running the industry itself.

Five-year itch
The latest cycle of EU telecom regulatory revision is nearing its climax with any new rules set to enter into force roughly a year from now. Again, the notion of regulating an industry that changes by the day is placed in the spotlight.

Telecom regulation may be arcane, but its ramifications are not. It is only a decade ago that the EU managed to mandate market-opening and an end, in theory,  to all classes of telecom monopoly. That was a bitter war which pitted network monopolies and their state backers/owners against Brussels.

You can argue that the monopolies in question have done an effective job in defying, ignoring or otherwise bypassing the new rules of the game, but it has still been a seismic shock. Its only flaw, perhaps, was that EU states and their pet monopolies were given almost five years’ notice of the change – and hence up to five years to prepare to avoid each wave of reform.

It is vital to bear that experience in mind today. For two reasons.

One is that thanks to the rather gnomic principle of ‘subsidiarity’ – under which EU countries can fend off centralism under their own laws and bylaws – individual governments and their national regulatory authorities (NRAs) are probably the biggest support mechanism for Europe’s ex-monopoly telcos. Where states still hold a stake in these companies, the situation gets worse and the travesties more blatant, but the umbilical link remains even where all shares and even golden shares have been discarded.

The second factor, now on the verge of being repeated for the third time in this article, is that the pace of change in ICT means that the EU cannot possibly know what it is trying to regulate. This is in part due to a desire to promote new technologies in search of some mythical European ‘first mover’ advantage for native industry and in part thanks to the belief that such new technologies will bring economic benefits to European citizens and businesses.

These two points are linked because the history of EU regulation and liberalisation has been almost entirely concerned with the dismantling (or the attempted dismantling) of monopolies and the promotion of competition.

Famously, mobile services have largely been exempt from regulation on either price grounds or on anything other than the most basic significant market power (SMP) principles. Years of regulatory abstinence so far as mobile is concerned may explain why the sector was so outraged by overdue attempts to curb the exercise in corporate-sanctioned extortion known as ‘international roaming charges’.

Bellwethers
The roaming row has been examined in this series as giving a pointer to how the EU’s broader regulatory debate will pan out (click here). Likewise a separate dispute with the German authorities over regulatory relief for Deutsche Telekom’s planned €3bn VDSL network (click here) illustrates another facet of the balance-of-power in the context of the Review.

The future of the latest Framework for Telecommunications may rest on how these vested interests play against each other.

In its latest iteration at the end of June, Brussels proposed that new measures would focus on: spectrum neutrality, efficiency and trading; more consistent regulation across the EU in pursuit of a single market; a ban on regulatory ‘holidays’ of the type proposed in the DT-VDSL case.

“We now need the courage to complete the process of market opening started in the 1990s”, said Commissioner Reding. “In today’s electronic world, national borders have become superfluous to technology, economic interests and consumer behaviour. Operators, technological innovators, service suppliers and citizens all stand to gain from a single set of well-executed EU rules. Stronger cross-border competition and better access to spectrum, the raw material of the information society, are indispensable for sustaining Europe's competitive advantage in the telecoms sector.”

“It is a competitive disadvantage for Europe that we do not have, as in the US, a single regime for spectrum management, but 25 different ones”, she said.

On harmonised regulation, she said, “we now need a more efficient, timely and consistent application of the EU rules. It is a serious problem for Europe’s single market if national regulators vary in their determination to remedy existing competition problems speedily. Delay risks putting operators from other EU countries at a disadvantage.”

On regulatory holidays, the Commission said, “the overall health of competition is still too precarious to justify abandoning sector-specific regulation in other wholesale markets, such as broadband. Incumbents continue to control bottleneck infrastructure and new entrants are still dependant on access to such infrastructure to be able to compete”

Reactions
The first observation here is that these proposals would lead to a dilution of national regulatory powers in favour of a more centralised, single market approach. This overt threat to subsidiarity will incur the ire of the majority of Europe’s NRAs and the policy-makers that sit behind them.

It’s worth remembering that the NRAs, as represented by their collective regulators’ club, the European Regulatory Group (ERG), were in large part responsible for turning the table on Reding in the GSM roaming debate, having initially supported her proposals to a far greater extent.

It is tempting to see the NRAs as ‘swing voters’ in the final stages of the regulatory debate. This calls for a public consultation until October 2006 with legislative proposal in place before the year’s end. At present it looks highly unlikely that they will ‘swing’ Reding’s way without substantial compromises.

More predictable are the views of the incumbent and new entrant camps.

Responding to the June proposal, the European Competitive Telecommunications Association (ECTA) managing director, Steen Clausen, said: “we are delighted that the Commission has reaffirmed the importance of competition in driving investment and innovation, and is committed to examining solutions that might address competitive problems at their core. But the proposal as it stands may mean that by removing critical retail markets from regulatory protection, the Commission could put in jeopardy the many benefits consumers have already enjoyed as a result of the Framework as it exists today.”

While ECTA asks for the Commission to go further, its incumbent counterpart, the European Telecommunication Network Operators association (ETNO) took the opposite view. “Now that markets are increasingly competitive and consumers can choose from various platforms, technologies and suppliers, Europe needs to complete the transition towards a sector mainly driven by market forces under EU competition law", said Michael Bartholomew, ETNO director. “Despite the increased competition, the implementation of the current regulatory framework in practice has only led to more regulatory intervention. The European Commission does not tackle this in its communication”

This incumbent/new entrant divide would be expected to cancel itself out were it not for the backing which incumbents continue to receive from governments, which hold a direct or indirect economic interest in the ex-monopoly PTOS and exercise influence via the NRAs that they control.

The other main actor here is the Commission itself. The EU roaming debate was ultimately settled not be the all-too-predictable caucuses of industry support or opposition, but by internal fragmentation within the Commission itself.

That is less likely to be repeated in the case of the Review, not least since the Commissioners in Brussels are rarely found to resist efforts at centralisation, no matter what their public or domestic pronouncements say. Lobbying pressure could, however,  be concentrated on Industry Commissioner Günter Verheugen. The German seems certain to have his loyalties tested. A unified Commission, backing Reding’s proposals to the hilt, would almost certainly win the day.

Sad but true
What’s strange about all of this is that the one voice that all parties claim to support – that of users – will be little heard in the months of debate ahead. That leads one to the conclusion that at its essence this is a power struggle between regulators and a parallel grab for market-share between operators.

The users? They should think themselves lucky to have been taken into consideration at all. The industry's view (and that of politicians and regulators) is a combination of 'let them eat cake' and 'stay out of our turf war'. Charming.
Jim Chalmers