ETNO response to the public consultation on the evaluation and the review of the regulatory framework for electronic communications networks and services

Please find the full response here.

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3.2. General questions on the current regulatory framework

3.2.1. Evaluation of the overall functioning of the current regulatory framework

Question 4: To what extent has the regulatory framework effectively achieved its objectives of:

Please explain your responses, in particular the reasons for the levels of achievement and if there are factors other than the regulatory framework which have contributed to those objectives.

a) The internal market has developed due to the successful liberalisation of formerly monopolistic telecommunication markets and to the freedom of establishment of network operators and service providers in any Member State. Network operators and service providers are increasingly able to operate on pan-European basis.

However, significant obstacles remain to the operation of businesses and to the attractiveness of investment in network operations in Europe. The divergent criteria and timelines for spectrum allocation or the restrictive and divergent rules on wholesale access are only some examples of these obstacles. These factors, in addition to hampering the internal market, limit business models, constraining investment and innovation, as further detailed below, within the responses to the specific questions in the subsequent sections of the consultation.

In addition, the framework has introduced a large amount of sector-specific regulation concerning consumer protection and universal service obligations, applied to the services provided by electronic communications operators. Lack of harmonization of such regulation across the EU appears as an obstacle to fully leverage the potential of pan-European service offerings. The horizontal rules applied to internet-based services provide far more flexibility and show a higher degree of harmonisation across the EU. This set of horizontal rules better facilitates cross-border services provisioning.

b) The current regulatory framework in the EU has led to high levels of service-based competition and price reductions. However, it has not provided the right conditions for European operators to maximise investments in advanced digital infrastructures.

In the field of infrastructure regulation, rules were designed to spur competition in existing networks but did not provide the right incentives to deploy new ones, ensuring reasonable rates of return for the investors which could override the investment risks. Burdensome access conditions and low wholesale prices (sometimes below costs and/or at incremental costs), in combination with margin squeeze price control, have hampered investment incentives, namely by:

• Leading to market structures where alternative operators are incentivised to “wait” and rely on incumbents’ wholesale services rather than undertake risky investments
• Encouraging incumbent operators to delay investments due to the impossibility to benefit from the resulting competitive advantage and the lack of certainty on the returns;
• Reducing the overall revenues of the market (access seekers and providers), further weakening the business case for investments by access providers.

In this way, the framework has privileged a certain form of competition to the detriment of other more sustainable forms, such as infrastructure-based competition. Unfortunately, the choice has been to support regulation-dependant competition at the expense of sustainable, regulation-independent competition.

The implementation of the framework has put too much emphasis on supporting the ability of new entrants to compete on price against incumbent operators without having to invest to operate in the market. In other words, the framework and its implementation have considered the requirement to invest as an entry barrier, rather than a legitimate condition to operate in the market. This approach has negatively impacted the sector in the EU, failing to attract capital and to stimulate competition between undertakings ready to invest, stifling
investment and innovation.

Additionally, the current rules have not adequately created a level playing field between competing networks (mainly cable), which, in some areas, have even become the dominant access technology.

As a result, the sector in the EU faces a serious problem of overregulation leading to underinvestment, delaying the roll-out of new networks, and to lack of innovation when compared to other regions in the world.

Furthermore, from the services point of view, the framework has not taken into account the convergence of services and the impact of new Internet based service providers, which offer functionally-equivalent services. Telecom operators are burdened with strict sector-specific regulation when providing services, thus facing a clear competitive disadvantage, which negatively impacts their ability to innovate at the services level.

The current framework is, therefore, based on outdated technology-related definitions that do not adequately take into account the convergence of services and the consumers’ perspective.

The various sectors in the digital value chain are increasingly integrated and, when providing similar services, they should abide by similar rules.

c) Interests of European citizens

The framework has encouraged the availability and diffusion of cheap price packages. Nonetheless, the capacity of the framework to foster long-term investment and innovation is in question, shown by the fact that the EU allocates a less significant part of its resources to electronic communications networks than other regions of the world.

The reliance on service-based competition, which has led to lower prices, also implies lower grade network infrastructures, with less capacity, less speed, delays in the roll-out of efficient technologies, higher marginal costs, and consequently, lower level of usage and higher prices per unit of consumption than in other regions of the world. Therefore, the potential benefit of the framework on consumer, is significantly diluted.

Moreover, the interests of European citizens go beyond the interests of consumers. Europe, once a leader in electronic communications markets and technologies, has lost this position.

The European framework has, in fact, contributed to unbalance the digital value chain, on one hand, by favouring the decline in revenue trends occurred in the past years and the negative repercussions on the sector’s investment capacity; on the other, by enabling the development of a stronger bargaining power of other players of the digital value
chain (Internet platforms, services or devices), which do not face the same constraints.

Consumers greatly benefited from the dynamics in the digital market through increased choice and innovation. However, they cannot rely on comparable protection rules and standards when using services across the whole digital market, including similar rules. This negatively impacts the level of consumer’s trust in the digital market.

While consumer protection rules applied to telecom operators have been continuously extended, the overall approach does not reflect the new market situation, including the convergence of services and the increasing choice. Besides this, there is a deep change in communication habits, using various communication channels in parallel, mobility or
willingness to share privacy. Therefore, the current framework although over-protective with regard to legacy services, does not sufficiently reflect new market realities.

Finally, regarding disabled end-users, there is today a wide variety of offers which improve their digital inclusion. The highly dynamic and innovative digital market led to innovative solutions, provided along the whole value chain, including Internet access, device-, soft- or hardware based, as well as solutions via services provided over the Internet. Most of these offers have developed without regulation.

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Question 7: Have you identified any areas in the regulatory framework where in your view there is room for improvement in terms of simplification, elimination of regulatory burden or reduction of associated costs? Please explain.

ETNO has identified many areas where there is room for improvement, as further detailed in the subsequent sections of the questionnaire. For instance:

• In the field of access regulation, the current system has been designed to address a situation where there is only one single network (the incumbent’s) shifting from monopoly to a liberalised market. The way it has been implemented has created a great deal of regulatory burden and complexity. This is mainly due to the variety of wholesale regulated access offers and price regulation, which have become inappropriate in view of stronger infrastructure-based competition with other networks (mainly cable operators) and the need to deploy next-generation networks. The framework should be substantially modernised and simplified to become more investment-friendly, incentivising investment in high-speed broadband networks, reducing costs and better rewarding investing operators. Access network regulation should be limited to fixed access infrastructures and substantially reduced. In the presence of voluntary commercial arrangements on access conditions, ex ante regulation of access terms should be lifted.
• The USO concept should be fundamentally reviewed, reducing the burden on private operators and replaced by a funding system based on public finances. As the  outcomes of the universal service regime benefit the society as a whole, they should be financed by society itself. 
• Regarding services regulation, the sector specific rules applicable to telecom operators is no longer justified. It has created a distortion of competition vis-à-vis the provision of similar services by Internet-based providers that are de jure outside the scope of the ramework. Services provided by electronic communication service providers should be subject to the same horizontal laws applicable to all services – based on a new horizontal framework.
• Finally, the institutional set-up should be significantly streamlined to be consistent with the new competitive environment that requires a significant reduction of the regulatory intervention.

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Please find the full response here.