RD335 - RPOL BEREC FS guidance

As ETNO argued[1] during the 2007-2009 ‘Telecoms Review,’ the proposed introduction of functional separation into the Framework was not based on any cost-benefit analysis or regulatory impact assessment.  Instead, it was politically motivated, linked to NRAs reliance on mandatory unbundling and the concept of the ‘ladder of investment’ in their implementation of the Framework. 

Existing access remedies under the Framework can be imposed to ensure non-discrimination by imposing rules on an operator deemed to have significant market power (SMP).  In the context of the Telecoms Review, NRAs – supported by the European Commissioner for Information Society and Media at the time -- claimed that these remedies “might not be enough”[2] to prevent discriminatory behaviour from a vertically integrated operator. “ERG (the European Regulators Group) believes functional separation can be a supplementary remedy in markets where non-discrimination has been shown to be ineffective in dealing with problems of equivalence in wholesale markets.” they concluded on foot of a high-level, non-quantitative analysis.

Now, as then, ETNO also argues that insufficient attention has been given to the theoretical and empirical case against functional separation. 

• ETNO commends the Body of European Regulators for Electronic Communications (BEREC) for its initiative in providing guidance to its members on the potential imposition of functional separation as a regulatory remedy under the revised regulatory framework for electronic communications (the “Framework”) [1].  Given that functional separation is a non-standard, exceptional measure, its justification and proportionality must be well-established by a national regulatory authority (NRA) according to objective criteria;
• ETNO reminds BEREC of its position during the 2007-2009 ‘Telecoms Review,’[2] where we argued that mandatory vertical separation, including functional separation, is inappropriate in the Framework where promoting efficient investment and infrastructure-based competition are objectives;
• The Economics literature provides strong support, from both a theoretical and an empirical perspective, for the proposition that mandatory vertical separation is likely to reduce efficiency and reduce consumer welfare;
• One can also raise empirical challenges to the appropriateness of mandatory functional and other forms of vertical separation;
• BEREC itself expresses concerns about the potential negative impact of mandatory functional separation on investment, innovation and infrastructure-based competition;

• BEREC even appears to recognise the inconsistency of imposing functional separation under the Framework which is to promote infrastructure-based competition, stating: 

“While functional separation is recognised to be beneficial in the promotion of intra-platform competition, effects on infrastructure-based competition may be detrimental, as functional separation may lead to a form of monopoly in the access segment of the telecommunications market”;

• In this context, ETNO calls upon NRAs to exercise regulatory forbearance in imposing functional separation;

• For cases where forbearance is deemed inappropriate, ETNO welcomes BEREC’s effort to identify the essential elements and criteria to be included in the analyses of a NRA when ‘making the case’ to impose functional separation.  We call upon BEREC, however, to revise its draft guidance to add depth and rigour to the justification and proportionality conditions;

• ETNO maintains that voluntary functional separation, like that introduced in Italy, or any other form of voluntary vertical separation should remain the decision of an individual company;

• ETNO welcomes the opportunity to participate in a public consultation on a draft BEREC report, having long argued that all reports and other communications with potential material impact on industry stakeholders, such as this one, should be consulted upon.