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Regulatory framework
Malcolm Dowden charts developments in the regulatory framework, which is designed to encompass the European communications market
The electronic communications sector has come under increasingly close scrutiny from the European Commission, and 2007 looks set to be a particularly active year for the industry's representatives in Brussels and beyond. The Commission has stressed that it is ready to revisit any aspect of the Regulatory Framework, provided that this contributes to the attainment of the Lisbon 2010 Agenda objective of making the EU the most dynamic and successful knowledge-based economy by the end of this decade.
The current Regulatory Framework dates back to only 2003, and transposition into national law has only been completed in 2006. Indeed, some of the member states have not yet adopted the necessary secondary legislation or completed their market reviews. Nevertheless, a review has been initiated to ensure that the legislative and regulatory regimes can take account both of the rapid pace of technological developments and the competitive landscape of the industry in the EU's range of established and emerging markets.
The Commission is examining all of the key directives on which the Regulatory Framework is based, together with Article 8 of the Electronic Communications Competition Directive. The Commission's principal objective is to remove any obstacles to the provision of faster, more innovative and competitive services. Further, the Commission has made it clear that the exercise will extend to the regulation of next generation networks and the liberalisation of radio spectrum.
Extended powers
In one of the main 'on-off' stories of 2006, the Commission has also been considering whether its powers under the Regulatory Framework should be extended to create a single regulator for the EU's electronic communications sector and also to include an ability to veto remedies imposed by national regulatory authorities. The idea of a single regulator was floated in June 2006 by Viviane Reding, the Information Society Commissioner. If introduced, it would resemble the European System of Central Banks in structure, with local regulators responsible for analysing local market conditions and reporting back to the EU's regulator to ensure that European law is applied equally across the continent. Introducing the concept the Commissioner observed that this lack of harmony gives some countries an advantage over others, which is “unacceptable” and “an obstacle to the internal market to effective competition”.
The Commission intends to table draft legislative proposals amending the Regulatory Framework before the end of 2006 or early 2007. These proposals will then be transmitted to the European Parliament and Council for adoption under the co-decision procedure. The Commission's target is implementation and transposition into national laws by 2009-2010.
In parallel, a revision of the Recommendation on relevant product and service markets within the electronic communications sector is underway. The Recommendation lists a number of wholesale and retail markets susceptible to ex ante regulation by the member states. The Commission is proposing to reduce the number of markets from 18 to 12. The only remaining retail market covered by the Recommendation would be access to the public telephone network at a fixed location.
There is also a root-and-branch review of the relationship between regulation and the application of competition law. In its 2005 Discussion Paper on the reform of Article 82 the Commission laid down some important policy markers – and in particular the view that competition law enforcement should be effects-based and focus on protecting consumer welfare. This would represent a significant shift in approach, with enforcement action no longer depending on the form a business practice takes, but on its effects.
Competition problems
What effects? Introducing the consultation in 2005, the Competition Commissioner Neelie Kroes made it clear that Article 82 enforcement should focus on real and empirically demonstrable competition problems. In other words, “behaviour that has actual or likely restrictive effects on the market, which harm consumers.”
In the telecoms sector and, particularly in the case of emerging markets, it will be very important to clarify this issue. Incumbent operators often argue that they should be granted a 'regulatory holiday' when they plan to upgrade bottleneck access infrastructure (e.g. from narrowband to broadband). However, as the infrastructure is not readily replicable (due to economies of scale and scope and legacy infrastructure), there is a risk that such holidays might result in retail markets being foreclosed to competition – this did in fact occur in the provision of broadband via ADSL technology in some Member States.
In its response to the Discussion Paper the European Competitive Telecommunications Association (ECTA) urged the Commission to recognise the relationship between competition law and sectoral regulation and follow up with a more in-depth analysis in sector-specific documents e.g. through an update of (i) the Notice on the application of competition rules for the telecoms sector; and (ii) the Commission's guidelines on ex-ante market definition and assessment of significant market power.
ECTA also called upon the Commission to highlight how rules can most appropriately be applied in sectors characterised by economies of scale, vertical integration, historic monopolies and former state funding. This is particularly relevant to guidance on 'emerging markets', 'leverage', 'efficiencies' and 'refusal to supply'.
Critically, ECTA asked the Commission to clarify what is meant by “capability to foreclose competition”. In the telecoms sector, where behaviours such as margin squeeze can cause considerable and lasting damage, it is important that a case can be brought before “actual foreclosure” has occurred. It would be little comfort to a market entrant that its failure might subsequently be used as evidence of anti-competitive behaviour on the part of an incumbent.
There are indications that Commissioner Kroes is considering a sector-wide inquiry in telecoms in 2007. Having recently set about investigating the energy and financial services sectors, it is thought the Commission may examine competition and the state of liberalisation of the telecoms sector as early as next year.
Sector inquiries typically begin with extensive questionnaires being sent by the Commission to industry players. They are organised and carried out by DG Competition in conjunction with the other relevant services of the European Commission. For telecoms, that would be the services of Viviane Reding, the Commissioner for Information Society & Media.
There is no doubt that 2007 looks set to be an interesting and critically important year for the electronic communications sector.
Malcolm Dowden is an Associate with Charles Russell LLP, and can be contacted via e-mail: Malcolm.dowden@charlesrussell.co.uk
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