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COLUMN: TELECOM ECONOMICS - Towards a new deal?
Benoit Reillier provides an update on the key regulatory topics that will shape the telecoms market over the next few years
Members of the European Parliament (MEPs), Commission officials, the Council of Ministers, as well as lobbyists and advisors are currently busy in Brussels negotiating the wording of the proposal for a new EU regulatory framework. Many changes have been proposed since the initial proposal was put forward by the Commission last November and time is running out for a consensus to emerge. The stakes are high as the resulting package will have to be transposed into law by all member states in 2010 and 2011 and will effectively provide the rules and regulations for the telecoms sector until the next review.
While no decisions have been made, it is likely that several of the controversial proposals that were put forward by the Commission last November will be diluted before an agreement can be reached.
One of the most contentious proposals was the creation of a powerful pan-European regulator (European Electronic Communications Market Authority or EECMA) with a range of additional powers. This idea was seriously criticised by both the Council of Ministers and the European Parliament and is therefore likely to be replaced by a more official recognition of the role of the existing European Regulatory Group (ERG), made up of representatives from national regulators, in coordinating national and pan-European regulation. Details about the financing, powers, name and status of this "enhanced" ERG are yet to be finalised.
The rather ambitious Commission's proposals for the development of a more market based approach to spectrum allocation and management across member states is also unlikely to survive the current round of negotiations. A "mixed spectrum management regime", balancing economic and public policy considerations, is likely to be proposed instead. Unfortunately this may have more to do with the significant lobbying power of broadcasting institutions in national markets (that often benefit from "free" spectrum at the moment) than sound economics... some adjustments providing better coordination between member states are likely to be made but any significant spectrum reform will probably have to wait until the next framework review.
The ability for national regulators to mandate functional separation still appears to be on the agenda. Needless to say, incumbent operators are quite worried about the prospect of being forced to split up their operations. It is anticipated however that the final wording of this proposal will reflect the last resort nature of this particularly intrusive remedy. It is likely for example that the economic analysis to be carried out by national regulators to support the case for separation will have to be very robust and take into account investment incentives.
The Commission also proposed that markets that are deemed competitive be removed from the list of ex-ante markets. These proposed changes, that would broadly result in a move away from the regulation of retail markets (that are increasingly competitive) to focus on wholesale markets (where infrastructure providers can be dominant) are less divisive that some of the other proposals and are therefore likely to go through.
The EU Parliament and the Council of Ministers also asked that a number of important topics that were somewhat overlooked in the original proposal be addressed by the new framework. For example, the Commission was asked to clarify its position on the regulation of investment in New Generation Networks (cf. last column on this topic).
While none of the above issues have been decided yet, a consensus is required soon and significant modifications of the original text will have to be made for an agreement to be reached before the end of the year. All the players in the telecoms market are anxious to know the new rules of the game that they will soon have to play... and win.
Benoit Reillier is a Director and European head of the telecommunications and media practice of global economics advisory firm LECG. He can be contacted via: breillier@lecg.com
The views expressed in this column are his own.
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