The negotiations over the EECC are in the final stages. Among many well-informed observers, the developments up to now are raising serious doubts as to whether the anticipated outcome will be in line with the original, appropriate intentions of the European Commission. One of the objectives, clearly, was to substantially improve connectivity within the EU, in order to allow broad participation of its citizens and to move forward the digitisation of the economy. The primary aim here is increased public welfare, by utilising the socio-economic effects arising from digitisation. Correspondingly, within the EU and beyond, public policies for awarding spectrum are to be harmonised and improved in order to avoid an unsatisfactory situation similar to that arising through the fragmented award of 4G spectrum by individual countries. We recall in this connection a public comment by Director-General Roberto Viola, referring to 4G licensing in Europe as a ‘disaster’. In addition, it was the European Commission’s explicit objective to create stronger incentives for investing in (optical fibre) infrastructure. At the same time, however, encouraging competition is to be maintained as a focus of regulation and any goal conflict avoided between investment incentives and competition. So much for the fully justified intentions and the expectations aroused thereby.

The impression is highly sobering, in contrast, when a critical view is taken of the progress of negotiations to date and the current status achieved. There is cause for concern that the anticipated outcome will fall far short of the original — justified and important — objectives of the EECC:

• With regard to spectrum policy, the European Commission presented worthwhile proposals for an encompassing reform of frequency award policies, taking into account award methods, the license periods as well as the schedules for awarding spectrum in the Member States. Yet, the legislative process has diluted these proposals to the point of inefficacy, so that no significant improvements are to be expected.

• The SMP regime has proven itself in the past and is well established, and today serves as the starting point and determinant for any regulatory measure; softening this regime results in a completely watered-down mixture of elements that are contradictory in part, including SMP regulation, symmetric regulation and joint dominance notions.

• The co-investment model had among its supporters aroused hopes that investment incentives would massively increase; this model has now degenerated into a highly complex ‘micro-managed’ system, involving so many detailed rules, sub-categories and exceptions that it must be seriously doubted whether the system will ever trigger any actual significant incentive for investments.

• Besides the above, there remains a lack of clarity surrounding the rules for state aid and the future scope of the universal service.

The essential concern is whether the future system of regulation will ever function at a practical level, as it will be based on a parallelogram of forces hinging on SMP regulation, symmetric regulation, universal service and state aid — without clear distinctions between these areas and without any clear definition of the interdependencies amongst them.

Viewed in this way, the EECC as it is taking shape is emerging as a ‘missed opportunity’ for Europe, threatening to fall far short of its original objectives. Presumably this will lead market participants to adopt a ‘wait-and-see’ attitude, with many not expecting more favourable investment conditions as a result of shifting this parallelogram of forces, through increasing state aid or other components for example.

It is therefore justified to ask how we will respond to this wait-and-see attitude among market participants and investors. It would be probably best to go back to square one of the whole process, to start with a clean slate and put in place a clear, flexible and highly simplified regulatory framework. It would also help to be bolder and try out new approaches! Why not dare to make investments in FTTH a matter of agreements under private law, for a limited term and subject to consistent ex-post supervision but completely free of regulation? We would quickly recognise how willing market participants are to make investments, while regulatory authorities or anti-trust authorities could step in and stop any abusive conduct. As far as regulating certain OTT services is concerned, the existing regulatory framework already provides for options that, through exercising restraint and pragmatism, would allow a level playing field to be set up for those services that are considered as real substitutes for traditional telecom services. In the event that a detailed evaluation of the situation revealed actual substitution, appropriate regulation of some such services could be quickly introduced on a pragmatic basis even now.

At this point, it is worthwhile to stop for a moment and consider the options for responding to the threat of a wait-and-see attitude in the market and accompanying paralysed market development. In the worst case, a situation could arise in which Europe consistently failed to produce a convincing investment story and fell short of its connectivity goals, while at the same time competition suffered: a truly fatal outcome. Such a scenario would be further aggravated by the fact that the situation could not be changed for years, because it had already just been in changed — albeit inappropriately! Going back to square one to set up a new regulatory framework would still be better than implementing an inadequate legal framework, one that proved of little value for Europe’s future.

30 May 2018
Georg Serentschy
Managing Partner
Serentschy Advisory Services GmbH