A Program for Reforms
for the European Regulation of Electronic Communications
Alexandre de Streel*
Abstract: This paper studies if the recently reformed European economic regulation of the
electronic communications (the so-called Significant Market Power regime) has delivered the six
governance principles on which it was based, and on that basis, proposes a program to reform
such regulation. It submits that this system should not be radically revised during the 2006
Review, but that clarifications of the substantive rules and improvements in the institutional
design are appropriate to ensure deregulation and more legal certainty. In brief, the reform
should now concentrate on more harmonisation of national procedural rules to follow the past
harmonisation of substantive rules.
Keywords: Electronic communications, Regulation, European Union, Governance.
1. Introduction
This paper gives a first assessment of the 2003 European regulatory framework for electronic
communications1 after two years of practice and proposes some reforms in the context of the
2006 Review. To do so, I suppose a direct relationship between regulatory setting which
influences the fulfilment of good governance principles, which in turn influences the sector
performances, which finally influences the state of the economy. Each of these four factors may
be broken down and measured with different indicators2 as illustrated in Table 1.
*
University
of
Namur,
Belgium
and
European
University
Institute,
Florence.
Email:
[email protected]. The paper states the law as of 1 August 2005 unless indicated otherwise. It is partly
based on de Streel (2005) and should be presented at the ITS Conference in Porto in September 2005
1
The 2003 Framework is mainly made of four harmonisation directives and one liberalisation directive: Directive
2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for
electronic communications networks and services (Framework Directive), O.J. 2002 L 108/33; Directive
2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic
communications networks and services (Authorisation Directive), O.J. 2002 L 108/21; Directive 2002/19/EC of the
European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic
communications networks and services (Access Directive), O.J. 2002 L 108/7; Directive 2002/22/EC of the
European Parliament and of the Council of 7 March 2002 on universal service and users' rights relating to electronic
communications networks and services (Universal Service Directive), O.J. 2002 L 108/51; Commission Directive
2002/77/EC of 16 September 2002 on competition in the markets for electronic communications networks and
services (Liberalisation Directive), O.J. 2002 L 249/21.
2
For some relevant indicators, see Communication from the Commission of 2 December 2004, European Electronic
Communications Regulation and Markets 2004, COM(2004) 759; and also ECTA (2004), Gilardi (2005).
1
Table 1: A framework for assessing regulation
Regulatory setting
Governance principles3
Sector performance4
State of the economy5
- Substantive rules
- Institutional design
- Minimal regulation
- Flexibility
- Transparency
- Objectivity
- Legal certainty
- Harmonisation
- Static indicators
- Dynamic indicators
- Single market indicators
- Static indicators
- Dynamic indicators
The paper is as follows. After this introduction, Section 2 briefly presents the governance
principle as well as the substantive and the institutional rules underpinning the Significant Market
Power regime (SMP). This is the main part of the economic regulation of the sector and provides
for obligations on the operators enjoying hard-core market power in order to prevent any abuse of
it and/or to mimic competition. Section 3 attempts a first assessment of the achievement of the six
governance principles on which the SMP regime is based. On that basis, Section 4 proposes a
program for reform to ensure that such governance principles are better met. Finally, Section 5
concludes.
This paper has several limitations. A first limitation is that it focuses on the two first boxes of the
table above and assesses the regulatory setting solely with regard to the achievement of the good
governance principles. I do so for several reasons: first because the Commission (and more
generally the European legislator) based the 2003 regulatory framework on six governance
principles6, hence it is relevant to check ex post if these principles have been achieved; second
because the governance principles are at the forefront of the European policy debate since the
Commission White Paper of 20017; third because static indicators on sector performance are
already widely reported by the Commission in its yearly implementation reports 8; and fourth
because the relationship between regulatory setting and sector performance or state of the
economy is only indirect.
A second limitation of the paper is that it focuses only a part of the regulation applicable to the
electronic communications, i.e. the Significant Market Power regime. Thus, it does not study the
3
Indicators on governance principles may include: (1) Regulatory index; (2) Use of public consultation, use of
regulatory impact assessment; (3) Expertise, financing, staff number; (4) speed of decision-making, annual working
plan; (4) Common position between Member States on specific regulatory issues.
4
Indicators on sector performance may include: (1) Price, quality, productivity, number of operators, market share
repartition between the operators, employment; (2) Investment, introduction of new services; (3) Number of EU wide
operators, of EU wide offers, of transnational markets.
5
Indicators on the state of the economy may include: Productivity, growth of GDP.
6
Communication from the Commission of 10 November 1999, The 1999 Communications Review - Towards a new
framework for Electronic Communications infrastructure and associated services, herein the 1999 Communications
Review, COM(1999) 539, at 18-21.
7
White Paper of the Commission of 25 July 2001 on the European Governance, OJ 2001 C287/17; Communication
from the Commission of 2 February 2005, Working Together for growth and jobs: A new start for the Lisbon
Strategy, COM (2005) 24; and Sapir (2004).
8
Communication from the Commission of 2 December 2004, European Electronic Communications Regulation and
Markets 2004, COM(2004) 759. It is regrettable that the Commission is focusing only on static indicators so far.
However, the Commission is reported to be willing to integrate more dynamic indicators like the level of investment
in the future.
2
other parts of sector regulation also submitted to revision9, like the content regulation10, the entry
regulation (in particular the spectrum regulation11), or the social regulation (in particular
universal service12). There is obviously a cross-influence between those regulations to which I
touch upon, but I limit myself to the SMP regime because it is the more important part of the
regulation and because it is one the most controversial.
I conclude that the SMP regime is performing relatively well and that two governance principles
are broadly met (flexibility and transparency, two are one the way (objectivity and
harmonisation) but two have not been sufficiently achieved (minimal regulation and legal
certainty). Therefore I think that reforms should be done in particular to clarify regulatory
strategies and improve institutional design, which is not surprising as the 2003 Framework is
mainly about objectives and process. Thus I propose some minor improvements in the hard-law
instruments (more harmonisation of the national appeal procedures). I propose substantial
reforms in the soft-law instruments like the European Regulators Group Common Position on
remedies (clarification of regulatory strategies in particular for emerging markets and the ladder
of investment) and the Commission Recommendation on relevant markets susceptible to ex-ante
regulation (removal of 10 out of the 18 current markets). I propose two new additional soft law
instruments to be adopted by the Commission (Guidelines on Article 7 problematic issues and
Recommendation on national best practice procedures). However, this paper is very preliminary
and limited in scope. Therefore, I also conclude that a high-level group of independent experts
should evaluate the performance of the sector, the functioning of the regulation and the roles of
the regulatory actors (in particular the Commission which is otherwise never evaluated
externally) and report to the European Council before starting the reforms.
2. Governance Principles and regulatory settings of the Significant Market Power regime
The electronic communication regulatory framework pursue three goals13: (1) promote and
sustain effective competition on the market while preserving investment incentives, (2)
consolidate the internal market by ensuring similar regulatory approaches across Member States
and the delivery of pan-European services, and (3) benefit the European citizen by securing the
best possible deal for the consumers and an universality of access for the basic services.
To meet these objectives, regulatory authorities should follow six good governance principles14.
(1) Regulation should be kept to a minimum to achieve the three goals mentioned above, which is
another formulation of the principle of proportionality15. This implies that the regulatory
action pursues a legitimate aim, and that the means employed to achieve the aim are both
Communication from the Commission of 1 June 2005, i2010 – A European Information Society for growth and
employment, COM(2005) 229.
10
Communication from the Commission of 15 December 2003, The Future of European Regulatory Audio-visual
Policy, COM(2003) 784.
11
Forthcoming Commission strategy for efficient spectrum management.
12
Communication from the Commission of 24 May 2005 on the Review of the Scope of Universal Service,
COM(2005) 203.
13
Articles 8 of the Framework Directive.
14
See note 6.
15
Article 8(1) of the Framework Directive, Article 8(4) of the Access Directive, Article 17(2) of the Universal
Service Directive. See also, Guidelines on market analysis, para 118; ERG Common Position on Remedies, para
4.2.1, cited infra. On the proportionality principle in EU law, see: Craig and de Burca (2002); Fedesa C-331/88 ECR
1990 I-4023, para 13, cited in the Common Position remedies, at 62.
9
3
necessary and the least burdensome. In fact, economic regulation is even deemed to disappear
in the long run to the benefit of the mere application of competition law16, although for the
time being, there is a broad consensus that economic regulation is still justified.
(2) Regulation should be flexible to be able to respond to rapid markets developments. This has
two implications. On the one hand at the international level, European law should provide
only for general objectives, a process for regulation and minimal procedure requirements but
allow differentiation across Member States. On the other hand at the national level, broad
power and margin of discretion should be left to the regulatory actors, in particular the
National Regulatory Authorities (NRAs).
(3) Regulation should be transparent17. This has two implications. On the one hand, the number
of legal instruments should be reduced to the minimum. On the other hand, all regulators
should widely consult the stakeholders and make their information and decisions easily
accessible to the outsiders.
(4) Regulation should be objective and non-discriminatory, i.e. all equivalent services should be
treated in the same way so as not to distort investment decisions. This has two implications.
On the one hand, regulatory actors should be independent of the operators and impartial. On
the other hand, regulation should be technologically neutral18 to take convergence into
account, i.e. all technologies and all operators offering the same services from the consumers’
viewpoint should be treated equally.
(5) Regulation should be based on clearly defined policy objectives to be followed by regulatory
actors19. By the same token, regulation should ensure legal certainty and be consistent over
time to allow companies to make investment decisions with confidence. This implies that
regulators should have clear and stable strategy, and should follow strict and transparent
procedures before adopting decisions.
(6) Finally, European regulatory actors should share a common regulatory culture to ensure the
establishment of a single market for electronic communication services. At the same time,
regulation should be enforced as closely as practicable to the activities being regulated, which
is another formulation of the principle of subsidiarity20. The combination of both principles of
subsidiary and harmonisation means that the optimal level of governance should be found for
each aspect of the regulation. In that respect, the economic theory of federalism shows that
such optimal level depends on a trade-off between, on the one hand, externalities and
economies of scale, and on the other hand, the heterogeneity of preferences and needs, and
that these factors evolve over time and depend on the impacts of economic integration21.
16 See the position of the three main the European institutions: 1999 Communications Review, at 49; Resolution of
the European Parliament of 13 June 2000 on the 1999 Communications Review of the Commission, O.J. 2001 C
67/53, at point A; Statement of Reasons of the Council Common Position 38/2001 of 17 September 2001 on the
Framework Directive, O.J. 2001 C 337/51, at para II.1. This idea of a temporary sector regulation was already
present in the Littlechild Report of 1983. However, this position is severely criticised by Larouche (2000: chapter 4)
and (2002:140) who argues that the specificities of the electronic communications sector, and in particular the
prevalence presence of bottlenecks and network effects, justify a permanent economic regulation in the form of
supplier, customer, and transactional access.
17
Articles 3 and 6 of the Framework Directive.
18
Article 8(1) and Recital 18 of the Framework Directive.
19
Article 8(2) to 8(4) of the Framework Directive.
20
Article 5 EC.
21
See Sapir (2004:184), drawing from Alesina et alii (2005), Tabellini (2003).
4
To meet these six governance principles, the substantive rules of the Significant Market Power
regime has been radically revised in 2003 and partially aligned on competition law principles.
Such principles were deemed to ensure at the same time flexibility as they are based on economic
theory, objectivity as they are based on demand and supply side substitutions, legal certainty as
they are based on more than forty years of jurisprudence, and harmonisation as this jurisprudence
is mainly coming from the European Courts22. In addition they would facilitate the transition
towards removal of sector regulation and application of mere antitrust law. Thus to impose
obligations on the operators enjoying significant market power, the regulatory agencies should
follow three steps23:
(1) First, the Commission, in a Recommendation24 destined to NRAs, selects and delineates the
product dimension of the markets justifying regulation because of the presence of hard-core
market power that could not be efficiently policed by antitrust remedies (because of three
cumulative criteria: presence of high non-transitory and non-strategic entry barriers, absence
of competitive dynamic behind these barriers, and relative inefficiency of antitrust remedies
compared to sector regulation remedies to address the competitive problems25). Then, each
NRA, on the basis of its own national circumstances, selects markets justifying regulation and
delineates the product and geographic boundaries of these selected markets according to
antitrust methodologies (i.e. the hypothetical monopolist test26).
(2) Second, the NRA analyses these markets to determine if one or more operators enjoy
Significant Market Power, which correspond to a dominant position according to antitrust
methodologies (i.e. power to behave individually or collectively to an appreciable extent
independently of competitors, customers, and ultimately consumers27). In doing so, the NRA
takes the utmost account of the Commission Guidelines on market analysis28.
(3) Third, the NRA imposes proportionate remedies on the operators having SMP on wholesale
markets among a list of five provided in the Access Directives (transparency, nondiscrimination, accounting separation, compulsory access, and price control) or outside the
list provided it gets the prior agreement of the Commission29. It imposes proportionate
remedies on the operators having SMP on the retail markets if wholesale remedies would not
22
Buiges (2004). This underlying assumption that mystifies antitrust principles has been criticised by Larouche
(2002:137) to which I come back later.
23
Articles 14-16 of the Framework Directive: Buiges (2004), Cave (2004a), Garzaniti (2003: chapter 1), Krüger and
Di Mauro (2003), Nihoul and Rodford (2004: chapter 3), de Streel (2004a).
24
Commission Recommendation 2003/311 of 11 February 2003 on relevant product and service markets within the
electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the
European Parliament and of the Council on a common regulatory framework for electronic communications
networks and services, herein Recommendation on relevant markets, OJ [2003] L 114/45.
25
Recital 9 to 16 of the Recommendation on relevant markets.
26
Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ
[1997] C 372/5.
27
United Brands 27/76 1978 ECR 207; Hoffman-La Roche 85/76 1979 ECR 461; Guidelines on market analysis,
para 70 to 106.
28
Commission Guidelines of 9 July 2002 on market analysis and the assessment of significant market power under
the Community regulatory framework for electronic communications networks and services, herein Guidelines on
market analysis, OJ [2002] C 165/6.
29
Articles 8 to 13 of the Access Directive.
5
suffice30. In doing so, the NRA takes account of the European Regulators Group Common
Position on appropriate remedies31.
The institutional design of the Significant Market Power regime has also been radically revised to
better achieve the six governance principles. The main actor is the NRA of each 25 Member State
that undertakes all the three steps analysis32, that have to enjoy minimal characteristics according
to the 2003 Framework33. Thus, NRAs should be independent with regard to the operators34,
transparent, accountable, and competent, and they collaborate for the analysis of trans-national
markets and the resolution of cross-border disputes. In practice, Members State enjoy a wide
margin of discretion to implement such provisions35 because of their procedural autonomy36.
However, such discretion is constrained by two principles derived from the obligation of loyal
cooperation of the Article 10 EC37: first, the principle of effectiveness requiring that the exercise
of Community rights is not made excessively difficult or impossible38, and second, the principle
of equivalence requiring that procedures governing the exercise of Community rights are not to
be less favourable than those applicable to similar claims in domestic law39.
Given the increased discretionary power of the NRAs, the regulatory framework also provides
several checks and balances at national and European levels to ensure that le pouvoir arrête le
pouvoir and that the establishment of a European regulatory culture would not be undermined. At
the national level, the 2003 Framework provides for some minimal procedural requirements but
leave again much room to the Member State to implement them (to respect their procedural
autonomy under same two limits of effectiveness and equivalence). First, NRA should consult,
co-operate and exchange information with the National Competition Authority as it applies
antitrust methodologies during market analysis40. In practice, the relationship between both
authorities varies considerably across countries, ranging from concurrent powers for the NRAs to
apply competition law (in the UK and Greece), to formal cooperation agreements between both
authorities (in the Netherlands), to mere informal exchange of information. Second, NRA’s
decisions should be challengeable on the merits to an independent appeal body that may be a
national court41. In practice, the appeal body is a court in most of the Member State, and in many
30
Articles 16-17 of the Universal Service Directive.
European Regulators Group Common Position of 1 April 2004 on the approach to appropriate remedies in the new
regulatory framework, ERG (03) 30rev1.
32
On the role of the NRAs: Geradin and Petit (2004), Stevens and Valcke (2003).
33
Articles 3 to 8, 16 and 21 of the Framework Directive.
34
According to the internal market and antitrust principles of the EC Treaty (GB-Inno-BM C-18/88 1991 ECR I5941, para 28; Terminal Directive C-202/88 1991 ECR I-1223, para 51), Member States should ensure that their
NRAs are independent from the operators.
35
Some indications on the quality of each regulator may be found in ECTA (2004) and in the 10 th Implementation
Report.
36
Rewe-Zentralfinanz C-33/76 1976 ECR 1989, and Comet C-45/76 1976 ECR 2043; see also Kakouris (1997).
37
In general, see Temple Lang (2000).
38
Factorame I C-213/89 1990 ECR I-2433.
39
Safalero C-13/01 2003 ECR I-XXX.
40
Article 3 and 16 of the Framework Directive, and para 135 of the Guidelines on market analysis. Note that
according to the primacy of EC law and the obligation for the NRA not to contradict or undermine EC antitrust law
the Member States should ensure that their NRAs work together with their NCAs: GIB/ATAB 13/77 [1977] ECR
2115, para 31; Leclerc 229/83 [1985] ECR 1; Van Eycke 267/86 [1988] ECR 4769, para 16; Ahmed Saeed 66/86
[1989] ECR 1839.
41
Article 4 of the Framework Directive. For a detail analysis of this provision, Lasok (2004). Note that in Connect
Austria C-462/99 2003 I-5197, para 38 to 42, the Court judged that an equivalent provision under the previous
1998 Framework (Article 5a(3) of the ONP Directive 90/387 as modified by Directive 97/51) has a direct effect and
that national appeal body should dis-apply any contrary national law. This jurisprudence is equally valid under the
2003 regulatory framework.
31
6
of them, a court specialised in antitrust matters42 and the intensity of the courts’ review varies
across Member States according to their national administrative traditions.
At the European level, the NRAs are also under the scrutiny of several institutions. First, they are
under triple control of the European Commission. The Commission controls NRAs directly and
ex ante with new powers acquired all along the Significant Market Power process. At the
beginning of the process, the Commission adopts a Recommendation listing the problematic
markets to be analysed by the NRAs43. At the end of the process, the Commission reviews
systematically all NRAs draft decisions and might veto, after a non binding opinion of the
Communications Committee, steps 1 and 2 (i.e. market definition and SMP designation) and
comment on step 3 (choice of remedies)44. The Commission also controls NRAs directly and ex
post with the possibility by opening infringement procedures against a Member State (or its
NRA) for violation of European law45, or more softly by mention violation of European law in its
yearly implementation reports46. Finally, the Commission controls NRAs indirectly and ex post
with its antitrust powers (by adopting general guidelines47 or individual cases48) that apply to
Member States (and their NRAs) and operators in addition to sector regulation49. Second, the
NRAs are under the control of the European Court of Justice directly when it decides on
infringement proceedings launched by the Commission and indirectly when it decides on
preliminary ruling questions of national Courts50. Thirds, the NRAs are collaborating inside the
European Regulators Group (ERG) that is composed of the Commission and the 25 NRAs and
that aims to contribute to the development of a common regulatory culture throughout Europe51.
3. A First Assessment
After having exposed the SMP regime, I now turn on its implementation during the two first
years of existence. In its initial Recommendation of February 2003, the Commission identified
42
Annex to the 10th Implementation Report, at 13.
Article 15 of the Framework Directive.
44
Article 7 of the Framework Directive and Commission Recommendation 2003/561 of 23 July 2003 on
notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European
Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications
networks and services, OJ [2003] L 190/13. The Commission decisions are available at
http://forum.europa.eu.int/Public/irc/infso/ecctf/home.
45
Article 226 EC.
46
Such mention has a strong deterrence effect on the NRAs because it signal a possibility for the Commission to
open a formal infringement action and a possibility for private parties to contest NRAs decision before national
judges as contrary to primary European law.
47
For instance, Commission Notice of 31 March 1998 on the application of competition rules to access agreements
in the telecommunications sector, O.J. [1998] C 265/2.
48
For instance, Commission Decision of 21 May 2003, Deutsche Telekom, O.J. 2003 C 264/29. This decision is
under appeal. On the decision, see Geradin (2004).
49
Articles 81, 82, 86 EC and Council Regulation 139/2004 of 20 January 2004 on the control of concentrations
between undertakings, O.J. [2004] L 24/1.
50
Article 234 EC. For a overview of the case-law of the Court of Justice under the previous 1998 Framework:
Commission Services Guide to the case law of the European Court of Justice in the field of Telecommunications
2003,
available
at
<http://europa.eu.int/information_society/topics/ecomm/all_about/implementation_enforcement/index_en.htm>.
51
Commission Decision of 29 July 2002 establishing the European Regulators Group for Electronic
Communications Networks and Services, O.J. 2002 L 200/38, as modified by Commission Decision of 14
September 2004, O.J. 2004 L 293/30. See <http://erg.eu.int>. Note also the existence of the Independent Regulators
Group, which is composed of the NRAs of the European Union and some other European countries but not the
Commission and aims also to develop a common regulatory culture: See <http://irgis.icp.pt/site/en/>.
43
7
eighteen markets to be analysed by the NRAs52: seven retail markets, three wholesale markets
related to fixed narrowband, two wholesale markets related to fixed broadband, two wholesale
markets related to leased lines, three wholesale markets related to mobile, and one wholesale
market related to broadcasting transmission (see Annex I). For the 25 Member States, that makes
a total of at least 450 markets to be dealt with by the NRAs. As of August 2005, 13353 of such
markets have already been analysed by the national regulators of 14 Member States and
commented on by the Commission. Thus, the implementation of the regime takes much more
time than expected because only 30% of the total workload has been done after two years of its
application. However, that is enough to give a preliminary impression on the fulfilment of the six
governance principles in the context of the SMP regime. Two principles are broadly fulfilled
(flexibility and transparency, two are one the way (objectivity and harmonisation) and two have
not been sufficiently achieved (minimal regulation and legal certainty).
Flexibility
The principle of flexibility is broadly achieved and is not any more problematic in the sector. On
the one hand, the European law (hard and soft-law) allows for differentiation across Member
States. On the other hand, the NRAs were given sufficient margin of discretion to adapt to
dynamic market evolutions (with the exception of seven Member States that have incorrectly
implemented the Directives54).
Transparency
Similarly, the principle of transparency is also broadly achieved. Public consultations are now
systematically organised (with the exception of seven Member States that have incorrectly
implemented the Directives55) and the vast majority of the information and the decisions of the
NRAs and the Commission are available on the Internet.
Objectivity and technological neutrality
The principle of objectivity is much better met than under the previous 1998 regulation. First, the
NRAs are now independent and impartial in most Member States (except in some new Member
States that have incorrectly implemented the Directives56).
Second, regulation is now technologically neutral as the relevant markets are defined according to
the services provided and the preferences of the consumers and not anymore according to
technologies57. For instance, in its first Article 7 decision, the Commission insisted to the British
regulator that 2G voice and 3G voice should be part of the same relevant market because they
52
No trans-national market has been yet identified, but the Commission is looking at a possible trans-national
wholesale market for broadcasting transmission service via satellite platform
53
Note that this correspond to more notifications done to the Commission (213 notifications analysed so far),
because some NRAs do separate notification for the market definition, the SMP analysis, and the choice of remedies
and because some notifications have been withdrawn and re-notified.
54
In Finland, Germany, Hungary, Ireland, Malta, the Netherlands, Portugal (Annex to the 10th Implementation
Report, at 10), whose some have lead to infringement procedures (IP/05/XXX).
55
In Germany, Greece, Latvia, the Netherlands, Slovakia, Lithuania, Spain (Annex to the 10 th Implementation
Report, at 11), whose some have lead to infringement procedures (IP/05/XXX).
56
In Cyprus, Latvia, and Slovenia (Annex to the 10 th Implementation Report, at 8), whose some have lead to
infringement procedures (IP/05/XXX).
57
Explanatory Memorandum of the Recommendation on relevant markets.
8
offer the same service from the customers’ viewpoint58, a position that was then taken over by the
other NRAs.
However, the strict application of technological neutrality is not always achieved. First, the
Commission continues to adopt policy papers focusing on specific emerging technologies (like
mobile 3G, digital TV, Voice over IP, or Power-line Communications59), although it may be
argued that these papers do not violate the technology neutrality principle, but on the contrary
explains the consequences of that approach on emerging technologies. Second and more
critically, the Commission is strongly reluctant to include cable infrastructure alongside telecom
infrastructures in the wholesale broadband access market (market 12 of the Recommendation on
relevant market)60, fearing that might lead to an extension of regulation of the cable. By doing so,
it may violate the objectivity principle and is in opposition with the opinion of the majority of
NRAs61.
Minimum regulation62
The 2003 Framework was deemed to lead to less and more focus regulation. However, the reality
is mixed and I distinguish between the level of regulation as such and the procedural steps to get
this level (which is a regulatory burden as well).
With regard to the level of regulation, the initial implementation of the 2003 Framework lead to a
decrease of regulation of 4% as I show with a regulatory index explained in the Annex I. In fact,
the new SMP regime has led to a major shift from retail regulation to wholesale regulation to be
better adapted to regulatory phase when competition at the wholesale level is encouraged and rely
upon to ensure cost oriented prices at the retail level63. Thus the overall decrease in regulation is
due to an important removal of economic retail regulation, which is now fortunately disconnected from the universal service provision64. However, this overall result should not hide the
fact that wholesale regulation is increasing, in particular to the two areas with the highest growth
in the sector. Regulation is increasing the fixed broadband segment with the implementation of
the so-called ladder of investment which provides that the NRAs should give incentives for
competitors to seek access from the incumbents in the short term and to build their own
infrastructure in the long term65. On that basis, NRAs are multiplying the number of compulsory
access points in the network (the rungs of the ladder) and provide for unbundling, bitstream or
wholesale line rental. Regulation is also increasing in the mobile area with the introduction of the
58
Decision of the Commission of 29 August 2003, UK/2003/1.
Communication from the Commission of 11 June 2002, Towards the Full Roll-Out of Third Generation Mobile
Communications on 3G, COM (2002)301; Communication from the Commission of 17 September 2003 on the
transition from analogue to digital broadcasting, COM(2003) 541; Commission Staff Working Document of 14 June
2004 on the treatment of Voice over Internet Protocol under the EU Regulatory Framework; Commission
Recommendation of 6 April 2005 on broadband electronic communications through power lines, O.J. 2005 L
93/42.
60
Annex 1 of 10th Implementation Report, at 71.
61
ERG Revised Common Position of 25 May 2005 on Bitstream access, ERG(03) 33rev2.
62
In this section, I focus on sector regulation. However, the 2003 Framework has also an effect on antitrust law in
the electronic communications sector and in other sectors of the economy. In particular, it might lead to an extension
of antitrust law if the European and the national competition authorities use their comments under the SMP regime to
try extend antitrust doctrines, which is all the more dangerous that they would do so outside the control of the Courts.
63
Note that the emerging clear separation of retail and wholesale regulation is contrary to the proposed global price
cap proposed by Laffont and Tirole (2000:170-173).
64
The SMP regulation is dealt with by Article 17 of the Universal Service Directive, whereas the universal service
regulation is dealt with by Article 9 of the Universal Service Directive.
65
Cave and Vogelsang (2003).
59
9
single network market definition. This wholesale regulatory creep was already denounced under
the 1998 regulation and has continued afterwards66. At this stage, I can not prove that regulators
have intervened beyond the optimal level because that would require a clear and articulated
definition of the optimal regulation in the sector as well as a full cost-benefit analysis. This has
not been done and is outside the scope of this paper. However, it is a fact that the never-ending
expansion of wholesale regulation does not match to the deregulatory rhetoric of the authorities.
My intuition is that this might correspond to over-regulation67 and my fear is that the regulatory
brakes contained in the 2003 Framework are not sufficiently relied upon68.
Such increase in wholesale regulation be explained by the fact the 2003 Framework did not
sufficiently take into account the incentive of the NRAs. There is the problem of state
bureaucracy that reflects the fact that once established, regulatory bodies tend to perpetuate and
enlarge their activities. There is also the problem of path dependency that reflects the fact that
authorities tend to reproduce regulatory approach from the past. For instance, NRAs continue to
apply the full suite of remedies that they had to apply under the previous 1998 regime without
taking advantage of their new flexibility under the 2003 Framework by picking the most
deregulatory remedies or even the most appropriate ones. To make things worse, the Commission
is not sufficiently encouraging deregulation during its Article 7 review.
With regard to the regulatory procedures, regulatory costs have also increased because the
implementation of the three-steps SMP analysis involves collection of a huge amount of market
data which are not always available by the marketing departments of the operators, many
complex economic assessments by the NRAs, and a systematic review by the Commission. To
deal with these tasks, the staffs of the NRAs, the Commission and the operators have had to be
considerably increased. We may fear that the 2003 Framework would be dubbed ‘the telecom
lawyers and consultant full employment regulation’ as it has been the case for the US 1996
Telecommunications Act69. To be sure, the surge in regulatory staffs may be explained by the
learning of a new system and has provided for a more fine tuned understanding of the market
dynamics than under the previous regime, but it remains that this increased benefit may not match
its cost.
66
This danger that was feared by the vast majority of observers at the verge of the implementation of the 2003
Framework: Cave and Crowther (2004:28); Dobbs and Richards (2004:729); Oldale and Padilla (2004:76). In
particular, Gual (2002) and Criterion Economics and Dotecon (2003) were wary that intrusive narrowband regulation
would be extended as such and without adaptation to broadband market segment. See also the interesting
observations of Stern (2004) who contrasts the de-regulatory stance of Ofgem in market where technological
progress is relatively slow and natural monopoly conditions prevalent, with the regulatory stance of Oftel where the
technological progress make the possibility of effective competition more important, and of Waverman (2003) who
suggests the use of a regulatory cap.
67
This is implicitly recognised by Ofcom (2004:11) which notes that “Increasingly detailed regulation has been
introduced. This has created a regulatory mesh which places a series of obligations on BT at the retail and wholesale
levels. While all individually justifiable, the combination of obligations created additional costs and often conflicting
incentives. This is particularly so when competition is promoted at multiple layers of the value chain, using a variety
of overlapping regulatory instruments”.
68
This is all the more dangerous since NRF has extended the potential of regulation in two ways: first, by enlarging
the scope of regulation from telecommunications networks to all electronic communications networks in order to
take into account of the convergence (thereby including media infrastructure for example), and second, by changing
the regulatory paradigm from the original sin (i.e. regulation limited to infrastructure deployed under legal
monopoly) to the relative efficiency of antitrust remedies compared to sector regulation remedies (thereby extending
potential regulation to infrastructure developed under competitive conditions).
69
Melody (2000). See also Sidak (2003:207) who observed that, the number of pages in the official compendium of
the US Federal Communications Commission decisions and proceedings has nearly tripled since the passage of the
Telecommunications Act, while the membership in the Federal Communications Bar Association increased by 73%
between 1995 and 1998 and has remained essentially at that level.
10
Legal certainty
At this stage, the application of the 2003 Framework has not led to more legal certainty because
the operators do not know with sufficient confidence if and how they will be regulated. Indeed,
the regulatory agencies do not have a clear strategy and it is difficult to determine their positions
on two fundamental and related questions: whether the regulator should actively promote entry or
merely prohibit abuse of dominant position and whether the regulator should promote
infrastructure competition or service competition70. In practice, the European Regulators Group
and the Commission71 argue that there is no conflict between both types of competition when the
time dimension is taken into account and that NRAs should provide incentives for competitors to
seek access from the incumbents in the short term and to build their own infrastructure in the long
term. However, this ladder of investment theory is not easy to apply in practice and does not
evacuate the balance to be made between short-term and long-term considerations. Some go even
further and argue that the theory is based on false presumptions that a national regulator might
micro-manage the industry and that they will stick to the theory over time72. This absence of clear
strategy is particularly damaging for emerging markets, whose status is largely unclear under the
2003 Framework73.
This lack of legal certainty may be explained by several reasons. First, the hard-law of the 2003
Framework does not give clear and unambiguous indications to solve the main regulatory
questions like the type of competition to promote74. Indeed, the three objectives of the
Framework Directive look more like a catalogue than a coherent statement. Moreover, it is based
a wrong underlying assumption that the use of antitrust principles would solve such questions.
Unfortunately, these principles do not deliver more legal certainty75, and on the contrary, may
increase uncertainty because they create a confusion between the objectives of antitrust (maintain
a competitive structure that is broadly satisfactory) and the objectives of sector regulation
(improve the competitive structure by stimulating entry in the market). Second, the
accompanying soft-law instruments do not provide clear objectives because regulatory agencies
are reluctant to commit to a particular strategy as they face high uncertainty about future
technological and market evolutions and face the intense lobbying in contradictory directions.
Third, multiple regulatory agencies with overlapping competence are involved, leading to
possible jurisdictional conflict and forum shopping between regulators76. Fourth and transitorily,
the 2003 Framework is not based on practical experiences but more on theoretical models which
implies an inevitable learning curve for the regulatory agencies.
70
On that question, see Dobbs and Richards (2004:718); Hocepied and de Streel (2005:151).
Common Position on remedies, at 64; Monti (2004).
72
Oldale and Padilla (2004:71-76); Hausman and Sidak (2005).
73
See Recital 27 of the Framework Directive, Guidelines on market analysis, para 32, Recommendation on relevant
markets, recital 16, Common Position on remedies, at 20 and 89. On the one hand, regulatory actors note that
emerging markets should not be subject to inappropriate obligations as that may unduly influence their competitive
developments and undermine investment incentives. On the other hand, they note that intervention might be justified
to alleviate foreclosure of such emerging markets.
74
Hocepied and de Streel (2005).
75
Indeed, the application of the antitrust principles to a specific case is far from clear, all the more so that many of
them went recently under a fundamental reform toward a more economic approach: Communication from the
Commission of 20 April 2004, An pro-active competition policy for a competitive Europe, COM(2004) 293.
Although the same uncertainty is generated by the use of antitrust concepts in competition policy and in sectoral law,
the effects of this uncertainty is more damaging under the latter than under the former because sectoral law is more
prevalent.
76
Geradin (2004); Larouche (2005).
71
11
In addition of the uncertain strategies of the regulatory actors, many of their decisions are now
appealed and that increase again legal uncertainty. As noted in the Annex I, 16 of the NRAs
decisions (or 12%) have already been appealed, and they are concentrated on some markets (like
market for wholesale mobile termination) or some countries (like Austria and Sweden among the
ones that have already done most of their market analysis). More generally, the Commission
noted that NRAs decisions are nearly systematically appealed in six Member States 77.
There may be more appeal for at least three reasons. First, the scope of judicial review has been
broadened to include the merits of the case78. Second, the incentives to appeal have been
increased by the alignment of the SMP regime with competition law methodologies. Indeed, if an
operator is designated as having SMP, it will probably be presumed to have a dominant position
in an antitrust proceeding as well79. Hence, the operator has a double incentive to appeal the
NRA’s decision: to lift regulation, and also not to be presumed as dominant in a possible antitrust
action80. Third, in many countries, the appeal of regulatory decisions is now located at a court
specialised in antitrust law, which might be more inclined to strictly review and possibly set aside
NRA decisions81.
Subsidiarity and harmonisation
In the context of electronic communications, the principles of subsidiary and harmonisation
imply a more harmonised regulatory culture but not necessarily for all market segments.
Applying the theory of fiscal federalism, more harmonisation is needed for mobile regulation82
but not for broadband because national conditions vary in respect to competition from alternative
infrastructures, national preferences may vary and there is a gain from having competition
between different regulatory models83. In any case, the principles of harmonisation and
subsidiarity are surely better fulfilled than under the previous 1998 regulation. National
regulators follow in general (in 77% of the cases so far) the market definitions proposed by the
Commission in its Recommendation and divergences concentrate on some specific markets (like
the broadcasting transmission services) or in some countries (like the United-Kingdom). NRAs
are also going towards a common approach on remedies for all the major regulatory issues, like
the use of ladder of investment84 and the possible inclusion of cable in the bitstream market85, the
use of Long Run Average Incremental Cost as a basis for price control 86, the need to impose price
regulation (possibly with a glide path) on the wholesale market for mobile termination 87, the need
77
Belgium, Germany, Greece, the Netherlands, Portugal, Sweden : Annex of the 10th Implementation Report, at 13.
See also the indications in BIICS (2004) and ECTA (2004).
78
Compare Article 5a(3) of the previous ONP Directive 90/387 as modified by Directive 97/51 with Article 4 of the
Framework Directive.
79
Note however, that a SMP designation does not automatically imply a dominant position: Guidelines on market
analysis, para 30.
80
All the more so if antitrust private enforcement increase in Europe as very much promoted by the Commission.
81
For instance in Belgium, the appeal against BIPT’s decisions has been moved from the Council of State to the
Appeal Court of Brussels.
82
Hazlett (2003). However, Cave and Crowther (1996:730) are more sceptical.
83
Brennan (2003). There is an exchange of best practices in the context of the national broadband strategies Action
Plans.
84
Broadband market competition report of 25 May 2005, ERG(05) 23. It is notes that Germany would then on also
apply the ladder of investment.
85
ERG Revised Common Position of 25 May 2005 on Bitstream access, ERG(03) 33rev2.
86
See the forthcoming Commission Recommendation on accounting separation and cost accounting that was heavily
discussed inside the ERG.
87
IRG Principles of Implementation and Best Practices of 1 April 2004 on the application of remedies in mobile
voice call termination market.
12
to remove any regulatory impediments to the development of Voice over IP (in particular
regarding numbering and access to emergency service)88, and the need to regulate wholesale
international roaming in case of collective dominance89.
The key elements of this improvement were the reforms introduced by the 2003 Framework and
their proper functioning in practice90. First, there are good interactions inside the European
Regulators Group that make emerging an esprit de corps between the NRAs and the
Commission. Second, the Commission has a considerable influence with its the Article 7 review
powers and has already veto five draft decisions (all of these vetos having been backed by the
majority of the Member States when voting in the Communications Committee91) and lead to six
others withdrawal before veto. That makes a total of 11% of the draft decisions analysed so far
that have been withdrawn because of the Commission review. Third, the use of the strongly
Europeanised antitrust principles for sector regulation helps harmonisation.
However, some problems remain. First, the co-ordination mechanisms between NRAs are mainly
voluntary and could not impede the remaining divergences reflecting different national
circumstances but also different confidence in regulation to solve competition problems (as
illustrated by the different regulatory index across Member States in Annex I). The most
outstanding example of such divergence is the approach recently followed by the British
regulator that plans to impose a quasi structural separation on BT in exchange of a removal of
retail regulation92. Other divergences remain with regard to the regulation of mobile access and
origination market (where some countries want to impose compulsory access in favour of Mobile
Virtual Network Operators93 whereas the majority and the Commission are against) and mobile
termination (where some countries want to refrain from regulation94 whereas the majority and the
Commission want to intervene). Second, no specific cooperation mechanism is set up between
national courts. Thus, these increasingly important actors may only rely on the preliminary ruling
procedures (taking two to three years to be solved which is inadequately long for a fast moving
sector like electronic communications), or informal routes like commentaries of judicial decisions
published in books and periodicals or pleading of advocates.
The lack of common regulatory culture under the previous regulation and the remaining problems
under the current one have been blamed as the cause of the lack of an internal market for
electronic communications in Europe. Indeed, there are few pan-European offers, few European
operators (except Vodafone and Orange in the mobile segment), few trans-national markets95, and
88
ERG Common Statement of February 2005 for VoIP regulatory approaches, ERG(05) 12.
ERG Common Position of 25 May 2005 on the Coordinated analysis of the markets for wholesale international
roaming, ERG(05) 20.
90
10th Implementation Report, at 11.
91
For the first two vetos FI/2003/24 and FI/2003/26: 11 favour, 3 against, 1 abstention; For the third veto
FI/2004/82: 5 favour, 1 against, 12 abstentions (the increase number of abstentions may be explained by the fact the
second vote took place after the enlargement and that many NRAs of the new Member States did not have started the
market analysis); For the fourth veto AT/2004/90: 5 favour, 2 against, 17 abstentions; For the fifth veto
DE/2005/144: 10 favour, 1 against, 9 abstentions (the large number of favourable vote may be explained by the fact
that many NRAs fear that if the German draft decision was not vetoed, their own approach may be at risk). Note that
the fourth veto has been contested by the Austrian NRA in June 2005 at the Court of Justice in a validity action under
Article 234 EC.
92
Ofcom (2005a).
93
Like France and Ireland.
94
Like Germany.
95
All the relevant markets defined by the Commission in its Recommendation are national or infra-national.
However, the Commission is looking at the possibility to identify a relevant trans-national market for broadcasting
transmission services via satellite platforms.
89
13
the provision on cross-borders disputes have never been relied upon so far96. However, I submit
that the absence of internal market is mainly due to a lack of pan-European demand (at least for
residential users), an absence of common authorisation procedure in particular for the granting of
the right of use of spectrum and numbering97, a reluctance of government which are still
influential on many incumbents to encourage European consolidation98, and a lack of European
perspective by the Commission when adopting antitrust decisions99. Thus, I do not think that the
remaining problems under the 2003 Framework are the main cause of the lack of European
integration in the electronic communications sector.
4. Program for Reform
On the basis of this initial assessment, I propose a roadmap for changes to ensure that the SMP
regime better fulfil the six governance principles and to ensure a better performance of the
electronic communications sector and ultimately of the whole European economy. This is timely
as three important reviews should be achieved in the near future: a revision of the Common
position on remedies by the European Regulators Group by end of 2005, a revision of the
Recommendation on relevant market by the Commission by mid-2006, and more fundamentally a
revision of the Directives proposed by the Commission by end 2006 and later decided by the
Council and the European Parliament by 2009.
Flexibility and transparency
These principles are broadly achieved and few has to be improved. However, the Commission
could initiate in the Communications Committee an exchange of best practice on procedural
issues regarding NRAs100. Three issues may be analysed. The first issue is the characteristics of
NRAs101: independence with regard to operators but also to the government, mode of financing,
staffs expertise. The second issue is the procedures to be followed by the NRAs (public
consultation, motivation, and confidentiality of business secrets) and their relationship with the
overall administrative structure and law of the Member State. The third issue is the relationship
between NRAs and NCAs. Although there is no one-best model on this issue102, it seems that two
authorities that compete against each other may be more efficient that conjoint decision by two
authorities or only one authority deciding103. On the basis of such an exchange, the Commission
96
Article 21 of the Framework Directive. This lack of European consolidation is all the more surprising that it was
the main objectives of the liberalisation program launched nearly 20 years ago: Communication of the Commission
of 30 June 1987, Towards a Dynamic European Economy: Green Paper on the Development of the Common Market
for Telecommunications Services and Equipment, COM (87) 290. Moreover, the absence of EU consolidation is in
sharp contrast with what is happening in the US. Indeed, in Europe, there was only one successful cross-border
merger between previous incumbents (Telia/Sonera), whereas in the US, two major acquisitions occurred solely in
2005, although they still under regulatory review (SBC/AT&T; Verizon/MCI).
97
Articles 5 to 8 of the Authorisation Directive and Decision 676/2002/EC of the European Parliament and of the
Council of 7 March 2002 on a regulatory framework for radio spectrum policy in the European Union (Radio
Spectrum Decision), OJ [2002] L 108/1.
98
For instance, the Italian opposition of a take over of Telecom Italia by Deutsche Telekom.
99
Very long delay to tackle case of particular European interest like the international roaming, and over-protection of
small national players, like the conditions imposed in Commission Decision of 12 April 2000,
Vodafone/Mannesmann M. 1795.
100
As advocated by Nicolaides (2005). BIICL (2004) proposed a best practice model for regulatory proceedings.
101
See the different contributions in Geradin, Munoz and Petit (2005).
102
OECD (1999), ICN (2005).
103
Laffont and Martimort (1999); Barros and Hoernig (2004) show that it is more efficient that both authorities
decide a case independently than jointly for three reasons. First, the probability that cases are solved is highest with
independent decisions, even though each authority may give less attention to the case than it was alone. Second,
14
could adopt Recommendation on best procedural practices, which may be the prelude to a more
complete harmonisation of national procedures that should inevitably follow harmonisation of
substantive rules.
In addition, give the enhanced role of the European Commission in the regulation of the sector
and its relative weak scrutiny and accountability (compared to the NRAs), I suggest the
Commission should provide a report on its own activities, goals and achievement to be included
in its annual implementation report. Moreover to alleviate any conflict of interest and ensure
fresh new thinking, a panel a high level experts directly reporting to the European Council could
evaluate the performance of the sector, the functioning of the regulation and the roles of the
regulatory actors (in particular the Commission which is otherwise never evaluate by an external
body) before each major Review of the regulatory framework104.
Minimum regulation
As above, I distinguish between the level of retail economic regulation, the level of wholesale
economic regulation, and the regulatory procedures. The economic retail regulation should in
principle be completely phased out (unless there are exceptional national circumstances)105
because there is no need to add an additional retail regulation if there is appropriate intervention
at the wholesale level and because retail markets are more and more competitive with the
development of Voice over IP (for which any regulatory impediment should be removed) and the
increasing substitution between fixed and mobile voice offers. Therefore, the Commission should
remove106 the markets 1 to 6 from the next Recommendation107, which could be a strong political
signal that it really want to apply deregulation.
The level of wholesale economic regulation should be re-calibrated and should decrease overall
over time. NRAs and the Commission should change their attitudes and align their behaviour to
their deregulatory rhetoric. Thus about market definitions, the Commission should remove four
wholesale markets from the Recommendation. It should remove the markets for fixed transit108
and for trunk segment of leased lines (markets 10 and 14) because the common cost of the core
network may be shared between important traffic except on thin routes and the economic entry
barriers are limited (hence the first selection criterion is not fulfilled)109. The Commission should
also remove the markets for mobile access and call origination 110 and for international roaming
(markets 15 and 17) because there should have enough competition behind the legal barriers as
Member States have on average three to five mobile operators and the competition will increase
independent decisions are less vulnerable to lobbying. Third, it is also less likely that no authority feels responsible
for a given case.
104
Similarly to what Sapir (2004) did for the Lisbon Strategy.
105
This is without prejudice of the retail social regulation imposed via the universal service scheme.
106
A removal f a market from the Recommendation does not imply that the NRA could not regulate such market any
more but implies only a higher burden of proof to intervene (because the NRA has to prove that the three selection
criteria are fulfilled and the Commission may veto such selection).
107
Note that market 7 related to the minimum set of retail leased lines should be maintained according to Article 18
of the Universal Service Directive. That is more related to social regulation than economic regulation.
108
The Commission anticipated such removal by noting that depending on the experience gained over the
implementation, the need for the transit market’s continued inclusion will be assessed: Explanatory Memorandum of
the Recommendation on relevant markets, at 19.
109
Kobolt (2003).
110
The Commission anticipated that this market could be removed in the future recommendations: Explanatory
Memorandum of the Recommendation on relevant markets, at 30.
15
with 3G rollout (hence the second selection criterion is not fulfilled)111 and because any
remaining competitive problems could be better dealt by the introduction of spectrum trading112
and by the use of competition law (hence the third selection criterion is not fulfilled either)113.
In addition, the Commission and the NRAs should clarify the status of any emerging markets.
They should guarantee that regulation would not delay the introduction of new services 114 but at
the same time ensure that incumbents do not re-monopolise markets. Five situations should be
distinguished115: (1) established service running on legacy infrastructure (e.g. voice over fixed
copper pair) should be regulated according to the normal SMP process; (2) emerging services
running on legacy infrastructures (e.g. ADSL based over fixed copper pair) should not be
regulated but only subject to competition law (and any leverage would be prevented by regulating
the legacy infrastructure if necessary); (3) established services running on new infrastructure (e.g.
voice over mobile 3G network) should be regulated according the normal SMP process because
of the technological neutrality principle; (4) emerging services running on new and replicable
infrastructures (e.g. mobile broadband over 3G networks) should never be regulated; and (5)
emerging services running on new and non-replicable infrastructures (broadestband data over
fixed fibre network) should be given access holidays or be under ‘open access regulatory
compacts’ leaving operator the freedom the set the level of prices but setting a structure of prices
such that the operator can not foreclose its competitors on related markets116.
About remedies, NRAs should not only focus on the five remedies listed in the Access Directive
(transparency, non-discrimination, accounting separation, compulsory access, and price control),
but they should think also at other types of remedies that may lead to sustainable deregulation117.
For instance, the mobile termination competitive problem could possibly be solved once and for
all by a change in the tariff principles and the introduction of multiple SIM cards instead of
imposing price control that may last for ever118. If they have to choose among the list of five,
NRAs should more forcefully apply the principle of proportionality and not systematically
imposed the full suite.
111
Note that this argument supposes that the wholesale international roaming market comprises all the national
mobile networks, which is the definition adopted by the Commission in the Recommendation on relevant markets in
February 2003 and by the ERG in its Common position on wholesale international roaming in May 2005. However,
it is not the definition adopted by the Commission in the Statements of Objections against O2 and Vodafone for
excessive prices in the UK (IP/04/994 of 26 July 2004) and against T-Mobile and Vodafone for excessive prices in
Germany (IP/05/161 of 10 February 2005) where it considered that each network constituted a relevant market.
However, the Commission was careful to note that these narrow market definition were partly due to the absence of
traffic direction technologies and only valid for the past period to which the cases relate and not necessarily for the
future.
112
Valletti (2003).
113
OPTA (2005) referring to the market for wholesale international roaming.
114
Which can be very costly as demonstrated by Hausman (1997). He valued the delay of the introduction of voice
messaging services from late 1970s until 1988 at US$ 1.27 billion per year by 1994, and the delay of the introduction
of mobile service at US$ 100 billion, large compared with the 1995 US global telecoms revenues of $180
billion/year.
115
Ovum and Indepen (2005) and de Streel (2004b). See also Ofcom (2005b).
116
Note that the German regulator decided to exclude fibre from the regulation of wholesale market for unbundled
local loop and to remove regulation imposed on fibre. See Commission Decision of 22 December 2004,
DE/2004/119 and Commission Decision of 23 March 2005, DE/2005/150.
117
Article 8(3) of the Access Directive provides for the possibility to impose remedies outside the list of five with the
prior agreement of the Commission.
118
de Bijl et al. (2005), Crandall and Sidak (2004), Valletti (2003).
16
The NRAs should also make the ladder of investment operational. To do so, they may follow
seven steps119: (1) deciding which of the value chain products are clearly non-replicable, (2) rank
components of the value chain according to their replicability by evaluating empirical evidence or
modelling cost structure, (3) identify where on the ladder incumbents and entrants are located, (4)
determine the scope of progression of entrants over the period of intervention, (5) choose the
mode of intervention by price and/or quantity instruments, (6) calibrate the intervention with a
date on which mandatory access ceases, (7) and make a credible commitment to the policy.
NRAs identify where on the ladder all firms (incumbents and entrants) are located and determine
the likely investment possibility of actual and potential entrants at that point. In doing so, the
NRAs should alleviate the multiplication of the number of rungs. For instance in countries where
cable penetration is high, bitstream should not be imposed.
Finally to ensure minimal regulation, regulatory procedures should be simplified. For the second
round of analysis, the NRAs should not be required to do a fresh analysis again but to concentrate
on markets where substantial modifications have taken place. In addition, the Commission could
signal in a general Guidelines what are the critical points the NRAs and the operators should be
wary like (1) the treatment of Voice over IP or cable for market definition; (2) the application of
the greenfield approach (i.e. not take into account the regulation on place on the analysed
operator120) and the treatment of captives sales for market power assessment; and (3) the
imposition asymmetric remedies to operators active in the same relevant market, the use of glide
path for price control and the imposition of wholesale line rental for the choice of remedies. All
other issues would normally not be reviewed, which would be a generalisation of the
Commission practice not to comment some notifications and be similar to the block exemptions
used in Article 81 EC and in State Aids control121.
Legal Certainty
To achieve more legal certainty, the regulatory actors (NRAs and Commission alike) should state
their strategy more clearly by deciding on the difficult political choice between infrastructure
competition and service competition, by clarifying if sector regulation should and for how long
actively promote entry, and by showing how and when the deregulation of the sector would
happen. In particular, this regulatory strategy should clarify status of emerging markets and the
use of the ladder of investment along the lines proposed before. This could be best done in softlaw instruments like the forthcoming revised Common Position on remedies122. In addition, the
regulatory actors should clarify the differences between competition law and sector regulation
and that an alignment of methodologies does not entail an alignment of objectives123. For
instance, antitrust law perceives market individually whereas sector regulation analyses clusters
of markets and antitrust law only maintains the state of competition whereas sector regulation
actively promotes entry and support less efficient entrant at the beginning (infant industry
rationale)124. That could be done in a Recital of the Framework Directive to have sufficient legal
119
Here, I follow Cave (2004b).
On this approach Di Mauro and Inotai (2004).
121
Indeed, it is efficient to have an ex-ante control only if the cost for the Commission to force NRA to change
decisions afterwards and the cost of regulatory errors are high: Barros (2004).
122
In its 2005 Work Program ERG(05) 04, the ERG committed to address in the future Common Position on
remedies: asymmetric regulation in the same relevant market, criteria for assessing replicability to apply the ladder of
investment, non-price related discrimination by SMP operator, and emerging markets.
123
The position of the then Competition Commissioner Monti was ambiguous on that point: Monti (2004).
124
In this sense implicitly, Geradin and O’Donoghue (2005). However, the respective objectives of competition law
and sector regulation is a very difficult issue because the objectives of competition law is not that clear, in particular
120
17
force and by a strengthening of the relevant paragraphs of the Commission Guidelines on market
analysis125.
To alleviate that a multiplication of lengthy appeals undermines legal certainty, a certain
harmonisation of procedural rules should follow the harmonisation of substantive rules, albeit to
a limited extend because of the principle of procedural autonomy of the Member States 126. Thus,
Commission should propose minimum procedural appeal rules by extending the relevant
provision in the Framework Directive127. That should be complemented by an exchange of best
practices inside the Communications Committee128. For instance, an internal appeal at the NRA
should be excluded, the number of levels of possible appeal on the merits should be limited to
one, the control of the appeal body on the NRAs should be of an administrative nature similar to
the one done by the Court of First Instance on the Commission decisions on antitrust matters 129,
the appeal should be prompt, and the rules for locus standi should be sufficiently clear. On that
basis, the Commission could have a section on appeals process in its Recommendation on best
procedural practices mentioned earlier.
Harmonisation
We have seen that it would not be efficient to strive for a complete harmonisation of every
market segment and that the absence of a single electronic communications market is mainly due
to elements that are outside the SMP regime. Therefore, it would be appropriate first to reform
these elements by ensuring an increased use of the country-of-origin principle and a more
harmonised approach for authorisation to enter the market (in particular for granting right of use
of radio frequencies and numbering130), by making the case to national governments in favour of
a European consolidation, and by ensuring that the Commission adopts a European market
approach when deciding antitrust cases.
Regarding the SMP regime as such, a first concern is the emergence of a European regulatory
culture among the regulatory authorities. This is taking place now thanks to both the Commission
and the European Regulators Group. It may happen that in the future one of the two institutions
will take the lead as a two-heads leadership is unstable. Then it will be important that such leader
institution has first class expertise, a true European vision and be sufficiently accountable.
Alternatively, if such leadership institution does not emerge naturally, it might be appropriate to
reflect upon a move from the current system of a partnership of national bodies to a system of a
steered network131. The institutional aspects of the electronic communications regulation would
then be aligned to those resulting from the competition law decentralisation where the national
authorities are the main agent to implement the law, but the Commission may decease and decide
a case instead if necessary132. Such move would imply the use of other EU legal instruments than
in dynamic market (where it has been that it should actively promote entry: Conseil de la concurrence, 2003 and
Audretsch et al., 2001).
125
Recital 27 of the Framework Directive and Section 1.3 of the Guidelines on market analysis.
126
See note 36.
127
By extending Article 4 of the Framework Directive.
128
I mainly follow here the best practice model proposed by BIICS (2004). See also the indications in ECTA (2004).
129
TetraLaval C-12/03P [2005] not yet reported, para 39: review if the supporting information are accurate, and if
the rationale is internally consistent and in line with the economic theory. Lasok (2004) is also in favour of a similar
proposal.
130
See forthcoming Commission strategy for efficient spectrum management in 2005.
131
Following the expression of Sapir (2004).
132
Article 11(6) of the Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on
competition laid down in Article 81 and 82 of the Treaty, O.J. [2003] L 1/1 and para 50-57 of the Commission
Notice of 30 March 2004 on cooperation within the Network of Competition Authorities, O.J. [2004] C 101/43.
18
Directives to justify such direct intervention of the Commission, but would not violate the
institutional balance provide by the EC Treaty. A more radical option that has been advocated in
the past would be to provide for a European regulator equivalent to the US Federal
Communications Commission133. However, that seems to me neither needed nor politically
feasible at this stage134.
A second concern is the emergence of a European culture among the judicial bodies. This is not
happening yet because the 2003 Framework did not provide for any specific co-ordination
mechanisms. Therefore, I suggest that national courts set up informal devices to exchange
information and best practices135 and that mechanisms similar to those of antitrust
decentralisation are established (like the possibility of the Commission to intervene as amicus
curiae in the national court proceedings136).
5. Conclusion
When the new Significant Market Power regime was introduced in July 2003, I noted that: “La
route de l’enfer est pavée de bonnes intentions. Surely, the new European regulation for
electronic communications and the alignment of the SMP regime on antitrust methodologies is
based on sound premises. It should deliver a more flexible, efficient and economic regulation.
But it carries several dangers, like dis-harmonisation or increase in regulatory costs, which may
lead the sector to the Hell. It is up to all the actors, in particular the NRAs and the National
Courts, to alleviate these dangers”137. Two years after, it seems that these dangers have been
largely alleviated and that the SMP regime is performing relatively well. Therefore, I do not think
that nor its substantive neither its institutional rules should be radically revised during the
forthcoming 2006 Review. However, some adaptations of the hard and soft law may be done to
ensure that it delivers better on governance principles.
As summarised below, I suggest that:
(1) A high-level panel of independent experts should evaluate the performance of the sector, the
functioning of the regulation and the roles of the regulatory actors (in particular the
Commission) and report to the European Council before each review of the regulatory
Framework;
(2) The revised ERG Common Position on remedies clarifies regulatory strategies, in particular
for emerging markets, with a deregulatory perspective;
(3) The revised Commission Recommendation on relevant markets is removed from all retail
markets and four wholesale markets;
133
In favour of a European regulator: see Geradin and Petit (2004:61); Kiessling and Blondeel (1998:591); Melody
(1999:20); Worthy and Kariyawasam (1998).
134
This proposal was already rejected during the previous 1999 Review by the Commission on the basis of
Eurostrategies and Cullen (1999) and its long term ambivalence towards the creation of European Agency with
which it may have to compete (Geradin and Petit, 2004), as well as by the Council as encroaching the powers of
their own NRAs.
135
Possibly inside the European Judicial Network although this forum is mainly suited for cross-border disputes and
not so much to ensure consistency of decisions concerning purely internal disputes: Council Decision of 28 May
2001 establishing a European Judicial Network in civil and commercial matters, O.J. [2001] L 174/25; see also:
<http://europa.eu.int/comm/justice_home/ejn/index.htm>.
136
Article 15 of the Council Regulation 1/2003, and Commission Notice of 30 March 2004 on the co-operation
between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, O.J.
[2004] L 101/54. This amicus curiae procedure may be heavy as it requires a decision of the Commission.
137
de Streel (2003:40).
19
(4) The revised Framework Directive clarifies the differences between antitrust analysis and
sector regulation analysis and provides for some minimal harmonisation of appeal
procedures;
(5) The revised Guidelines on market analysis expand on the difference antitrust and sector
regulation and clarifies that sector regulation alignment on antitrust methodologies do not
entail an alignment on objectives;
(6) The annual implementation reports should include a section evaluating the activities of the
Commission in the electronic communications sector;
(7) Two new documents are adopted by the Commission: a Notice on Article 7 review listing all
the problematic issues and how they should be dealt with noting that others issues would
normally raise no comments from the Commission and a Recommendation on best procedural
practices.
Table 2: Possible reforms in the context of the 2006 Review
Revision of existing documents
Common Position on
remedies
(European Regulators Group:
end 2005)
- Insist on removal of retail regulation and a progressive decrease
wholesale regulation
- Clarify ladder of investment
- Clarify emerging markets
- Investigate remedies outside the list of five that may be de-regulatory
Recommendation on relevant - Insist on cluster analysis
- Remove all retail markets (1 to 6)
markets
- Remove some wholesale markets (10, 14, 15, 17)
(Commission: mid 2006)
Framework Directive
(Commission: mid 2006)
(Council + EP: 2009)
- Clarify the consequence of the use of antitrust methodologies
- Minimal harmonisation of national procedures: Possibility for the
Commission to intervene as amicus curiae before a National Court, limit
the appeal
Guidelines on market
analysis
(Commission)
- Make clear that sector regulation alignment on antitrust methodologies
do not entail an alignment on objectives
Annual Implementation
Report
(Commission)
- Impact assessment Report on the Commission activities in the sector
New additional documents
Impact Assessment of
Commission activities
(High Level Experts)
Evaluate the performance of the sector, the functioning of the regulatory
framework, and roles of the regulatory actors (in particular the
Commission)
Guidelines Article 7 review
(Commission: end 2005)
List critical issues to be analysed by the Commission:
- Market definition: VoIP, cable
- SMP assessment: greenfield approach, captive sales
- Remedies: asymmetric remedies, use of glide path in price control,
wholesale line rental
Recommendation on best
procedural practices
- Best practice on national regulatory authorities, in particular on the
relationship between NRA-NCA
20
(Commission)
- Best practice on appeal procedures
21
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24
ANNEX I: INTENSITY OF REGULATION TO BE CROSS-CHECKED
1998 Regulatory Framework – EU15
BE
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
Nvi
1
H
0
DK
1ii
Hiii
1
H
0
0
0x
17
2
H
0
0
To
15/17
11/17
1i
2
3
4
5
6
7
8
9iv
10
11
v
12
13
14
15
16
ix
0
0
0
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
2
DE
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0
EL
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0
ES
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
all
H
1
H
1
H
1
H
1
H
1
H
0
FR
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
5
H
1
H
1
H
1
H
1
H
1
H
0
IE
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0
IT
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0viii
LU
0
0
3
HM
0
3
H
0
2
H
0
2
N
0
13/17
15/17
15/17
15/17
15/17
1
H
1
H
0vii
1
H
1
H
1
H
1
H
1
H
0
NL
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
All
H
1
H
1
H
0
AT
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0
1
N
1
H
0
1
H
1
H
0
2
H
0
2
N
0
15/17
8/17
0
0
0
0
0
FI
44
H
44
H
3
H
3
H
3
H
3
H
44
H
44
H
44
H
44
H
44
H
0
SE
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
0
1
H
1
H
0
PT
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
M
1
H
1
H
0
44
H
0
0
3
0
UK
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
2
H
0
1
M
0
3xi
H
0
3
H
0
3
M
0
1
H
0
4
Hxii
0
14/17
14/17
15/17
14/17
13/17
15/17
0
Source: European Commission and Cullen International
25
2003 Regulatory Framework – EU15
BE
1
2
DK
1
Nxiii
1
N
DE
EL
ES
FR
3
4
5
6
0
7
1
H
1
H
5
HM
8
9
1
10
11
1
1
H
1xvii
H
1
H
1
Hxvi
12
13
14
15
4
H
16
3
H
IE
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
12
H
1
H
1
H
1
H
1
H
1
H
2
Mxviii
4
IT
LU
NL
AT
1
H
1
H
1
H
0
1
H
1
H
1
H
1
H
9
Hxv
PT
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
8
H
0
FI
43
M
43
M
43
M
0
SE
1xiv
H
1
H
0
43
M
0
0
42
M
46
HM
50
HM
14
M
44
HM
43
M
43
M
0
1
H
1
H
22
H
1
H
1
H
1
H
1
H
0
0
2
H
2
H
2
H
1
H
2
M
2
M
2
HM
1
H
0
3
H
4
HM
5
H
4
H
13/14
1
H
13/17
10/15
2
H
15/17
1
H
1
H
0
1
H
1
H
1
H
0
5
H
0
0
UK
2
HM
2
M
2
HM
2
HM
2
M
0
17
18
To
4/7
3/3
1/1
3/3
1
M
17/17
11/14
Source: Commission Decisions on Article 7 NRA notifications (as of August 2005)
26
2003 Regulatory Framework – EU10
CY
1
2
3
4
5
6
7
8
9
10
EE
HU
5
H
5
H
5
M
5
M
5
M
5
M
1
M
5
H
5
H
0
LT
LV
MT
PL
CZ
SK
1
H
1
H
1
M
1
H
14
5
H
5
H
1
H
0
15
0
16
3
H
3
H
2
H
13/16
1/1
6/6
11
12
13
SI
1
H
1
H
17
18
To
1/1
Source: Commission Decisions on Article 7 NRA notifications (as of August 2005)
27
Explanations
Colour
Legend
Market Segment
Value in billion euros, as of August 2004
Fixed narrowband
Fixed broadband
Leased Lines
Mobile
Broadcasting
50,76
(fixed data: 18.30
+ fixed voice: 32.46)
44.05
CaTV:
5.20xix
CaTV: 5.20
Source: Figure 6 of the Annex 2 of the 10th Implementation Report
2003 Framework
Access to the public telephone network at a fixed location for residential
customers
Access to the public telephone network at a fixed location for non-residential
customers
Publicly available local and/or national telephone services provided at a fixed
location for residential customers
Publicly available international telephone services provided at a fixed location
for residential customers
Publicly available local and/or national telephone services provided at a fixed
location for non-residential customers
Publicly available international telephone services provided at a fixed location
for non-residential customers
Minimum set of leased lines
17
1998 Framework
Fixed telephone network and services
Dir 98/10, Art.17
Fixed telephone network and services
Dir 98/10, Art.17
Fixed telephone network and services
Dir 98/10, Art.17
Fixed telephone network and services
Dir 98/10, Art.17
Fixed telephone network and services
Dir 98/10, Art.17
Fixed telephone network and services
Dir 98/10, Art.17
Minimum set of leased lines
Dir 22/44
CS/CPS
Dir 97/33, Art.12(7)
Interconnection
Dir 97/33, Art.7(1) and Annex I, 1
Interconnection
Dir 97/33, Art.7(1) and Annex I, 1
Unbundling and shared access
Reg 2887/2000
Special Network Access
Dir. 97/33, Art.4(2) and Dir. 98/10 Art.16
Interconnection leased lines
Dir 97/33, Art. 7(1) and Annex I,2
Interconnection leased lines
Dir 97/33, Art. 7(1) and Annex I,2
Special Network Access
Dir. 97/33, Art.4(2) and Dir. 98/10 Art.16
Interconnection mobile
Dir 97/33, Art. 7(2) and Annex I,3
--
18
--
Broadcasting transmission services, to deliver broadcast content to end-users
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Call origination on the public telephone network provided at a fixed location (for
voice and Internet dial-up calls)
Call termination on individual public telephone networks provided at a fixed
location (for voice call only)
Transit services in the fixed public telephone network
Wholesale unbundled access (including shared access) to metallic loops and subloops for the purpose of providing broadband and voice services
Wholesale broadband access
Wholesale terminating segments of leased lines
Wholesale trunk segments of leased lines
Access and call origination on public mobile telephone networks (MVNO)
Voice call termination on individual mobile networks
International roaming on public mobile networks
H: High regulation, incl. price control
M: Medium regulation
HM: Asymmetric regulation: High regulation for the big operators, medium regulation for the small operators
28
Regulatory Index EU15
BE
DK
DE
EL
ES
FR
IE
IT
LU
NL
AT
PT
FI
SE
UK
TOT
98 Point 14,5
FW Max
34
AV 43%
11
34
32%
13
34
38%
16
34
47%
17
34
50%
17
34
50%
14,5
34
43%
16
34
47%
7
34
21%
14,5
34
43%
15
34
44%
15,5
34
46%
14
34
41%
12
34
35%
16
34
47%
14,2
34
42%
98 Point
6
FW Max
14
AV ##### 43%
1
2
4
2
2
6
50% 100% ##### 67%
15
14
32
28
47% ##### ##### ##### 50%
14,5
26
56%
14
32
44%
12
30
40%
16
32
50%
6,6
13,6
48%
O3 Point
4,5
FW Max
14
AV ##### 32%
1
2
4
2
2
6
50% 100% ##### 67%
16
13
32
28
50% ##### ##### ##### 46%
15
26
58%
10
32
31%
12
30
40%
13
32
41%
6,0
13,6
44%
0% ##### 0%
3% ##### ##### ##### -4%
2% -13% 0%
-9%
-4%
LT
PL
COMPINCR ##### -11% 0%
Regulatory Index EU10
CZ
EE
HU
LV
MT
CY
SK
O3 Point
11,5
2
6,5
FW Max
32
2
12
AV ##### ##### 36% 100% ##### ##### ##### ##### 54%
SI
1
2
50%
Index based on 3 criteria: market regulated, operator regulated, intensity of regulation
High number indicates a high level of regulation
0: No regulation
0.5: Medium regulation on incumbent
1: High regulation on incumbent or Medium regulation on all operators
1.5: High regulation on incumbent and Medium regulation on all other operators
2: High regulation on all operators
29
ANNEX II: STATUS OF NRA NOTIFICATION AS OF AUGUST 2005
EU15
1
BE
DK
DE
EL
ES
FR
IE
*
2
*
3
*
IT
LU
NL
AT
PT
FI
*
W
*
*
V
5
*
@
W
*
7
*
8
9
W
*
6
*
@
*
V
W
*
*
*
W
10
11
UK
*
*
@
4
SE
*
*
V
*
W
*
/W
@
@
V
@
*
*
*
@
12
*
W
@
13
*
14
*
15
W
@
V
16
@
@
@
*
*
*
@
@
17
18
*
/W
30
EU10
CY
EE
HU
LT
LV
MT
PL
CZ
SK
SI
1
@
2
@
3
4
5
6
7
8
9
10
11
12
13
14
15
16
@
17
18
Source: European Commission and Cullen International
31
Explanations
High regulation (incl. Cost orientation)
Medium regulation
No regulation
SMP designation, but remedies not yet decided
Not yet decided
* : Different market definition than the Commission Recommendation
W: NRA withdrawal of its draft decision
V: Commission veto
@ : National appeal
Statistics
Workload done : 133/450 or 30%
Different market definition than the Commission Recommendation: 31/133 or 23%
Withdrawal of NRA draft decision (after a Commission veto or not) : 15/136 or 11%
National appeal cases: 16/133 or 12%
i
In general, regulation with a retail price-cap on tariffs of markets 1-6.
Subject to Universal Service Obligation, which theoretically does not depend of SMP status.
iii
Only call set-up is regulated, not the per minute charge.
iv
Increased regulation with dispute resolution.
v
Regulation introduced at the EU level in 2000.
vi
No intervention of the regulator.
vii
But obligation to provide access to service provider.
viii
But competition law action for refusal to give access to MVNO and excessive MTR.
ix
Increased regulation with the strict application of Dir. 97/33 or licence conditions.
x
Informal pressure of the NRA for MTR reduction.
xi
Obligation of fair price for all.
xii
Intervention under the Licence conditions.
xiii
No regulation as other remedies suffice.
xiv
VoIP is not included.
xv
Asymmetric price regulation, i.e. lighter price control for small operators.
xvi
Fibre is not regulated.
xvii
Cable is not included.
xviii
Price control will be imposed if commercial negotiation fails.
xix
The cableTV segment cover market 12 (in the fixed broadband segment) and market 18 (in the broadcasting
segment), but is not regulated in either of the segment so far.
ii
32