INTUG
ERG - European Regulators Group


Harmonisation and the single market


31 December 2002



Introduction

Based on the Framework Directive (2002/21/EC), the European Commission, adopted a Decision establishing the European Regulators Group (ERG):
The Group should provide an interface between national regulatory authorities and the Commission in such a way as to contribute to the development of the internal market. It should also allow cooperation between national regulatory authorities and the Commission in a transparent manner so as to ensure the consistent application in all Member States of the regulatory framework for electronic communications networks and services.
Official Journal of the European Communities L 200/38  [30.7.2002 ]
At its inaugural meeting of 25 October 2002, the European Regulators Group (ERG) requested comments from market players:
... on their priorities for areas where there is a need of harmonisation of regulatory measures taken in Member States.
press release
The Independent Regulators Group (IRG) had demonstrated an early recognition of the need for harmonisation in the eventual implementation of the new telecommunications legislative package. It made the following commitment in its letter of 20th October 2000 to the then Director-General:
More generally, members of IRG within the limits of their respective competences are committed to making the maximum efforts to promote harmonised implementation of the package of regulatory measures now under consideration in Council and Parliament. IRG believes that the exchange of experience among IRG members and development of common views on essential issues will in practice contribute to a harmonised implementation. IRG intends to take the initiative in drafting such common views, in advance of final agreement on the legal texts, so that they will be ready when the new legal measures come into effect.
http://www.pts.se/dokument/getFile.asp?FileID=1944
INTUG Europe sets out in this paper the importance of harmonisation, together with the necessary and proportionate steps for its achievement. It emphasises the essential work of eliminating persistent market abuses, notably in the mobile sector, which is necessary to achieve the single market. The primary aim must be the systematic removal of the barriers to pan-European services in order to stimulate competitive markets.


The political case

The political objectives of the creation of the internal market are set out in the Single European Act and in the Treaty, in particular, in Article 3.

At the Lisbon Summit in 2000, the daunting challenge was set that Europe become:
... the most competitive and dynamic knowledge-based economy in the world capable of sustaining economic growth with more and better jobs and greater social cohesion.
Such an economy runs on an infrastructure of telecommunications, supplied from competitive markets.

In reaching the political compromises necessary to adopt the new telecommunications directives, the Council and Parliament in December 2000, set out a clear view on harmonisation. Key measures included limits on the veto power of the European Commission and an increased reliance on collaboration and harmonisation between the National Regulatory Authorities (NRAs). It now falls to the European Regulators Group to play its significant role in achieving harmonisation in order to facilitate these very ambitious objectives.

Telecommunications is not a single market, it is far too fragmented. This is clear from experience and is documented in the Eighth Report on the Implementation of the Telecommunication Regulatory Package (COM(2002)695). It will only become one through the active pursuit of that goal by regulators working to eliminate barriers.

The very different national regulatory regimes and the enduring dominance of incumbent operators -- many still with governments as shareholders -- means that markets remain strongly national. The persistent diversity and even peculiarity of national arrangements is a message brought out very clearly in the annual reports on regulatory implementation and reinforced in the national hearings. There have been and remain enormous variations in the ways in which member states have adopted and adapted the "old" legislation.

The new legislation contains the potential for far greater variation. Governments and NRAs could, very easily, go off in quite different directions. If this happens, then the limited harmonisation that we have could be undone and achievement of the single market put off for years.

It will take time and hard work to achieve greater harmonisation. However, that time will be a delay in achieving the objectives of the Lisbon Declaration and the single market. To make matters worse, the delays are concatenated, first the removal of barriers, then the offering of services and only then adoption by business; often with SMEs taking longer. Consequently, it is imperative to act quickly.

The ERG starts from a strong position. There has been considerable work in the ONP Committee and now the Communications Committee on the sharing of best practice. There has also been the work of the Independent Regulators Group (IRG) on Principles of Implementation and Best practice (PIBs).

Nonetheless, there are dramatic differences in the performances of member states in broadband Internet access. The statistics would suggest that entirely different regulatory regimes existed. Yet a single Regulation on Unbundled Access to the Local Loop took effect across the European Union in January 2001. The wide variations have been caused by the very different manners in which member states, NRAs and incumbent operators have responded.

If this story is repeated with the new directives, then a single market in telecommunications may never be achieved.


The economic case

The aim of the Single European Act and subsequent legislation has been to create a single market, to obtain the benefits of the economies of scale of a market of nearly 400 million people. This is essential to achieve the economic growth and dynamism that are the prerequisites for the political objectives. 

The traditional comparison has been between the European Union and the USA. However, China has now overtaken the United States of America as the largest market in terms of numbers of mobile telephones and Internet users. Although spending per capita is much lower than in the USA it has vast scope for continued growth. Consequently, the completion of the single telecommunications market has become even more important for Europe.

The new telecommunications legislation provides regulatory certainty for the market players. However, this must not merely be the assurance that regulation is predictable over time, it must also be over the area of the European Union.

Where there is variation it must be for good reasons and these must be transparent and predictable.

The important role of Information and Communication Technologies (ICTs) was set out by the Commission in the adoption of the eEurope Action plans of 2002 and 2005. The role of ICTs was  also emphasised in the 2002 Competitiveness Report:
Unlike traditional types of capital investment, however, ICT represents general–purpose technology whose contribution to productivity and economic growth is greater than the direct effect of ICT producing sectors. ICT is also a central element in the innovation success of modern economies

It is essential, therefore, to identify the policies that have been responsible for good productivity growth in certain smaller EU economies in recent years. It is also crucial to identify policy and other obstacles that have delayed the adoption and diffusion of ICT, innovation and research and development. This is especially necessary in the service sector as regards the diffusion of electronic commerce and the use of ebusiness. This will inevitably require reforms in the telecommunications sector that will permit cost reductions and enlarge access across consumers and businesses.
COM (2002) 262
The penalties for failure are considerable. The Competitiveness Report 2002 indicates that Europe lost around 0.5% growth per annum in the 1990s because of obstacles to the diffusion of ICTs.

The continuation of the present fractured market will mean that business will not have access to or will not be able to make full use of the necessary infrastructure and services. This makes it more difficult to develop the services, applications and content needed to create the new markets. It also inhibits business from reducing its costs and thus increasing productivity. The overall impairment in the performance of the European economy would continue to be considerable. Without achieving these economic objectives it will be impossible to achieve the social objectives of eEurope and of the Lisbon Declaration.


The users' case

Harmonisation and the achievement of the single market have been and will remain a high priority for users. It is increasingly important for business to have access to a range of pan-European telecommunications services. Business relies upon a single market for telecommunications, stripped of its barriers and impediments, in order to service all the other sectors of the internal market. Until that is achieved, telecommunications will itself remain a significant barrier to the achievement of the internal market.

What is currently available is, at best, a patchwork of services. The few trans-national services are accessible only in major cities and are limited to fixed networks. Moreover, they are heavily reliant on regulated wholesale products, such as leased lines and call termination.

What is currently not available on the market are pan-European services for:
These have to be purchased country-by-country or as individual components, where they are available. Users then have to patch these together to make from the pieces the best service they can.

INTUG Europe believes that the present log-jam in the development of pan-European services must be broken. The removal of barriers to the development of pan-European services will stimulate markets, something very necessary for the telecommunications sector and for businesses operating regionally and globally.


Priorities for the ERG and for NRAs

It is important for the European Regulators Group to adopt procedures that will ensure both harmonisation and transparency. Regulatory certainty can be improved by greater transparency, though at the risk of strengthened and sometimes heavy-handed lobbying by vested interests. However, it may be better to handle this at the level of the ERG than to see attempts to pick off individual NRAs. It will be important to involve the European Parliament and also associations representing consumers and users as well as those of the operators and suppliers.

The new legislative package provides the means for concerted action to eliminate persistent market abuses, especially those blocking the creation of pan-European markets and the completion of the internal market. INTUG Europe places great importance on remedying the market abuses of:
This will allow users to divert spending from paying for these long-running abuses to paying for new and innovative services.

The sharing of best practice amongst the NRAs is a central role for the ERG. In this way scarce resources can be used to best effect.

The new legislative package comprises a complex set of measures:
The aim should be that, given the same inputs, different NRAs should reach broadly similar outcomes. That is they would conclude that the same operators have SMP and impose on them the same remedies. Differences will and should arise because of market conditions, rather than the manner in which NRAs consider the markets.

INTUG Europe believes that NRAs should work through the ERG to eliminate differences arising from different regulatory approaches and to achieve global best practice in regulation.

Article 8 (1) of the Framework Directive states:
Member States shall ensure that in carrying out the regulatory tasks specified in this Directive and the Specific Directives, the national regulatory authorities take all reasonable measures which are aimed at achieving the objectives set out in paragraphs 2, 3 and 4. Such measures shall be proportionate to those objectives.
The objectives being:
Since the proportionality of regulatory measures is to be tested against these objectives, it is essential to have a harmonised approach. Without that, identical market analyses could lead to the introduction of very different remedies. Here is a valuable role for the ERG.

For the same reasons there must be harmonisation in the the process of withdrawing regulatory measures carried over from the "old" directives. INTUG Europe believes that the withdrawal of such measures must take place under harmonised criteria agreed upon by the ERG.

Wherever possible, when conducting a market analysis NRAs should collect the same data using the same procedures and questionnaires.  This will lighten the workload both for themselves and for the market players. It will also make comparisons between member states much easier, which will be essential to ensure that harmonisation is being achieved.

In the medium term, the ERG, together with the Commission, will wish to develop statistics and reports to assist the process of monitoring harmonisation.

Article 8 (4) of the Access and Interconnection Directive requires that:
Obligations imposed in accordance with this Article shall be based on the nature of the problem identified, proportionate and justified in the light of the objectives laid down in Article 8 of Directive 2002/21/EC (Framework Directive). Such obligations shall only be imposed following consultation in accordance with Articles 6 and 7 of that Directive.
INTUG Europe believes that the ERG can play a vital role in discussing the linkage between the problems identified in the market analyses and the selection of effective remedies.

The ERG will also wish to recommend to the European Commission trans-national markets which it should consider for regulation under Article 15 (4) of the Framework Directive.

The ERG can play a useful role in ensuring the success of the European Telephony Numbering Space (ETNS). It would be extremely useful to ensure a harmonised approach to the implementation of this, both between member states and between fixed and mobile networks. To succeed it needs to be possible to call +3883 numbers from any telephone and at prices which are consistent and affordable. Business users are increasingly concerned, after initial enthusiasm, at the lack of progress on prices. Their plans are built not only around new applications but also the costs.


Conclusions

The implementation of the new telecommunications regulatory package must make significant steps towards a single market for telecommunications encompassing the fifteen member states, the ten accession countries and the other countries in the European Economic Area. The present patchwork quilt market must be turned into a seamless internal market. The faster this is done, the more rapidly will it stimulate growth, both in the telecommunications sector and in the wider economy.

The collapse of the financial bubble in telecommunications has damaged or destroyed many of the pan-European players, especially the newer entrants. Nonetheless, there are signs that the "nuclear winter" is ending and that at least the credit ratings of the remaining operators have stabilised. However, the European markets are much more fragmented at the end of 2002 than they were at the end of 1999.

From this weaker base we must now complete the process of building a liberalised and competitive single European market for telecommunications. This requires well harmonised measures to encourage operators to compete on the full European market and not only in their national markets or in a handful of city centres. Competition must be encouraged and not held in check to protect a few players, not even those owned by a member state.

Perhaps the greatest risk of regulatory uncertainty lies in the threat of legal challenges by incumbent operators seeking to disadvantage their competitors. Harmonised decision making is a strong defence against this.

There is a significant risk of creating further barriers or of allowing barriers to be created by incumbent operators in pursuit of their own short term interests. Either of these would delay or possibly block the creation of pan-European markets. It is imperative that NRAs avoid measures that would accentuate or aggravate market fragmentation.

INTUG Europe believes that the ERG has very important roles to play in ensuring that, through ever closer harmonisation, telecommunication markets deliver the services necessary for wider economic growth.


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Last update 31 December 2002.