Thursday, July 12, 2012

EU update: enhancing the broadband investment environment

Neelie Kroes, Vice-President of the European Commission responsible for the Digital Agenda, has today announced the initial outcomes from last year's consultations on access for alternative operators to the fixed telephone and broadband networks of established operators (see this previous post from October 2011). According to this speech today, the three key points designed to drive additional investment in NGA across Europe are as follows:
  1. Tougher non-discrimination rules which ensure that incumbents do not get an unfair advantage. That means mechanisms ensuring competing operators get the same inputs, on equal terms and of equal quality, as the incumbent's own retail operations. Also that their margins are not artificially squeezed. This should enable alternative operators to compete on quality and service, in addition to price.
  2. Stable copper prices: no price cuts on average to what incumbent network operators can charge to competitors buying wholesale access to their copper networks. The evidence shows that lowering copper prices (from current average of €9 per month) will not induce greater investment in very fast broadband. But we do need to aim at more consistency in the approach to price regulation across Member States. There are some justifiable differences due to local conditions, but current outcomes vary too much.
  3. More flexibility for "next generation" wholesale products: national regulators will no longer be required to apply cost-oriented price regulation in almost all circumstances. But the flexibility on "next generation" pricing will depend on application of the non-discrimination rules to ensure genuine equal treatment of competitors, and on a competitive counterweight from copper-based services or other infrastructures like cable and 4th generation wireless.
These decisions will be put into legal form through formal Recommendations to be made before the end of this year and will apply until at least 2020. From Neelie Kroes' blog:
"...for investment of any kind to take place, investors need to see a healthy return that takes account of risks. The regulatory framework alone can’t do that – it takes other measures, too, like to boost online content, public funding and innovative public-private financing from the CEF and structural funds, and measures to reduce the cost of roll-out. But today’s announcement is one important piece of the puzzle. It gives more consistency within our single market; it allows fair competition. And most importantly, it provides the regulatory certainty needed for long-term investment to happen."
Full details in this memo and commentary from ISP Review here, which offers this analysis:
"The new rules could have a serious impact upon the UK government’s strategy, which aims to make superfast broadband speeds of 24Mbps+ available to 90% of the country by 2015. Europe is understood to have expressed concern over the country’s allocation of state aid, which appears to favour BT, doesn’t open access to Dark Fibre and effectively excludes smaller providers. The UK’s target of 24Mbps+ is also somewhat below Europe’s."
The European Competitive Telecommunications Association (ECTA) today issued this statement, welcoming some aspects of the announcement but not others:
"ECTA, the pan-European industry association representing over 100 pro-competitive telecoms operators welcomes the steps Mrs Kroes has announced to counter some of the abusive behaviors that incumbent operators put in place to resist competition. However, the direction that Mrs Kroes said to  be willing to take on pricing of copper-based legacy networks and on fibre-based Next Generation Networks will harm the competitive conditions of the broadband markets and will eventually harm consumer interests without fostering investments."
The statement offers this in relation to the recommendations regarding pricing of legacy (copper) infrastructures:
"...the approach...on asset pricing policy is catastrophic for competitors, for consumers and for the competitiveness of our economy. Mrs Kroes is asking for more of the same when it comes to pricing, but fibre technology and regulatory holidays have been there for years and investments have not taken place by the dominant firms who keep asking for more money. Incumbents have been only partially upgrading their networks (VDSL) and re-building their monopolies on future broadband (the incumbent retail broadband market share of VDSL lines in the EU is close to 100%). There is no reason to believe that without competitive pressure, incumbents will give up their goldmine legacy network to invest in Europe. Investments will take place in more attractive emerging economies and  short-term yield-hungry banking investors will continue to be rewarded with more than a half of incumbents’ cash-flow."
This is what the full EU announcement had to say on this issue:
"The question whether a rise or fall of copper prices would spur NGA investment is complex. Different factors pull in different directions, and vary in relative strength: according to context and in their effect on alternative and incumbent operators. Last October we explored some ideas on how to reconcile these competing factors. NRAs were concerned that an approach linking the copper price to NGA investment commitments would be difficult to enforce in practice, and open to gaming. But more importantly, after examining all the evidence, and given the significant competitive relationship between copper and NGA networks, we are not convinced that a phased decrease in copper prices would spur NGA investment. Indeed, we now see fibre investment progressing relatively well in some Member States where copper prices are around or above the EU average."
In contrast, the FTTH Council Europe has also made a statement in response to today's announcements, welcoming the recommendations:
"The FTTH Council welcomes the Vice-president Kroes’ initiative to change the investment environment...Competition is unlikely to drive investment in less densely populated areas given the impact of lower density on costs  in  particular.  Selective use of public funds to stimulate fibre investments will be needed as well as appropriate access remedies to ensure end-users benefit...The FTTH Council has long advocated a greater emphasis on network based competition in densely populated urban areas when more than one network operator is normally present already. Today’s announcement seems to be a move in that direction. Countries that are emphasising the need for network based competition like France, Spain and Portugal see not only more investment, but also see a more competitive market dynamic even when revenues are falling."
Given the complexity of the environment and these recommendations, it will take a little while for the dust to settle here I think. Hopefully, these measures will help to spur further competition and investment in UK NGA infrastructure in future, something we need more of. However this statement from Openreach included in ISP Review's commentary suggests the UK is already further ahead of the rest of Europe in this regard:
“BT has long been in favour of regulatory clarity and certainty and so these are very welcome proposals from Commissioner Kroes. BT already provides other companies with fair and equal access to its network but this is unusual in Europe. The business case for fibre is tough and most companies are unwilling to make this long term investment so the regulatory certainty being proposed is encouraging. We hope that other parts of the Commission follow the Commissioner’s lead in developing guidelines that promote investment and competition.”

1 comment:

  1. Does "no price cuts on average" mean OFCOM's recent price control on Openreach copper will have to change ?

    Thanks EU for propping up our phone bills !