Final ECTA Report - Europe’s competitive deficit:revitalising the market in electronic communications
Competition has been one of the main forces behind choice, value and innovation in telecoms markets. It has led the way in the development of new services, in reducing prices, and in stimulating demand.
The creation and widespread use of high-speed networks and services are important goals for the European Digital Agenda. The role of effective competition in driving service quality, availability and take-up remains equally valid with the transition to fibre-based fixed networks and high-speed mobile networks.
There is a widespread assumption that competition is effective today, and in some service markets (notably consumer broadband) undoubtedly significant progress has been made. However, competition is often less developed than may be desirable:
· Many countries show high, stable or even increasing market shares for the incumbent.
· Major competitors remain significantly less financially secure than incumbents with EBIT margins significantly lower and capex equal or higher as a proportion of revenues.
· In several countries consumers and businesses have a limited choice of suppliers and are paying more than they should or are receiving sub-standard speeds or services.
· There remain risks to existing levels of competition as regulatory developments do not always keep pace with the market during a period of technological transition.
There may be several reasons for these competitive difficulties. Evidence from a survey of competitive operators particularly highlights discriminatory conduct by dominant firms which takes a number of forms, including:
· refusal to supply fit-for-purpose inputs
· margin squeeze
· non-price discrimination including delay, inferior product quality and information asymmetries.
There are prospects that the competitive situation will significantly worsen if measures are not taken to prevent such discriminatory conduct in the delivery of next-generation services, where current evidence in a number of countries is not encouraging.
If action is however taken (by NRAs, Competition authorities, and the Commission) to address discriminatory conduct, consumers would reap significant benefits. Consumer surplus could be increased by EUR25 billion and the take-up of next-generation high-speed services could be materially increased.
Strong competition needs to remain a priority to complete the last 20 years’ work towards a liberalised electronic communications market. For example, any amount of investment in next-generation access (NGA), however desirable, will not benefit typical subscribers if it results in monopoly or oligopoly, because high-speed services will be priced well above the typical average spend.
Unbundling the copper loop has already led to massive benefits for EU citizens; it would be folly to ignore this strong success when building the next-generation network (NGN). Regulators and governments should therefore prefer NGA architectures and business models that can support retail service competition, ideally allowing unbundling.
We believe that in many circumstances high-speed wholesale access products) including bitstream) would also give strong benefits to consumers, either through lower prices, improved speeds, specialised entertainment or business services, or other features of the offer (e.g. contract duration). They will also increase high-speed broadband service take-up as a result.
NGA deployment models proposing ‘risk sharing’ need to be understood in light of the fact that even the more successful entrants have a smaller existing customer base than the incumbent and relatively poor cashflow; this may be as a result of anticompetitive behaviour by incumbents (noting that the courts have found competition law abuses by many incumbents). Most incumbents, on the other hand, have strong cashflow and a large customer base that could be transferred directly to a new network. Pricing or investment models that require large up-front investments therefore risk creating barriers to entry and may result in foreclosure, undermining any potential benefits from competition.
The Commission has an opportunity to emphasise many of these points in its upcoming recommendation on NGA.
It should not be possible for a party subject to SMP remedies or general conditions to evade them simply by changing the technology over which they provide services. This may require care from NRAs in drafting market definitions or remedies during periods of technological change and additional Commission scrutiny in the Article 7 process.
Enforcement of SMP remedies needs to be strengthened.
· Non-discrimination, if properly enforced, is a powerful remedy especially if the concept of ‘equivalence’ (same inputs or outputs based on measureable data) is followed. Indeed, it offers the opportunity to ensure that networks remain open to competition as they are upgraded rather than on an ad hoc basis, as well as providing guarantees on service levels. . Nevertheless it is difficult to enforce and there is endemic discrimination in many countries. BEREC or Commission guidance on the use of non-discrimination might be useful.
· Functional separation, at least if implemented so as to create the right structures, products, and incentives, can provide a useful means to enforce non-discrimination through creating positive incentive mechanisms and to break free of the slow and continuous battle over availability and non-price conditions for wholesale products. There may however be a risk that less optimal functional separation measures might create additional delays and costs, and could reduce regulatory certainty. There is a role for the Article 7 process in ensuring that any functional separation is well designed and meshes well with the other parts of the regulatory framework. Guidance could also be useful.
Persistent gaps in the profitability of even large scale entrants compared with incumbents may warrant closer examination of access prices to ensure they are not excessive. The prices of regulated services, and their supporting cost models and accounting data, need to be coherent and transparent to market players and closely examined by NRAs, and if necessary by the Commission..
The Commission has an explicit role in cross-border trade in the internal market and should take greater interest in the provision of pan-European communications services to multinational businesses (large and small). A recommendation on this and related issues (regarding bitstream and point-to-point Ethernet links) might be useful; one possible outcome would be to recognise different market segments or remedy requirements through the market analysis process.
Whilst the mobile market shows fewer difficulties than fixed, it does still have a number of worrying characteristics, including persistently imbalanced market shares in many EU member states. The dynamics of mobile competition and barriers to competition in the mobile sector could usefully be examined by the Commission.
The evolution of the retail market towards service bundles needs to be reflected by NRAs and may soon require the Commission to modify the definition of the retail markets that are examined in the context of Market 5 to take account of double- and triple-play developments. Competition will fail unless there is a suitable wholesale product for providing double- and triple-play products.
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