POLICY SUPPORT SAID TO BE NEEDED FOR EUROPE'S 3G SECTOR RECOVERY

Report on comparative assessment of the licensing regime for 3G in European Union commissioned by EC’s Directorate Gen.-Information Society assessed impact 3G licensing conditions in EU Member States have on mobile sector competitiveness and internal market cohesion and suggested guiding principles for future EU regulatory policy. EC will continue to accept comments by for next month, it said.

“Governments and regulators should remove obstacles and also stimulate their own demands in the market, but must let the end users decide on their preferred use of new services,” Ericsson said in its comments to EC on McKinsey report. It said principle of supporting take-up of market demand described by McKinsey was important, but mustn’t be used for micromanaging market. Ericsson said risk with current situation in market was that it could be interpreted as failure of market to address problems and used as excuse for substantial re-regulation of market. It said only way to healthy and stable market for telecom services was “to rely on the market forces, while the regulators concentrate on securing a fair competition and solve blocked situations that harm the end-user.”

Stable and predictable regulatory framework is needed “to meet the strict commitments assumed by mobile operators in the licensing processes,” T-Mobil International (TMO) said. It said unexpected changes in regulatory conditions would increase mobile operators’ business risk, discourage network investments, restrict service innovation. T-Mobil agreed with McKinsey that regulatory measures could cause substantial decrease in value flow in mobile sector to harm of innovation and consumer welfare. It said 2G was successful in Europe due to “the hands-off regulatory approach this market from the very beginning, and to the intensity of competition in European mobile markets.”

There must be greater degree of coordinated rules and actions within EU, some commentators said. “Similar rules for the players in different countries contribute to a level competitive playing field and a more stable competitive situation,” Ericsson said. It said common and clearer rules “would have helped to take away the sense of extreme urgency in some of the spectrum auctions and would have contributed to a more peaceful course of events and more moderate license fees.” Nortel Networks said EU and Member States should act jointly to create right regulatory framework and restore confidence in sector in short term: “EU Member State governments must not forget that they have committed to the eEurope 2005 Action Plan of which next generation wireless services form a decisive angle for its success.”

To help telecom industry recover from financial weakness and increase demand for 3G services and content, ETNO’s Bartholomew said policymakers should establish consultation with stakeholders on spectrum management, allow for industry consolidation, focus regulatory attention not only on cost of market entry but also on “cost of exit” since regulators are responsible for transforming fixed cost into sunk cost and enact short-term relief measures such as spectrum-trading and flexile licensing conditions.

Bartholomew criticized report’s recommendation that new 3G entrants be privileged over incumbent operators in access to spectrum license in order to deploy new technologies first: “This would clearly be discriminatory and distort the market.” T-Mobile said adoption of different allocation waves and implementation of “pioneer licenses” would create further distortions on mobile markets and hinder future investment and competition. It said such measure would cause delays in implementation of new technologies: “Any restraints on incumbent mobile operators to invest in new technologies would not only infringe their basic rights but also cut-off millions of customers from superior services.” T-Mobil said every interested party willing to invest should be eligible for allocation of future licenses: “Market competition alone should determine which operators would offer the most attractive services to the benefit of consumers.”

It’s important to achieve stable long-term competitive environment on market, while allowing new operators to enter market, Ericsson said. It also emphasized importance of avoiding heavy financial burdens on license holders during early years of license. Heavy down payments “have significantly contributed to destabilizing the market,” Ericsson said. It also said absence of clear rules for secondary spectrum trading made it more complicated for market to correct unfavorable auction results.

McKinsey’s study correctly identified 3 types of distortions that led to sector’s current situation, but it failed to declare short-term and other support measures for telecom industry, Bartholomew said. Telefonica said there were more than 3 types of distortions. It said increasing toughening of licensing conditions in some countries such as Spain was one of most relevant distortions: “This has completely changed the rules of the game without easing the mobile operators’ commitments on coverage obligation.” It said changes in market reality must also be considered, and regulation must be flexible enough to support investors in market. Another distortion, Telefonica said, was lack of harmonization in European market: “The various licensing procedures, types of obligations imposed on operators for 3G, etc., has created different competition conditions within the single market.”

However, Andersen Management said distortion factors that McKinsey cited as prominent in deciding eventual outcome of licensing processes group couldn’t be solved. It said distortions caused by market expectations couldn’t be avoided, because “the fact that something is expected in its very essence implies that it is not known for certain… [and] will always be a basic premise when preparing business cases for a future market.” Commenting on distortions caused by number of licenses offered, Andersen Management said number of licenses offered were known by all applicants when bidding and was “a key part of their calculations when deciding whether to bid, and if so how much to bid or what commitments to offer.” It said fewer licenses would have meant less competition in market, higher bids for licenses and more extensive commitments on coverage, rollout and service levels. As for distortions caused by specific characteristics and design of award methods that, report argued, led to a “now or never” scenario among operators and pushed bids for license too high, Andersen Management said “radio spectrum is a scarce resource, [and] some variety of ‘now or never’ sentiment will inevitably be part of the process as long as there is competition for the licenses -- no matter how regulators design the allocation process.”

Finnish Ministry of Transport & Communications (FMTC) said it would endorse all of 5 guiding principles McKinsey presented in its report: “If we all could accept those principles and harmonized our future actions according to those guidelines, we could give better business opportunities to the European mobile industry.” However, Andersen Management said applying these guidelines would be “step in wrong direction” and would to some extent be incompatible with key principles for spectrum licensing, especially proposal to allow Member States to limit number of rights of use of spectrum due to market sustainability.