Telecom Regulation in Europe May Get Stricter, Telcos Say

Under the framework, national regulatory authorities (NRAs) must review 18 separate telecom markets to determine whether they're candidates for ex ante regulation -- that is, can be regulated in advance of a showing of market problems. NRAs must notify the European Commission (EC) of their findings and proposed remedies, in what are called Art. 7 notifications. Those are beginning to reveal regulatory trends on market definitions, significant market power (SMP) and remedies, Bartholomew said.

One example involves the wholesale broadband market, very important to the development of fast Internet and other services, Bartholomew said. He said ETNO sees 4 trends. First, there’s no harmonization or coordination in deadlines for completing the market analyses. Also, NRA product and geographical market definitions focus on ADSL and don’t include cable operators despite cable’s pressure on the market. In ordering remedies, NRAs -- except the U.K. Office of Communications (Ofcom) -- haven’t taken into account the regulatory options appraisal provided for in the framework. Finally, Bartholomew said, most NRAs fail to apply the 3 criteria required by the law to determine whether to impose ex ante regulation -- the existence of entry barriers, market dynamics and the sufficiency of competition law to remedy the situation.

ETNO is watching regulatory issues related to the e- communications framework. One is convergence in connection with the reviews of relevant markets slated to begin in 2005, Bartholomew said. Another is a redefinition of relevant product in geographic markets, and a 3rd is how varying experiences with mobile and fixed networks will figure into the regulatory scene. The scope of universal service is likely to be rethought next year, he said, and ETNO wants the EC to recognize the growing convergence between what used to be separate services.

An EC official acknowledged the Commission lacks a “powerful” way to force member states to adopt the e- communications rules; 19 have already done so, but 6 lag. In Nov., the Commission will release its 10th implementation report on the framework. It’s likely to identify the same problems as the 9th, among them that NRAs have insufficient power or discretion in carrying out their duties. The EC and the European Regulators Group (ERG) several months ago issued a paper on how remedies should be applied. The EC’s message to telecom regulators is it wants the right level of regulation, and remedies proportional to the problems. “There’s a way to go,” the official said. A revised remedies paper is expected next spring, but the official wouldn’t predict what changes it might include, other to say that the current one is too broad.

The EC has several “hot and flashing” issues on its plate, the official said. While it favors the development of powerline communications (PLC), some operators aren’t as enthusiastic and have opposed PLC deployment on the ground it will cause interference. The Commission will probably adopt recommendations this year to give PLC services legal certainty by setting out conditions they must meet to reduce interference risks, the official said. The EC just ended a public consultation on VoIP and expects to adopt regulatory guidelines this year. The Commission will talk to the ERG this week “to encourage” NRAs to follow a consistent interpretation of how the regulatory framework applies to VoIP, the official said.

Asked how NRAs will be discouraged from attempting to regulate VoIP technology rather than services, the EC official said, “the underlying technology is not the point.” Regulators have trouble understanding that, she said, but the Commission’s implicit message is that the real issue is “commercial choice.” Other EC pronouncements in the pipeline include a report on its antispam action plan and leased line and accounting separation recommendations, all also due by year-end.

Ofcom’s approach to telecom regulation is “strategic, evidence-based and light-touch,” said Kip Meek, senior partner, content & competition. Its key requirement is openness, he said, though that puts regulatory certainty “just beyond reach.” Since Ofcom took over telecom and media regulation from the predecessor Office of Telecommunications (Oftel) last Dec., it has had to deal with several contentious issues with enormous consequences, including mobile call termination, the market review required by the EU e-communications directives, the margin squeeze on British Telecom’s DataStream wholesale broadband products, and, now, VoIP, Meek said. Ofcom has concluded that information flow between itself and carriers should be: (1) Based on mutual trust and be professional and constrained. (2) Not driven by a need for Ofcom to agree on industry’s “vision” but by informed dialog about outcomes. (3) Based on the recognition there’s “no regulatory silver bullet.”

Ofcom completed the market reviews begun by Oftel. Asked whether the remedies it set would have been different if Ofcom had performed the review from scratch, Meek said “maybe.” The regulator isn’t happy about where it ended up on broadband access, for example. It made “a very, very difficult set of judgments” about wholesaling - - local loop unbundling and bitstream access among them -- and now must deal with complaints at the retail level. At every level of the value chain, Meek said, “our pawprints are there.” However, he said, Ofcom is trying to simplify Oftel’s regulatory approach.

The lengthy process of market review is another major concern for telcos, Bartholomew said, and it’s hurting market development and innovation.