Regulation: no silver bullet for delivering next-generation broadband

Friday 11 November 2016 | 16:50 CET | Background

The European Commission’s proposal to overhaul telecom regulation in the EU was presented in September as a means to achieving the goals of the Digital Single Market. Delivered as part of Commission president Jean-Claude Juncker's 'State of the Union' address, the underlying goal of the proposals is to ensure "more and better connectivity" for citizens as well as businesses, in order to help drive economic growth in the EU. Despite the ambitious tone, participants at ECTA’s recent regulatory conference in Brussels appear to be realising that the regulatory reforms will play only a limited role in delivering the connectivity goals.

No silver bullet

The current success of broadband in the EU, where 72 percent of households subscribe and 71 percent have access to over 30 Mbps, can in part be ascribed to the existing regulatory framework. The liberalisation of the telecom market started in the 1990s was supported by ex ante regulation, forcing former monopolies to open up their networks to competition. Local loop unbundling led to the creation of competing ISPs and network operators, helping to expand availability and drive down prices.

While few would claim competition is perfect in every EU country, the market counts a healthy number of active players, who are now looking keenly towards the next stage of network development and services. However, there is no "silver bullet" like LLU to deliver next-generation networks, as Anthony Whelan, director of Electronic Communications Networks and Services at DG Connect, said at the ECTA conference. We no longer live with one dominant operator – instead it is a multitude of providers over a range of technologies, from copper to cable and fibre, not to mention wireless and OTT. 

A new code

The new Electronic Communications Code, proposed by the EC as a major overhaul of the existing telecom regulatory framework, acknowledges the more complex market conditions of today and gives national regulatory authorities (NRAs) more freedom to adapt regulation to local market conditions. Gone are the strict market definitions and prescribed remedies; NRAs will be able to impose regulation on a more selective basis, for example only in regions lacking competition, or only on consumer and not business markets.

According to Whelan, the new regulations are about encouraging providers, including the many alternative operators represented by ECTA, to continue to "move up the ladder of investment". In countries with civil infrastructure in place, such as ducts and poles, operators have a much easier start in rolling out their own fibre, and regulators can encourage commercial wholesale agreements for network access and sharing.

In markets without the basic infrastructure, co-investment is the new buzz word, with a lighter regulatory touch for those who cooperate or focus on wholesale services. Co-investment is something that has worked well in France, according to a presentation at the ECTA conference by Maxime Lombardini, CEO of Iliad. This has resulted in fibre already available to 60 percent of French households, without state subsidies, he said.

In some countries or regions without sufficient market interest or competition, ex ante regulation may still be necessary, starting with obligations such as non-discrimination, and price regulation as a "last resort", Whelan said. Berec is working on guidance for NRAs on how to develop reference access offers for the new types of networks. This will not be applied uniform across countries and will depend to a large extent on local competitive circumstances. Whelan acknowledged that there is "still tension" in the issue of physical versus virtual access and the best virtual option for each network topology, something both the Commission and NRAs are trying to address.

While details like the cost and terms of VULA are still a question, participants at the ECTA conference were broadly positive about the proposed ECC. It is seen as a pragmatic approach to dealing with the varying states of development and market conditions across EU countries. As Ofcom director Steve Unger noted, "most of the tools already exist. The big challenge is applying them to real-world conditions".

NGA drivers

This raises the question of whether the new approach can contribute to the EU’s Digital Agenda goals of expanding next-generation broadband access. According to Unger, we "need to be humble about how much regulation can do", as it largely has only an "incremental effect".

This view is in line with a recent study by Berec, the EU assembly of national telecom regulators, on the challenges and drivers of next-generation access (NGA) networks. The study found that the main drivers of increased NGA are "largely or completely exogenous to regulatory interventions by NRAs". More important are things like whether there are competing cable or FTTP networks, available duct infrastructure, and an ‘e-culture’ driving interest and willingness to pay for faster services.

According to Berec, the basis of the old regulatory system, of declaring a significant market player (SMP - usually the former monopoly) and imposing ex ante regulation, has a smaller role to play in delivering next-generation broadband. Berec’s study notes that "SMP regulation is only one factor among many and its ability to promote NGA rollout or particular types of NGA rollout need not be overstated".

The EC’s Whelan seconded this, saying all regulators can do is ensure a competitive environment and sufficiently competitive prices for end-users to be interested. It’s up to operators to decide whether there is a decent return under such conditions to support investment in new networks.

Regulators stay neutral

Andrew Entwistle, a partner at New Street Research, said at the conference that this is in part the strength of the proposed Electronic Communications Code - it realises that regulation will not be the solution to delivering very high-capacity networks. Berec also notes in its recent study on the drivers of NGA that while regulators are public bodies, they do not determine public policy, such as municipal rules and state subsidies.

Sebastien Soriano, head of French regulator Arcep and chair of Berec next year, sidestepped a question at the conference on a similar issue. He said he could not comment on whether universal service obligations could be used to force improved mobile coverage – a regulator can only look at the data and it’s up to the politicians to take a decision on action, he said.

According to Roberto Viola, director general of the DG Connect, the central issue now is connectivity – it’s no longer about "winners and losers, altnets vs incumbents". "The most important actors are the private companies that put in the money," he said. "Regulators are the referees which must be even more independent, and it’s up to governments to ensure everyone benefits."

The national regulators appear to be taking seriously their role as independent authorities, and also the civil servants of the European Commission perhaps have learned not to stray too far into political aims, particularly after getting their fingers burned on the roaming fair-use regulations. It will be up to the national governments, along with the European Parliament, to give the final approval for the EC’s proposed regulatory reforms, and for the politicians to decide whether they accept the limited role regulation can play in delivering the gigabit society.

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