After a lengthy process lasting over two years, the new European Electronic Communications Code (EECC) had been adopted on December 18, 2018. The Directive proposing the EECC had been first published in 2016 as part of wider attempts to reform EU digital laws on the content and carrier layers, which had been promised in the 2015 Digital Single Market Strategy. The EECC is now in force and would need to be implemented by the end of 2020. This short post is an attempt to summarise the biggest changes that the new regulatory framework brings and to highlight some of its weaknesses.
The 2015 DSM Strategy, analysing the need for improvements in telecoms, points out that the sector suffers from “isolated national markets, a lack of regulatory consistency and predictability across the EU, particularly for radio spectrum, and lack of sufficient investment notably in rural areas”. In order to remedy the situation, and in particular “deliver access to high-performance fixed and wireless broadband infrastructure“, reform was needed. A casual reader of the less-than-2-page-long part of the Strategy dedicated to telecoms would be left confused. Other than a call for a better spectrum policy and more investment in high-speed networks (both of which had also been repeatedly called for in earlier papers and are, therefore, not particularly new), such a reader would not be able to see whether the present EU regulatory framework is functional and what the EU’s position is in comparison to other developed economies. To that reader, the fact that EU lags behind rivals in high-speed broadband deployment and take-up and is also behind on 5G development would not be apparent.
In order to understand the importance of the EECC and see if it can answer these challenges, it is necessary to give an overview of the most important features of the (still applicable) 2009 regulatory framework. Three elements, in particular, are of notice:
- First, the EU regulatory framework is based on competition law principles (significant market power, potential abuse, remedies, etc.) but is, in reality, a separate (sector-specific) system of rules which applies in parallel with regular competition rules. While the ultimate (declared) aim is for competition law only to apply, the EU is not at that stage yet. The main reason why sector-specific rules are needed is that competition law remedies problems ex post, after they arise, while intervention is needed ex ante, before distortions appear.
- Second, the main regulatory method is ex ante application of remedies to market actors with significant market power (SMP). This type of regulation is asymmetric by definition as it applies only to SMP undertakings. In practice, the regulatory effort had concentrated on the incumbents – former state-owned telecoms companies which have been opened up for competition in the 80s.
- Third, the EU approach is primarily a service-based competition model where the regulator encourages entrants to offer competitive services through access imposed through ex ante regulation on the incumbents. Contrary to that, in an infrastructure-based competition model, competitors are incentivised to build their own infrastructure.
The 2009 regulatory framework is largely based on 2002 one, with significant elements dating from even earlier laws. Since it is important to understand the extent to which EECC brings novelties, the following can be stated:
- The EECC is a codification measure which puts the four main directives making the 2009 framework (Framework, Authorisation, Access and Universal Service directives)1 from the 2002 and 2009 frameworks into one package.2 While this potentially removes the confusion which arises from many amendments which have accumulated over the years, it does not bring an entirely new text.
- The EECC is fundamentally based on the same ideas and principles the 2002 and 2009 frameworks are based on. The changes are frequently minor and often only cosmetic and the articles have largely been replicated. More importantly, still, the fundamental regulatory ideas are the same as those in the previous frameworks. The EECC is fundamentally still a sector-specific, ex ante and asymmetric system which targets enterprises with significant market power. Although the number of regulated markets has gradually been reduced over the years to the effect that only the wholesale side is properly regulated, full competition does not exist.
Although one may wish to debate the prudence of extending the present regulatory model to future telecoms, it may be worth stating that not all changes are purely cosmetic. Other than the codification/simplification, the EECC introduces some changes which are geared towards improving investment.
- In particular, attempts to encourage investment in next-generation networks have been made. The measures essentially attempt to exempt enterprises from SMP regulatory regime in cases where they commit to building new networks. The co-investment provision of Article 76 allows NRAs to accepts commitments from undertakings wishing to allow co-investment (through co-ownership, risk sharing or purchase agreements).
- Significant attempts have been made to harmonise and manage radio spectrum (Articles 28, 35-37, 45-55). Market entry for new players and shared use of the radio spectrum, in particular, should be easier.
- A modest attempt to regulate OTT services has been made. Rather than subsume all such services to the full scope of telecoms rules, only some of them are included and only in a limited number of cases. This is, in principle, a good and measured approach.3
We find that the modestly-framed EECC fails to address the primary challenges the EU telecoms is facing today:
- The EU’s telecommunications capital investments are relatively low and are falling further. Regulatory burden is not the only factor to consider but it seems that it certainly plays a role. Telecoms expenditure is lower for EU27 than for either the USA or some Asian countries. The modest changes that the EECC brings are not structural and not overtly pro-investment.
- There are reasons to believe that the model based on access and price controls which the EU has chosen may deliver better broadband products in the short to medium term but does not deliver next-generation networks (there is good empirical evidence for this too). The problem of how to reach acceptable NGA deployment and take-up rates remains unaddressed.
- Overall, the industry still seems over-regulated.
- The value of EU telecoms companies has halved from 2012 to 2018 while that of the US and Asian companies increased. The cost of rolling-out full fibre and 5G is estimated at €500 billion and is likely to be significantly more. Few incentives are given in the EECC to EU telecoms companies to do this. The EU is investing less in telecoms than anywhere else and, unless more fundamental changes are made, the EU companies will move more into retail.