Two globes

Easing access to Europe's networks

European regulators are trying to make it easier for communications companies to access each other's fibre-optic networks, writes E&T.

The European Union's crown jewel, the Single Market project, has never been more unpopular with the public. People associate it with competition, a 'race to the bottom', pay cuts and job losses at a time when their sense of financial security is fragile.

Nonetheless, the European Commission argues that Europe needs more bracing competition and further efforts to unlock the potential of a single market of 500 million consumers in order to restore its declining prosperity and competitiveness. This has never been more so than in the ICT sector, whose potential to improve European productivity is seriously underexploited, the commission argues.

As Neelie Kroes, the new Digital Agenda commissioner, told the EU's 27 telecoms ministers recently: 'We are competing with countries such as South Korea and Japan whose businesses have Internet [that is] up to 100 times faster than our businesses.'

One reason why the single market in ICT has moved particularly slowly is because of the sharply differing beliefs among telecoms operators about how to share the next-generation fibre-optic networks they are building. The one-million-euro question is: will they be able to have these networks to themselves, or will they be forced to offer access to each other's developing infrastructure? As always with the EU, national preferences and differing cultural approaches to capitalism come into play: free-market Brits versus the corporatist continentals.

Harnessing innovation

In the Brussels conference centres where lobbyists meet and do battle, smaller networks along with British incumbent BT, which favours competition, have long been at loggerheads with continental incumbents such as Telefonica, Deutsche Telekom and Belgacom, among others.

Several had already started building fibre-optic networks across their countries, though others had done little. Deutsche Telekom had launched high-speed VDSL2 hybrid networks, offering speeds of up to 50Mbit/s, in Germany's top 50 cities. BT had launched a very high-speed pilot network in Ebbsfleet, Kent, to a few thousand subscribers. Telefonica had done little, preferring to compensate shareholders instead of reinvesting their profits in fibre infrastructure.

While domestic networks were being rolled out across Europe, the conflict centred on whether those who built these networks should allow international competitors to rent capacity on them to sell high-speed services to business and personal customers. A lobby group made up of non-incumbent smaller operators plus BT, which had already opened up its networks under UK liberalisation, argued to the Commission that you wouldn't get innovation in fibre-optic services without competition.

Cloud computing that allows firms to exist 'on the Internet', high-definition television, and long distance e-learning are some of the opportunities expected to be offered by superfast broadband; but no one knows for sure. Lobbyists for BT and the small operators argued that, to find out what would work, many innovating competitors had to be allowed to use the same network.

BT also argued that international reach was essential to BT for the multinational firms that were its business customers: these firms needed a single operator to guarantee compatibility of applications and continuity of service across EU borders.

Counter-argument

Building fibre networks is a big and risky expense: Deutsche Telekom has already spent billions of euros on its network. With little money coming from public funding, the mainland European incumbents wanted monopoly rights over the networks in return for their investments. Several were granted 'regulatory holidays' by their governments, momentarily closing off competitors.

But the notion of protected markets goes against EU legislation, Viviane Reding, the then Info Society commissioner told an audience last year, and BT agreed, in the face of a lobby led by Deutsche Telekom's chief shareholder, the German government, which feared job losses in its ICT sector. They wanted a risk-sharing system, rather than risk premia. In plain language, if you want to use the infrastructure you'd better help pay for the investment costs up front.

The EU's executive body decided to take the highly unusual step of announcing the drafting of a third recommendation (one is the norm), having already issued two draft recommendations, each of which proved unsatisfactory to one or both lobbies. The first offered access but on the condition that operators had a guaranteed right to set access prices - effectively permission to close out competitors by setting prices which competitors would be unable to afford.

The second draft, published in June 2009, managed to offend both lobbies. While pushing the principle of open, cost-based access to networks for outside competitors, favouring the position of BT and the small operators, it appeared to say that incumbents could avoid this provision through a joint venture with one other firm, chosen by the incumbent. Lobbyists for the open-access group said this would not enable real competition. 'You could just stitch up a deal with the firm and that would be an excuse to foreclose serious competitors,' said one.

This third recommendation did not materialise. European elections brought a new parliament and, last autumn, a new set of commissioners. Reding was moved from the Info Society portfolio. In her place came a successor who was likely to be every bit as tough: the Dutch former competition commissioner Neelie Kroes, 'Steely Neelie', who faced down Microsoft in 2004 for its monopoly practice of installing Windows media player on all PCs.

Pre-emptive strike

Five months after her appointment, Kroes is now firmly in the saddle and has just launched a European Digital Agenda, the main project of her five-year term. Its aims are ambitious: to develop fibre-optic networks as part of a strategy to give all Europeans access to broadband by 2013, and to ensure that half of them have 100Mbit/s access by 2020. But what are the implications?

To improve Europeans' ability to access information, Kroes hopes to create a framework to enable the digitisation of books to be read online, an area where the EU lags the US. Kroes also wants to introduce pan-European licences for online use of creative content. Further, to encourage Internet shopping, whose popularity in the EU remains a fraction of that in the US, Kroes envisages an EU-wide online dispute resolution system, EU trust marks for Internet retailers, and revised legislation on e-signatures to give consumers more confidence to shop on websites based in other member states. She also wants to ensure that devices with always-on connectivity, such as Apple's iPhone, don't lock consumers in to proprietary technology.

As for the headache-inducing issue of network operators' access to each others' fibre optic networks - it's been put off, yet again. A communiqué originally due in June is now set for September.

In a sense, Kroes has already been pre-empted on the major principle. The European Court of Justice, whose decisions cannot be countermanded by governments, ruled last December that the German government's regulatory holiday for Deutsche Telekom infringed EU law. So it's no longer a question of whether access to incumbent networks will be permitted, but at what price level.

Another change since last year is the realisation that, shared or not, some networks are going to have to be funded with public money - to correct market failures - in uncompetitive rural areas.

As a first step, each member state will map their 'black areas', in the jargon of the recommendation. These exceptions to the EU's normally draconian provisions against subsidy were allowed, after the Commission concluded, late last year, that broadband could be seen as a service of general interest, like a utility, and therefore that citizens had a right to enjoy it wherever they lived.

The Commission recommendation emphasised that this state intervention did not mean a return to monopoly-era state-funded public services. The aid would be granted under open tender to a private operator, possibly quite small, who, when the lines were built, would have to open them to competitors. Following the recommendation, France set aside €2bn from its €35bn fiscal stimulus package to help subsidise rural fibre networks. In the UK, BT has accelerated its roll-out of faster copper-based broadband, as well as fibre-to-the-home and fibre-to-the-cabinet infrastructure, while Virgin continues to invest in its high-speed fibre and coax network.

It seems that the financial crisis has helped focus attention on the economic and social importance of high-speed broadband, and so helped remove some of the barriers to its introduction.

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