Why Brussels is connecting, not dropping the call
My long response here to the perspectives offered on Friday 13 September by Mario Mariniello (@BruegelMario)
My thoughts are in italics on his article (below in bold):
If Europe had a genuine single digital market, every citizen and company could subscribe to any telecom operator active on the Continent. Pan-European operators could compete across different countries. New technologies would be profitable and rapidly deployed. High-speed access to the Internet would be available to all.
>>> This is generally true. But it does not necessarily follow that a digital single market would deliver high speed internet access to all. The ability to easily buy from iTunes no matter where you are does not guarantee your local telecoms company will roll out fibre to a rural village. But yes, less barriers helps spread innovation and networks.
Unfortunately, the long-awaited telecom package unveiled Wednesday evening by Digital Agenda Commissioner Neelie Kroes will not get Europe there—or at least not as quickly as some hoped.
>>> No, it won’t – because it’s not a digital single market package. A Telecoms Single Market is only the core of a wider digital single market, and the terms are not interchangeable. Telecoms are only 9% of the European digital economy. It’s the key and enabling 9%, but we aren’t even promising to complete the single market for that 9%. We’ve spent 26 years already trying to do that and it’s really hard and slow work. So, no this package was never, ever going to deliver this wider single market, and all our other existing proposals to do with eID, eProcurement and eCommerce will continue to move forward through the European institutions.
Achieving a single market for digital services requires a bold and coherent strategy. The European Commission should make clear that it prioritizes end-customers, whether they are citizens or businesses, for whom telecommunications is a primary means of fostering social cohesion within Europe and enhancing economic growth. More clarity on telecom policy would also spur investment and competition, to the benefit of European consumers.
>>> Yes, absolutely. Neelie Kroes made that exact commitment to the European Parliament on 31 May. We emphasise again and again that this is a package, not a menu that the interested parties can pick and choose from. But you cannot prioritise “end-customers” to the exclusion of others, because then you end up with no new networks. The networks do not build and pay for themselves, and unlike lucky countries like Australia, the government isn’t stepping in to foot the bill. Therefore companies must build them and customers must ultimately pay for them. Leaving companies without incentives, space and certainty to build new networks would be a disaster for everyone, especially, eventually end-users.
Such clarity is absent in this week's reform package. The legislation was adopted without prior public consultation, creating speculation that the text was shaped by behind-the-scenes political pressure. The result can hardly be called a milestone in the path to a single digital market.
>> This consultation claim is false. The proposed regulation is built out of three years of public and private consultations, many new Europe-wide independent studies and with the direct input of more than 1000 people in 2013 alone. More consultation wouldn’t change the content of the package because the answers are clear, and the need to act now is clear. Further consultation or delay would simply mean a 2.5 year delay in implementation of a legal reform, according to our best estimates. By that stage, the chance to ensure EU-wide net neutrality would probably be gone, and Europe would have slipped too far behind in 4g to catch-up globally, to give two examples. Moreover innovations in the ways we consulted in 2011 and 2012 did not yield the results we hoped for. CEOs were given the chance in 2011 to put forward their own investment proposals. The process didn’t work, because while many stakeholders are very good at complaining, or advancing their own narrow interest, there simply isn’t another comprehensive and coherent plan available. Every other configuration is too slow, politically impossible, and imbalanced because it favours one group over another and so on. And the bottom line is we developed this package because national leaders asked us to in March. They wanted a package agreed by October 2013 so we met their deadline by agreeing it on September 12. When 27 (now 28) democratically elected leaders asked you to do something, you do it. And there is nothing undemocratic about doing it.
>> There is never clarity in telecoms. It is the most complicated part of the single market – often more complicated than the geekiest of financial topics. If you want clarity, you need to find another field. Clarity is usually hot air in this field – more nice words the EU can’t live up to, or which produce so many undesired or unintended consequences that the objective is defeated. So clarity is not an end in itself. And as documents like our “Plain Language Guide” to the regulation make clear, there are ways to engage with an understand the topic and the proposals themselves, if you want to get beyond the press release but are not a legal or telecoms expert.
The Commission proposal only mildly addresses the issue of market segmentation, for instance. The creation of a single European regulator and the EU-level allocation of wireless spectrum would be the most straightforward way to overcome national fragmentation and promote the establishment of truly pan-European telecom operators.
>>> Great and we fully agree. But the Member States have made clear they will not approve anything like those proposals in the short and medium term. So we could write it down on paper if you want, and waste three years debating it, but Neelie Kroes wants concrete results in 2014 and has focussed the package on areas where that could really be achieved.
Instead, the Commission's proposal mostly relies on an "authorization system" under which operators doing business abroad would be regulated by their home regulator. This is no guarantee of enhanced competition, particularly if regulators are subject to home-country political pressure to back national champions at the expense of customers in host countries.
>> This is a basic misunderstanding of the proposed system and the existing framework. The proposal doesn’t “rely” on a single authorisation – that is one of around 20 significant elements of the package. Secondly there are never any guarantees of enhanced competition, so this hardly makes the 2013 proposal a pre-determined failure. Thirdly, it’s illegal to back national champions or indeed anyone at the expense of competitors or customers. If this were to play out in reality, the Member States and possibly the companies would find themselves in court or subject to other Commission competition action.
Likewise, the Commission is merely attempting to coordinate national spectrum auctions instead of encouraging EU-level auctions. Under this week's proposal, the Commission will retain a veto right if a licensing process creates barriers to the internal market. Yet this is still far inferior to pan-European auctions, which would encourage mobile operators to compete at a continental level rather than merely at a national one.
>>> EU-wide spectrum licenses are the right ideal, and not possible to achieve in the short-term. The package would be immediately stopped by the Council if this were included.
One of the Commission's flagship initiatives—to cap wholesale roaming fees—falls similarly short in this week's package. Earlier drafts proposed cutting roaming fees by up to 90% through the introduction of a €0.03 per minute cap on voice calls and €0.015 per megabyte for data transmission.
>> This is a misunderstanding of all drafts of the proposals, it confuses means with ends, and leaves out the key point that wholesale fees will be cut by up to 67% (for data), on 1 July 2014. It was never a case of 90% versus 0%. More importantly though, price caps (on their own) are fundamentally not a full solution to the roaming issue. But any other alternative is necessarily more complicated and difficult to explain. Why? A cap will never remove a premium, it can only reduce it. Also because there are such huge retail price differences between Member States, the caps are a blunt instrument that affects each company differently. That does not mean they are not useful. It simply means that they have only a limited role in an effort to push roaming out of the market. That is why you need other measures like those agreed in 2012 (the decoupling measure that allows customers to abandon their usual operators while travelling) and the one proposed in Sept 2013 – namely to allow operators to form alliances to lower wholesale prices within the alliance to the point where they offer “roam like at home” packages from 2014 and ensure that a profit it still possible (why would they offer it if they can’t many any profit? Answer is they would not offer it; while it’s not legal to force them to sell at a loss.)
Roaming fees are high in Europe because customers cannot "punish" a foreign operator that is charging too much for accessing its network. They can only subscribe—or not subscribe—to telecom operators in their home country. So regulating roaming fees makes sense if competition in the wholesale roaming market cannot be guaranteed.
>> Firstly, the 2012 Roaming Regulation solves the problem described here (the “decoupling” system that gives customers to the full opportunity to punish any operator that is overcharging them). But this is not the real source of the problem. Roaming prices are high because companies invented a system in the 1990s to turn these services into a cash cow. The premiums we saw when data was 6 euros per megabyte and SMS one euro a message, were never part of the original roaming system when it first became possible to call while abroad, where premiums tended to be about 33% above the domestic price of a given country.
While no breach of competition law has been proven, it is evident that the prices offered in second era of charges were not related to real cost or real value-added. Terrible as they were, the use of inflated wholesale fees is a symptom of a broken system; it is not the broken system itself. The broken system is one were operators profit from a creating a false scarcity and an imagined value-add, instead of profiting from the plenty that technological progress enables and from the fact that people love their smartphones and are desperate to use them if given half a fair-chance. The thinking behind roaming premiums not only has no place is a European single market, it creates the basis for an unsustainable overall business model, as well as a rip-off to the actual traveller. In an environment of low investment, high debt, decreasing market capitalisation and decreasing revenues for many operators – that broken business model is the real problem. We have to take the crutch of roaming away, and either give incentives or force operators into a different ways of working. If we don’t do that, the problem will not be those roaming rip-offs, it will be a telecoms sector that becomes the next banking sector, dragging the rest of us down with them as they fail.
In the Commission's final proposal, however, these limits have been dropped. Instead, the proposal promotes the creation of "multilateral roaming agreements": Two operators in such an arrangement would treat each others' customers largely as their own, and charge roaming fees accordingly. But cooperation agreements may be viewed with suspicion by antitrust authorities, which could make operators less eager to participate.
>> This is not accurate. There is a 67% cut to data wholesale roaming price caps in 2014. But that is beside the point. There is no profit basis for operators to behave in the way described. If they tried to offer “roam like at home” (the necessary criteria for benefiting from the new alliance possibility) at high or current wholesale rates, they would simply lose money. The only way to benefit from the alliance is to mutually agree much much lower prices. That is all machinery - the consumer doesn’t really care how they do it, so long as their domestic plan changes so that it works everywhere in Europe at no extra cost.
The Commission's approach will also affect so-called "alternative roaming operators," which are operators to which mobile customers can separately subscribe when using their devices outside their home country. Brussels previously endorsed this business model as a way to contain roaming costs, but under this week's proposal, operators in multilateral roaming arrangements would not be forced to give alternative roaming operators access to their networks. This would make it risky for such operators to enter the market, which could open further possibilities for anticompetitive abuses.
>> It’s either one or the other. Either the new alliances will work – in which case we have achieved your aim of no roaming. Or they won’t, in which case the pro-competitive “alternative roaming operator” system will work as a fantastic back-up. But you can’t claim there would cancel each other out.
The Commission, in other words, recognizes the existence of a market failure and announces that excessive roaming fees will be slashed. But in the final proposal, it has introduced more uncertainty than there was before.
>> What the Commission has done is give companies more options about how to get to the same destination: no roaming premiums. This is a position carefully crafted with and strongly supported by the Competition department. Let’s also not forget that Kroes is a former Competition Commissioner.
The proposal's approach to net neutrality does not provide for much more certainty, either. The Commission proposes harmonization of the relevant European legislation, leaving open the possibility for operators to offer different levels of service quality at different prices, provided the principle of an Internet open to all is preserved.
>>> I am not sure how an iron-clad guarantee for access to the full and open internet in every single internet subscription is adding to uncertainty. 96% of Europeans have no legal protection today of their right to access the full and open internet. But what is certain is that if the Commission did not act now, then there would be several and perhaps a dozen different national laws passed in the coming years that deal with open internet protections in different ways. That is the opposite of what is needed in the single market and the most inefficient and uncertain system of all.
Economic theory suggests that price or quality discrimination are not necessarily bad for customers. Varying the price of Internet services in line with their burden on network capacity might enable more efficient allocation of Web traffic. So the Commission's proposal is probably correct on substance.
>> Thank you. It is also correct at a practical level. The reality is that each network and technology and generation of a given technology is different. There simply isn’t a way to guarantee everyone the same speed or the same price of internet in Europe, even if everyone agreed that was a good idea. The very best law that is enforceable is one that ensures no one suffers because of their given content choices, and that everyone’s one to the full internet is guaranteed at all times.
Yet price discrimination could lead to antitrust abuses: Operators could, for instance, charge mobile users more for using services, such as Skype or Google Talk, that represent a competitive threat. The success of the net-neutrality regulation will therefore depend on national regulators' and antitrust authorities' ability to identify anticompetitive behaviour and enforce competition law in a timely manner.
>>> That is not accurate. If you wanted a guaranteed higher speed for Skype, you could agree to pay more. But you could not be charged more for your desire to use Skype and your Skype could not be slowed down because you chose it over another competing service. You would have to receive the very best Skype that you chosen internet connection allows. And if you didn’t get it, not only could you walk away from the contract at no cost, but the ISP and the country in question could be taken to court by the European Commission, depending obviously on the severity, scale and duration of the offence.
The Commission's proposal introduces some positive changes, but it is too coy. Above all, it fails to foster the development of a new digital era in Europe, which would bring certainty and confidence to consumers and to the industry.
>>> Investors and consumers tend to disagree. The large majority of investor reports think this will have a positive impact (not all of these are made public by the authors) and the coverage of the proposal is so far running at 77% favourable, 20% neutral and 3% negative.