Rewheel Ltd. Finland
17 October 2013
Briefing note ahead of the European Council digital economy summit 24-25 October 2013
regarding the European Commission’s
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
laying down measures concerning the European single market for electronic
communications and to achieve a Connected Continent, and amending Directives
2002/20/EC, 2002/21/EC and 2002/22/EC and Regulations (EC) No 1211/2009
and (EU)No 531/201
Introduction The 2013 spring European Council stressed the importance of the digital single market for growth and called for the Commission to present (in time for the October European Council) concrete measures to establish a Single Market in ICT as early as possible.
What is the Commission trying to achieve with this new regulation? The general objective of the proposal is to move towards a single market for electronic communications.
What is this action necessary according to the Commission? ... due to fragmented national markets, consumers in Europe face less choice, services which are less innovative and of lower quality...
What was the Commission’s motivation? Europe is falling behind the US in telecoms Neelie Kroes Vice President of the European Commission in charge of the Digital Agenda: “Europe, once an ICT leader, is now lagging behind. Japan, South Korea and the USA combined have around the same population as the EU – but over 8 times more fixed fibre broadband, and almost 15 times more 4G.” and “For mobile, average European data speeds are half of those of the US”
DEBUNKING THE BIG TELCO LOBBY CLAIM THAT EUROPE IS FALLING BEHIND echoed by Commission officials Rewheel’s independent, factual research, cited by Joaquin Almunia Vice President of the European Commission in charge of Competition Policy showed that European consumers pay 5 times less, use more mobile data and enjoy faster network speeds than US consumers.
So what is the Connected Continent package really about...? While telecom revenues have been flat or declining across Europe big EU telcos (Vodafone, Deutsche Telecom, Telefonica, Orange, Telecom Italia and KPN Netherlands) have been investing little while paying high dividends to their owners. Telefonica’s, Telecom Italia’s and KPN’s net debt is 50 billion, 30 billion and 10 billion euros respectively. Most recently, Telecom Italia’s bonds have been downgraded to junk.
Vice President Neelie Kroes “The telecoms sector hasn't had its Lehman moment yet. But with declining revenues, rising debt, dated business models, I worry about that happening”
Telecom analyst Robin Bienenstock of Bernstein “KPN took on incremental debt to pay out cash to its shareholders it couldn't afford” and “For years, the largest Dutch telecoms provider paid huge dividends and bought back shares rather than invest.”
... it is a debt-loaded big telco bailout subsidized by Europeans through consolidation & higher consumer prices The Commission has put forward the Connected Continent regulatory framework to promote consolidation rather than competition across Member State national markets which will lead to higher consumer prices and more revenue concentration for big EU telcos. A part of the Commission is orchestrating a failed debt-loaded big EU telco bailout.
So how will the Connected Continent package achieve its goal to create pan-European operators that will control consumer prices and increase further their sector revenue share across the EU28 Member States?
Through a loss of Member State sovereignty in a number of areas. Namely;
The Single EU authorization in essence transfers the regulatory control of operators present in a Member State from the Host regulator to the so called Home regulator. The Home regulator means the regulator of the member state where the operators’ main establishment is. For example the Czech regulator will lose the power to suspend or withdraw the license of Deutsche Telekom, Telefonica and Vodafone. That power will be transfered to the Home Member States being, Germany, Spain and UK respectively
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Rewheel Ltd. Finland
17 October 2013
The Spectrum harmonization provisions in essence transfer control from Member State governments and regulatory authorities to the Commission. The Commission grants itself the right to delay by one year spectrum auctions planned by Member States on various spectrum and assignment conditions harmonization grounds or simply because of unequal treatment of Pan-European operators (e.g. If Vodafone has gained access to the 800MHz band it shall do so in all Member States otherwise its ability to offer a Pan-European service could be compromised). Moreover, the Commission can overwrite by means of Implementing acts essential spectrum assignment conditions across the EU that could significantly lower government revenues from future spectrum auctions. So Member States will effectively shed control of domestic competition, domestic investments, prices, and spectrum revenues from the telecom sector
The net-neutrality rules while designed to ban throttling of popular (free) internet based applications such as Skype will introduce a two-tiered internet across the Member States whereby operators could provide prioritized higher quality or ervice for selected internet applications on a paid basis. This will limit the available bandwidth for all remaining applications leading to a lower quality service and a 2-tier internet. In a protected oligopoly where all operators agree on constraining Gigabyte allowances (like they do in many EU member states today), operators will be able to offer much higher data volumes to their own “specialised services” such as e.g. cloud computing or video streaming (note: Google reported that today 40% of youtube is consumed on mobile devices up from 6% two years ago). Alternatively operators, the gatekeepers of bit pipes, for extra compensation may offer the required cloud computing or video streaming capacity to their preferred partners, on a commercial basis – in this what crippling alternative streaming, cloud computing providers or any other providers of new, innovative, bandwidth intensive services.
And what about abolishing roaming, the popular jewel of the Connected Continent package? The Commission is arguing that the Connected Continent package will abolish roaming. However, roaming has already been dealt with in an existing EU Regulation adopted in 2012. From 1 July 2014 consumers from all Member States will be free to choose a different roaming provider, and pay domestic rates while they roam, without the need to change their SIM cards i.e. decoupling. The measure in Regulation 531/2012 applies non-discriminatory to all MNOs operating in all EU Member States and across all Member States.
So why abolishing roaming again? Because this time big EU telcos get a preferential treatment The Commission decided this time around to grant a discriminatory exemption from decoupling to big EU telcos. Big telcos are given 2 years to eliminate roaming premiums in all their retail packages. Small operators, unable to join a roaming alliance, should eliminate roaming premiums in all of their retail packages by 1 July 2014, in any of the 28 Member States visited by any of their customers or risk lose their customers while roaming.
Member States most affected by the changes Smaller Member States protected markets where the big telcos dominate (e.g. Hungary, Czech, Slovakia, Greece, Portugal, etc.) and competitive markets where the big telocs are not present (e.g. Nordics, Austria, UK, Netherlands) have most to lose if the Commission proposal becomes EU law.
Ericsson and Huawei will also benefit from maintaining the protected markets status quo while challenger LTE vendors Nokia Solutions & Network, Alcatel Lucent as well as ZTE, Samsung, NEC would rather benefit from the intensifying infrastructure based competition.
Budgeted government revenues from the sale of spectrum will be in jeopardy already in 2014, big telco subsidiaries in protected markets will effectively cement their positions and kill competition, smaller independent operators in competitive markets will be weaken further and become easy prey for big telcos.
EU’s newest, less developed Member States will no longer be able to control the price of fuel (i.e. mobile data cost) for their digital economies and they will fall further behind in the digital divide. EU’s most data progressive economies such as the Nordics, UK, Austria and Netherlands will be jeopardising the future of their competitive markets and dynamic digital economies by weakening their domestic independent operators.
Head of a National Regulatory Authority on twitter: It’s a pity EC did not consult BEREC before adopting the package. Too much nonsense inside.
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