English / Archive / FIRST ISSUE / C. VAN DEN BOOGERT: Creating a Competitive Market: European Union and Serbia
The European Union needs an innovative and competitive communications sector to meet the priorities of the renewed
The EU has come to a point where in some markets of the electronic communications sector deregulation is taking place, due to an effective regulation of the market since the start of liberalisation with the 1998 regulatory framework and the move to the 2002 regulatory framework. It is important that Serbia implements effectively first the liberalisation framework and then the 2002 regulatory framework in order to come to the same point the EU has currently reached.
Currently
The European Union needs an innovative and competitive communications sector to meet the challenges of i2010, the digital component of the renewed
In October 2007, at the Ministerial conference in
But is it really necessary to regulate markets in the electronic communications sector? Ten years after liberalisation of this sector in the EU started the answer is clear. The liberalisation of EU telecom markets which started in 1998 has driven growth and innovation and the widespread availability of services to the public. The opening up of national telecoms markets to competition stimulated investment in new services and infrastructure and as a consequence consumers got a better deal all around. Consumers can now normally choose between several offers when they want to make a phone call, access the internet or watch television. Thanks to stronger competition prices decreased dramatically. As an example, the EU average charge of a 10-minute call has fallen during the last seven years by 74%. ICTs account for a quarter of
So yes, regulating the market has proven to be necessary to ensure more and fair competition. It is necessary because the telecommunications industry originated in state-run monopolies, leaving a legacy of imperfect market conditions. There are traditionally inbuilt barriers to access and a lack of competitive outcome that leave no alternative to regulation as a remedy for market failures. Some form of regulation is essential to ensure a level playing field for new market entrants where former monopolies still dominate the market.
As the sector evolves in a good regulatory environment operators will increasingly build their own infrastructures and compete more effectively. Ex-ante regulation can and must then be rolled back and ex-post competition law will replace sector specific intervention. Regulation is therefore a temporary phenomenon allowing a transition from the former monopoly telecommunications industry to a fully competitive electronic communications market. The possibility of the roll back of regulation is of course measured in terms of the level of competition in the market.
The goals of the regulatory framework are to encourage competition in the telecoms markets, to improve the functioning of the internal market and to guarantee basic user interests that would not be guaranteed by market forces.
Technological progress, the rapid mergence of new services and market convergence pose difficult challenges to regulators everywhere. This is why the 2002 regulatory framework no longer seeks to regulate specific technologies or services; it introduced a technology-neutral approach to regulation. This means essential public interests are safeguarded, but at the same time an environment is created in which investment, innovation and competition determine and deliver the best technological solutions for businesses and citizens. A major benefit of this flexible approach is that it enables regulation to evolve with technologies and the market place. The 2002 regulatory framework for electronic communications reflects a comprehensive, technology neutral approach to regulation; it encompasses all forms of electronic communication including fixed or mobile telephony, internet, cable or satellite. Communications is defined as broadly as possible without restricting it to certain technologies. The notion of electronic communications according to the 2002 framework also covers broadcasting networks, but content services remain outside its scope.
Furthermore, a flexible yet stable regulatory regime gives operators the confidence they need to plan their investments for a reasonably consistent and predictable market. To justify making substantial investments, economic operators need legal certainty and confidence in the likely future course of regulatory practice.
National Regulatory Authorities (NRAs) play a major role in the regulatory regime. Properly applied regulation which encourages competition, will deliver the best results for consumers and for industry. The evidence suggests that competitive markets enjoy high levels of investments, not the reverse! So the market failures need to be addressed.
What sort of market failures does the 2002 regulatory framework tackle? First it addresses excessive pricing. Further it is aimed at stopping discriminatory behaviour in terms of access, interconnection or pricing conditions as well as denial of access to the network. It also tackles leveraging of market power, unreasonable bundling of services and poor quality of service of information.
A new element of the 2002 framework is the introduction of competition law principles which are applied in an ex-ante manner. The European Commission identified eighteen so-called ‘relevant markets’ and stipulated the procedures for the market analyses, in which national regulatory authorities, in cooperation with national competition authorities, will have to define the relevant markets in their country, decide on whether to designate operators with significant market power (SMP) on those markets and decide whether to impose remedies, and if so, which remedies will be imposed. National regulatory authorities can not simply impose all remedies on any operator with SMP; decisions need to clearly indicate which remedies are necessary to address the market failure and the decision needs to clearly set out the justifications for these obligations.
On 13 November 2007 the European Commission adopted its proposals for the future regulatory framework in the form of amendments to the current framework.
The proposals for the regulatory reform focus on the following objectives. Firstly to regulate less but more effectively by reducing regulation where competition has already delivered results and by focusing regulation on the main bottlenecks where competition problems cannot be addressed in a sufficiently effective way. A second focus is to further strengthen the independence and enforcement powers of national regulatory authorities. The proposal aims to limit the possible influence and enforcement powers of other public bodies in the day-to-day management and to ensure that regulators have their own independent budget and sufficient human resources.
Another focus in the proposal is the strengthening of technological neutrality (free use of any technology in a spectrum band) and service neutrality (free use of spectrum for any telecoms service). Further the proposal makes suggestions on the further preservation and enhancement of consumer protection and user rights, for instance through the provision of better tariff information, a speedy number portability procedure (within one day), and improved privacy and security provisions, also to enhance the security and reliability of communications networks.
Reasons for the focus of the Commission's reform proposals are that the EU has seen that former State monopolies still hold a position of structural dominance linked to their networks. This stifles competition and the creation of a single EU telecommunications market. In the fixed telephony market infrastructure competition is still in its infancy in many countries.
What can be seen in
The transition from the liberalisation framework of 1998 to the current framework of 2002 is focused, amongst other things, on the authorisation regime and on the application of competition law principles in an ex-ante manner. It is important to realize and recognise that to be able to go through this transition properly the first (1998) regulatory framework needs to be implemented adequately. It is not desirable to move from a non-competitive situation immediately to the 2002 framework since the 1998 framework provides the necessary steps for the liberalisation phase and the introduction of competition; the 2002 framework presumes a certain level of competition in the whole market. Liberalisation and competition are not simply phrases that are put in a law and then automatically become reality. The concepts need to be transposed into pro-competitive legislation (firstly the 1998 framework) and that legislation needs to be implemented for liberalisation to become a reality in practice.
As said the 1998 framework is there specifically for the benefit of the new entrants that have to break into a market traditionally ruled by one market player. The legislative situation needs to be such to allow new entrants to enter the market and to be able to make a business as well. Once there is some competition in the whole market (not limited to the mobile market) and the rights and obligations of operators active in the market are clear, then one can logically move to the next level; the 2002 framework.
When it is decided that – since the legislation based on the 1998 framework is fully implemented - the national legislation should be aligned to the 2002 EU regulatory framework, it is necessary to adopt the whole 2002 regulatory framework rather than to follow a pick and choose approach, in which one picks only certain elements from the framework and not the others. It is important to realise that one should align to the package as a whole. This means both the authorisation regime and the market analysis procedures. It also means to undertake the analysis for all relevant markets (as defined by the Commission in 2002) and not only a couple of those relevant markets. When reading that in 2007 the Commission proposes to move from eighteen relevant markets to only seven, it is important to realise that this is due to the fact that the Member States undertook the implementation of the market analysis of all eighteen markets for a couple of years before coming to the conclusion that after these years of ex-ante regulation, market failures in certain markets have been properly addressed.
So where is
The Strategy for Telecommunications adopted late 2006 de facto maintains the monopoly situation of the incumbent operator until the end of the period for which the strategy was drafted - namely 2010. I conclude this since the Action Plan for the implementation of the Strategy does not include deadlines for any of the elements included in the Strategy.
So then, what are the relevant steps that have to be taken in order to bring more competition to the Serbian market? The necessary steps are all included in the 1998 EU regulatory framework and have to be implemented in the first phase of liberalisation. The question to be asked is what a new entrant player interested in accessing the (Serbian) market is looking for in order to decide to actually enter that market. Of course it wants to make a business and it should be allowed to make a business. It is however very difficult to have a business case if the tariffs in the market - wholesale or retail - are not based on actual costs. Therefore, there needs to be an ongoing tariff rebalancing process. This needs to go together with a process of implementing costing models (a move towards a costing model of an efficient competitive operator). For the real costs to be seen there should not be implemented any cross-subsidisation and accounting separation systems. On the basis of the applicable costing model the interconnection tariffs can then be determined.
In the period towards the implementation of a costing model, one can of course use the benchmarking tool; this should be well justified and used carefully, and only in the transition period.
In
The introduction of all competitive safeguards needs to be executed by the regulatory authority, RATEL in the case of
On the basis of the regulatory framework (whether it is the 1998 one, the 2002, or the future one) the national regulatory authorities are always of key importance. They are the cornerstone of the regulatory framework.
In accordance with the regulatory framework the NRA should be independent of all operators. The 2002 framework does not provide for a strict independence from the Government, but it does provide for a strict division of the regulatory function and the shareholding function that Government can have. Article 3 of the Framework Directive (Directive 2002/21/EC) provides that the independence of national regulatory authorities shall be guaranteed by ensuring that they are legally distinct from and functionally independent of all organisations providing electronic communications networks, equipment or services. [Governments] that retain ownership or control of undertakings providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory function from activities associated with ownership or control.
Article 3(3) also provides that it shall be ensured that national regulatory authorities exercise their powers impartially and transparently. The Framework Directive also provides that in accordance with the principle of the separation of regulatory and operational functions, the independence of the national regulatory authority or authorities with a view to ensuring the impartiality of their decisions should be guaranteed. Another important requirement included in the directive is that national regulatory authorities should be in possession of all the necessary resources, in terms of staffing, expertise, and financial means, for the performance of their tasks. These provisions are all important conditions for a regulator to be able to perform its tasks independently.
RATEL, on the basis of the Law has the obligation to show its regulatory capacity and capability by implementing the legislation. RATEL has done much work on getting legal clarity in a newly liberalised market for instance through the issuing of licences and, when following the path of many EU member state regulatory authorities on the implementation of legislation, will shift its focus to the regulatory tasks, by protecting the interest of new entrant players through creating a competitive market and by protecting user interests.
In countries where there is a large state shareholding in one of the operators, political difficulties are known to appear in the first phase of liberalisation. This could be related to the fear of deteriorated performance, to the possible loss of jobs, and to having a less profitable company in case of the prospect of a future privatisation. However, considering the market development opportunities in a newly competitive market, or the introduction of new services in a competitive environment, and taking into account the experience of such operators in the EU countries it is fair to say that these companies – due to the new opportunities and their historical strength - have been able to continue to do well.