A review of telecom markets in the EU: What did the European Commission learn or not from the past?

Abstract

The EU telecom regulation relies on a market-by-market sunset approach. In order to facilitate the market review of national regulatory authorities, the European Commission has offered two successive sets of recommended markets susceptible to ex ante regulation. The inclusion or exclusion of a recommended telecom market is analyzed on its competition conditions across the EU. Beginning in 2014 the European Commission published the draft third Market Recommendation. This article aims to give a critical evaluation of those recommended markets by surveying the competition situations on every telecom market in the EU Member States. It observes that while the drafted Third Recommendation makes a reasonable assessment for most telecom markets, it may not have appropriately addressed markets such as retail fixed access, wholesale call origination, wholesale fixed and mobile call termination, wholesale high-quality access, and wholesale broadcasting transmission.

Introduction

The current regulatory framework in the telecom industry in the European Union (EU) was driven by technological convergence that emerged at the end of 1990s. Technological convergence collapsed the traditional platform-based symmetric regulation,¹ and hence forced the EU to switch to a market-based asymmetric regulatory approach.² As a critical starting point, the definition of telecom markets suddenly becomes the key to the EU telecom regulation. The regulatory framework does not invent a new method to define relevant markets for regulatory purposes, but refers to EU competition law approaches.³ Consequently, regulatory markets must be defined in accordance with methodologies and principles within EU competition law, with the only difference being that the former is done from a prospective perspective while the latter takes a backward-looking view.⁴ Although EU competition law methodologies have been quickly translated by legal experts into regulatory norms⁵ the exact meaning of prospective analyses was only later formalized and commonly accepted under the ‘ladder of investment’ theory.⁶ Since then it is the case that regulatory markets should aim to encourage short-term entry and long-term investment of market players on the one hand, while on the other, facilitate the process from service-based competition to infrastructure-based competition where appropriate.⁷

In view of the importance of telecom markets, plus the fundamental principle of establishing a harmonized single market, the EU has delegated to the European Commission (Commission) the power to adopt a recommendation on telecom markets for the national regulatory authorities (NRAs) of Member States to impose their national measures.⁸ Moreover, out of concern that rapid change of telecom technologies and services may make defined relevant markets obsolete quickly, the Commission has periodically reviewed the recommendation, and removed markets that have been effectively competitive on the EU scale. Until now, two successive recommendations have been published, with the first in 2003 (First Recommendation)⁹ and the second in 2007 (Second Recommendation).¹⁰ In 2013, the Commission initiated another review of the recommendation, and published a draft recommendation on 24 January 2014 (Third Recommendation).¹¹ As of this time the Commission is still in discussion with the Body of European Regulators for Electronic Communications and will publish the final version soon.

While many studies have been spurred on by those recommended markets in recent years, almost all of them are nevertheless operating on a market-specific basis, regarding e.g. wholesale broadband access,¹² call termination,¹³ mobile access,¹⁴ etc. A general review of the Commission's recommendation has seldom been accomplished by academics. The only studies of this kind have been respectively carried out by Richards¹⁵ and Stumpf¹⁶ in relation to the First Recommendation. The Second and the Third Recommendations have so far never been reviewed. Given this gap, this article aims to provide its evaluation with the dual purpose of investigating first how the Third Recommendation reflects on the past telecom changes, and secondly whether it has been done appropriately. Materials used by this article will include the Commission decisions¹⁷ with regard to the draft measures submitted by the NRAs under Article 7 and 7a of the Framework Directive¹⁸ between January 2008 (the starting point of the Second Recommendation) and January 2013 (the time when Commission initiated the review of the Second Recommendation). It is assumed that these national reviews will present a genuine picture of whether recommended markets should be seen as effectively competitive across the EU and thus should be maintained or eliminated from ex ante regulation. During the time period under investigation this article draws upon a total of 833 Commission decisions, but will nevertheless only present the key observations here.¹⁹

The second part of the paper will outline the logic underlying the three sets of recommendations, as well as the evolution of the recommended markets. The third part will review the Commission's analyses on the remaining recommended markets within the Third Recommendation, while part four evaluates whether the removed markets genuinely mirror recent developments. The last part concludes with some overall findings.