Mr
Erkki Liikanen Member of the European Commission, responsible for Enterprise
and the Information Society "Creating a predictable legal environment for
competitive and innovative electronic communications in the European
Union" Public hearing on remedies under the new regulatory framework for
electronic communications networks and services Brussels, 26th January 2004
1. Welcome
I am pleased to
see so many of you here today to discuss the important issue of remedies.
Today's discussion will help shape the final remedies document, and as such, it
represents an important opportunity to participate in this process.
I am happy to
welcome my colleague Mario Monti. We, and our services, have been working very
closely together on the new legal environment for electronic communications in
2.
Background
As we begin 2004
there are some indications that the downturn the ICT sector in particular, is
ending.
Broadband is
making impressive strides and is becoming one of the fastest growing new
markets.
Convergence is
about to become a reality for consumers. In 1998 the commission published a
Green paper on convergence as a starting point for the new regulatory
framework. Now we are beginning to see the reality in the marketplace. TV is
being delivered over broadband networks, and new mobile phones allow you to
watch a replay of your favourite goal. This process is creating new
opportunities for the sector.
This convergence
highlights the need for interoperability of all layers. This is an area where
industry needs to take the lead, but where public authorities need to be alert
to market failures. This we recognised in the Communication on Open Platforms
(sept. '03)
Becoming a
dynamic knowledge based economy is the goal for the EU. The European model - of
a market based economy with built-in safeguards to promote equity - can only be
sustained by productivity growth.
There is a
growing body of evidence on the critical role that early adoption of ICT plays
in achieving sustained growth in productivity. This explains partly the recent
divergence in EU and US productivity growth rates.
But when you look
at the sector figures, there are also good stories. The telecommunication
services sector has had a much stronger productivity growth in the EU than in
the
In un-picking the
truth behind the some of the myths surrounding "the real new economy"
Diane Farrell, writing in the Harvard Business review, notes that:
"An
important dynamic of the new economy…is the virtuous cycle of competition,
innovation and productivity growth - In sectors where competition was promoted
innovation flourished and productivity soared."
3.
Philosophy behind the New Regulatory Framework
Our task is to
deliver a predictable legal environment. This is required to give sufficient
certainty to investors to make critical investments in new facilities that will
generate greater competition.
This requires
that the framework is conceptually clear. The use of Competition Law principles
in imposing obligations on SMP operators - and the role of the Article 7
Taskforce are critical in this regard. The final piece of this complex task is
delivered in draft form in the joint paper. Today by your input - you will help
to ensure that conceptual clarity will also be achieved in relation to
remedies.
Competition is
the key driver in delivering greater choice, quality, innovation and service at
lower prices. Competition is the means to ensure that consumer's interests are
at the heart of new framework.
The new
regulatory framework recognises that consumers buy services rather than
technologies. Hence the importance of technological neutrality.
The new
regulatory framework also recognises that ICT is a dynamic and innovative area.
Disruptive technologies have the potential to undermine previously unassailable
market positions. Hence, the new regulatory framework involves forward-looking
analysis and periodic reviews. It is not a one-shot game.
The new
regulatory framework represents an important opportunity to re-focus regulation
on areas where the markets actually fail. This is a critical philosophical
underpinning of the new framework - regulation should only be used to address
an identified market failure.
Of course,
regulation is also used to achieve other "over-arching" public policy
goals such as universal service.
3.1 Transition
to infrastructure competition
Regulation that
tackles market power must be withdrawn once sustainable effective competition
becomes established. Thus regulation, insofar as possible, is also a means to
support the transition from a situation of market failure to one of effective
competition.
Let's be clear.
To have competition over infrastructure tomorrow we need service competition
today. We all agree that, where it is feasible, infrastructure competition
delivers tangible real additional benefits. For this to become a reality,
companies must be allowed to compete at the outset using elements of the
incumbent's infrastructure.
However, a
delicate balance has to be struck. New entrants must be allowed access to the
incumbent's infrastructure. However, it must also be the case that they
continually strive to reduce this dependence wherever feasible.
The key is to
ensure that new entrants have incentives to make incremental investments in
their own infrastructure
In this case,
NRAs will have to make sure that the remedies that they impose create an
incentive structure that supports this important process.
Sometimes
competition between infrastructures is not feasible in the short term. These
circumstances need to be identified and regulated accordingly. NRAs will need
to outline where they believe the boundaries between replicable and
non-replicable infrastructure lie.
This will be a
complex exercise. It is also a moving target, as new technology will over time
make replication possible where it was not before.
What will be left
in this "box" of non-replicable infrastructure will be that
infrastructure that will for a time be subject to on-going regulation. In these
areas, incumbents must be adequately rewarded to ensure that they continue to
have incentives to invest. This investment will be required both to upgrade and
maintain existing facilities.
There will be
some areas where these questions of replicability cannot be immediately
resolved to a sufficient degree of certainty. In these so-called "grey
areas" caution needs to be exercised so as not to preclude the possibility
of replication becoming a viable option in the future.
3.2 Emerging
markets
Under the new
regulatory framework an important principle is that regulation will only be
applied to enduring market failures. For this reason, specific allowance is
made for emerging markets.
An emerging
market exists when a new service is offered to consumers that in the eyes of
consumers cannot be substituted by currently existing services. Nor can
existing firms supply this service using current technology.
As a general
principle, emerging markets should be allowed to develop according to market
forces. Thus, for the most part, any potential market abuse should be dealt
with under standard Competition Law.
Encouraging
efficient investment by incumbents and new entrants and promoting innovation
are explicit objectives under the new regulatory framework. Investors need to
obtain an adequate return in light of the risks they take. These concerns arise
particularly when we consider emerging markets.
We need to
balance the interest that consumers have in additional competition today versus
the incentive that investors have to make risky investments in an unproven
area. This is a trade-off that society often faces in areas such as patents.
In emerging
markets it is likely that the leading firm will, at the outset, enjoy a large
market share. However, absent some significant entry barrier, such an advantage
is likely not to last long. In such a market it is often dangerous to infer
enduring market power based on today's market shares.
Whilst there
should be no presumption that market power on a related market can be leveraged
onto an emerging market, such leveraging can of course occur.
A distinction can
be made on the basis of whether non-replicable legacy infrastructure elements
are used or not.
4.
Conclusion
You are here
today to participate in a discussion on the joint document on remedies.
This is a
critical element in ensuring the consistent application in a transparent manner
- of the new regulatory framework throughout the EU.
An important part
of this process is the obligation on NRAs to seek to agree on the remedies best
suited to address particular types of situations in the market place.
The European
Regulators Group has a central role to play in this regard and the draft paper
on remedies is an integral part of this process. I would like to take this
opportunity to thank the European Regulators Group for the effort and urgency
that it has given to this process.
I use the word
process advisedly as this is indeed a process of seeking to agree and of
building consensus.
I hope that the
discussion today will highlight areas where you the participants - think that
more "seeking to agree" may be required.
Thank you