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 Europe. The new framework has a strong link with competition law principles.

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 US. Liberalisation and mobile communications have played an important role here.

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