News

Communications & Strategies no. 82

06/07/2011
A Single EU Market for eCommunications?
No. 82 - A Single EU Market for eCommunications?

                           A Single EU Market for eCommunications?

               Edited by Denis LESCOP, Lorenzo Maria PUPILLO & Ulrich STUMPF
                                                  No. 82, 2nd Quarter 2011

Montpellier, July 11, 2011 – IDATE has just published its latest COMMUNICATIONS & STRATEGIES dossier (No. 82, 2nd Quarter 2011). COMMUNICATIONS & STRATEGIES is an international journal that publishes every quarter peer-reviewed papers focusing on the industry's key issues, and offering a forum for the finest socio-economic analysis of the telecoms, Internet and media sectors.

Summary : Competition policies which are fostered by Bruxelles and the EU member states regarding the telecom sector have always been associated with the prospect of a single market for telecommunications within the European Union: What is today’s situation? Have we made the right choices? What are the remaining barriers? What is the new perspective of this issue in the Internet era? Two interviews conclude this Dossier by providing some useful reflexions and interesting insights: one with Franco BERNABÈ, Chairman of GSMA (GSM Association), Executive chairman of Telecom Italia, conducted by Lorenzo Maria PUPILLO and one with Chris FONTEIJN, Chairman of BEREC (Body of European Regulators for Electronic Communications), conducted by Ulrich STUMPF.

Exclusive: Interview with Franco BERNABE, Chairman of GSMA
and Chairman and Chief Executive Officer of Telecom Italia, Conducted by Lorenzo Maria PUPILLO, Telecom Italia.

C&S: At the 2010 Mobile World Congress the Commissioner in charge of the Digital Agenda, Neelie Kroes, stated that "Europe is still a patchwork of national markets. We no longer have queues of lorries at frontiers but we are still very far from achieving a Digital Single Market". Where does GSMA stand on this issue?

Franco BERNABÈ: We share Commissioner Kroes' view that we are still far away from a single digital European market. While we consider the achievement of a European single market necessary to enhance Europe's competitiveness, we realize that the single market is not on the way, communications service rates are still quite different among European countries and no real pan-European services exist. The lack of a single market can be mainly traced back to the current limited consistency in the application of European directives and soft law regulations. This is particularly true for the mobile sector. Although this market is recognized as the most advanced in terms of penetration and competition (European wide operators, interoperability of networks), its regulatory and policy framework shows some inconsistencies at the Member State level, concerning especially the spectrum management. Indeed, as some policy analysts have noticed, while the competence on access to spectrum is with the Member States more coordination at the European level would be needed. However, the changes brought by the implementation of the New Regulatory Framework will help in achieving more coordination at the European level and work towards the European single market. Indeed, starting on May 25th the European countries have to comply with the directives from the new Telecom Package which are now much more focused on achieving coordination at the European level than in the past. Furthermore, with the enforcement of the new Art. 7 procedures by the Commission and the BEREC, there will be a strong pressure on the harmonization of remedies across Europe. We are pleased that the New Regulatory Framework will ensure a higher degree of European harmonization. The Commission's goal to pursue the creation of a truly single market through a series of actions, such as the promotion of European-wide content rights, backed by the IPR strategy directive and, more generally, a harmonized implementation of the European framework, will become more reachable. We are looking for a stronger cooperation with the Commission to achieve this goal.

C&S: Regarding international roaming, the goal of the Commission to converge roaming charges to domestic prices by 2015 is clearly set to promote the single market. What do you think will be the best way to achieve this objective and what will be the impacts for the Industry?

F. B.: We should not forget that the European Telecom Market is, as of today, highly fragmented and the creation of 27 different national markets has sprung from the rules governing the sector at the beginning, with the granting of licenses and frequencies at national level. Those rules still apply today limiting the ability to overcome borders. The artificial elimination of roaming charges would not reflect the real market situation and would simply not allow operators to recover the costs they bear to offer the roaming service to their customers. Furthermore, we are now living a transitioning phase towards a new technology (LTE) that, while requiring important investments from operators, will bring huge benefits to the consumers The European Commission should not neglect this technological evolution and should avoid imposing solutions that would divert operator's efforts from the deployment of the new all-IP networks Indeed, any Commission's envisaged solution for regulating the roaming services in the next years could be a basis for discussion only if the structural solution does not allow an undue economic burden in terms of costs of implementation. These "regulatory costs" would clearly hamper innovation in the European mobile industry. We believe that a workable and viable solution aimed at introducing increased price competition in the provision of roaming services may be found. We are confident that the forthcoming debate in the European Parliament and Council will lead to the definition of an efficient and appropriate solution to the roaming issue, coherent with the technological market evolution. In addition, BEREC is called to draw the guidelines for the implementation of the structural solution envisaged by the Commission and will therefore play a relevant role in establishing a model that both addresses the issue of high roaming tariffs, especially for the data market, and the need of not raising excessive implementation costs. In this framework, GSMA is keen to continue to cooperate with the Commission, the European Parliament, and the European Council and with BEREC to identify the best solution.

C&S: The European Countries are freeing up the 800 MHz frequency band as a consequence of the digital TV switchover. Why is GSMA always stressing the importance of harmonization of spectrum usage? What are the key benefits for the mobile operators of such harmonization process, especially regarding the digital dividend band and what is the role of EU?

F. B.: Harmonization of spectrum usage brings benefits to consumers, manufacturers, network operators, service and content providers and is one of the major drivers of the success of the mobile industry. In particular, it has allowed the development of a fair and stable competition framework, with significant and long-term network investments as well as many positive implications for economies of scale, roaming and interoperability in mobile markets for all parties involved. GSMA believes that global spectrum planning, led by the International Telecommunication Union (ITU), is of crucial importance and is the best way to secure the cooperation of national governments and industry in developing harmonized spectrum. Indeed, harmonization of spectrum usage reduces the likelihood of harmful interference between services. Lower interference leads to improvement in the quality of service to consumers. This is the primary objective of an efficient and effective spectrum management regime. Therefore, GSMA fosters a more harmonized spectrum usage in order to achieve economies of scale and avoid competition distortion. Authorizations and procedural conditions, including spectrum block sizes, timing of granting rights and duration of rights, could be defined in coordination between member states and the European Commission. Indeed, a lack of harmonization would probably lead to cross border interferences, market fragmentation and could seriously hamper innovation with strong negative impacts on consumers and firms Regarding the digital dividend band, the European Commission initiative aims at achieving more harmonization in spectrum usage within the next two-three years, by accelerating the opening up of the 800 MHz band to mobile broadband services. Considering that other main regions of the world have already opened their bands or are in the process of doing so, GSMA believes that it is critical for Europe's competitiveness to make available this band for mobile operators as soon as possible Indeed, the propagation characteristics of spectrum below 1 GHz are ideal for remote and rural areas and for indoor coverage, allowing mobile networks to play a fundamental role to bridge the digital divide. Therefore, GSMA welcomes the EU proposal because it aims at maximizing the benefits from more harmonization in this field. Furthermore, considering that mobile Internet traffic is expected to double almost every year between 2010 and 2015, the Commission has addressed both short and long term needs of mobile spectrum by establishing a deadline for opening up the current digital dividend band.

C&S: Since some users can hoard the capacity of the access network using IP bandwidth intensive services such as peer to peer or video streaming, what policies can help to preserve the possibility for consumers to access any application or service on mobile networks?

F. B.: Mobile Web users were considered, traditionally, high-value consumer or business subscribers. Currently, in the markets where lower-value feature-phones are available, the flat-rate service plans, the abundance of wireless applications and the increasing popularity of Smartphone's are resulting in increased data consumption by wireless users. In the radio access networks, bandwidth and spectrum resources are shared among an unpredictable and variable number of customers who are physically in the same cell at the same time. The average customer usage level of the broadband services cannot affect, even during peak hours, the shared network capacity. Nevertheless, there is a small number of customers that use their broadband service intensively, for example constantly sending or downloading very large files using 'peer to peer' and file sharing software. We estimate that just 10% of the customers generate almost 50% of the data traffic in the fixed networks and more than the 70% in the case of the mobile networks As a consequence, connectivity providers should, for the sake of efficiency, implement Network Management solutions able to avoid congestions especially in the case where a limited number of users or services are "gobbling up" the available bandwidth. While, technically speaking, network management techniques are the same for fixed and mobile networks, considering that mobile networks have in the radio access more rigid bandwidth constraints and require more efficient network resources used to provide high quality services, mobile operators will indeed need to develop new techniques to manage the strain on network capacity that will be imposed by increased mobile broadband adoption. As required by the New Universal Service Directive, it is important to guarantee that each service is provided ensuring the maximum transparency of information towards the user and complying with all the conditions indicated in the contracts (quality of services, network management policies used) Moreover, we deem that transparency over restrictions to services access and openness should apply to all the actors in the internet value chain. Actually, customer's quality of experience (QoE) depends to the same degree on these factors: the level of quality of service of all the networks, servers hosting the services that customers chose to access, terminal type and its operating system, browser and type of application used. On the contrary, in the current scenario, we foresee a set of concerns regarding the transparency in some segments of the value chain:
• Mobile operating systems which are "closed" systems;
• App Stores which are "closed" systems;
• Search engines which are becoming global monopolies. Therefore we believe that the industry should rethink and shift the need to guarantee net neutrality, toward a far more comprehensive and foresighted concept of Internet neutralities characterized by:
• "Devices neutrality": dominant devices producers shall not be allowed to take arbitrary decisions interfering with users' ability to install software and applications of their choice;
• "Applications store neutrality": dominant digital store retailers shall not be in the position of arbitrarily refusing applications by software developers willing to sell their digital merchandise;
• "Software neutrality": Internet software, such as internet browsers, shall support and run all internationally standardized video codifications.
• "Search neutrality": search engines shall guarantee a transparent and nondiscriminatory response to queries.

C&S: Would the development of Machine to Machine (M2M) applications make easier the development of a single eComms market in Europe?

F. B.: In the future, billions of devices will likely be connected wirelessly. By the end of the decade 50 billion devices will be connected via M2M. Whether it is automobiles, smart cities, smart grids or consumer electronics, the devices will communicate. M2M will bring significant changes in business models and be a key lever in meeting long term policy objectives from environmental management to aging societies. It is not by chance that an Organization like the OECD is organizing, in October, its next Technology Foresight Forum on these issues GSMA is focusing its activity in this area on a group of market verticals, such as automotive, mHealth, Smart Utilities and Consumer Electronics. The mobile infrastructure will serve as a Wide-area communications Platform, potentially blended with other types of networks, aiming at offering a wealth of services beyond pure connectivity. The diffusion of M2M is shifting the market from one where users have a relatively small number of communications devices to thousands and, in case of business users, potentially millions of devices. A communications company with millions of customers in a single country each owning more than one subscription, may be challenged to adapt to deal with single customers with millions of devices across countries or continents. However, the national focus of some regulatory settings or the commercial service areas of infrastructure providers and their service offerings, can contribute to act as a significant barrier to the development of M2M services across borders. For instance, using multiple networks or switching networks will demand more flexibility in using SIM-cards. For international roaming, the customer is dependent upon the roaming contracts of the provider of the SIM-card. These rates can be inexpensive for one country but can become expensive for another. Therefore, in this challenging environment, there will be pressure to reduce the national barriers to the development of a strong market for M2M applications starting from the European market. GSMA is already working in this direction, not only creating services, building business models encouraging the introduction of VAS, promoting partnerships to foster ecosystems -for instance, for electric vehicles - but also addressing standardizations issues, insuring interoperability and working towards ad hoc measures to guarantee a more flexible management of SIM-cards. We welcome cooperation with regulators and policy makers in the European and worldwide arena.

C&S: Beside your responsibility at the top of the GSMA, you are in charge of Telecom Italia: what may be the role of consolidation in the industry to progress toward the European Single market?

F. B.: Europe has a much more fragmented telecom market than other areas of the world. Therefore, we will probably see consolidation in the domestic market. However, the European single market's strength will rely more on a set of common rules, on common technical standards and on strong European equipment and device manufacturers than on cross border consolidation.

C&S: What in the last merger announced in the U.S.A (AT&T-Telekom) is inspiring you regarding the gap of structure between the two sides of the Atlantic?

F. B.: The U.S. market failed to deliver to U.S. consumers what Europe delivered through common standard (GSM), large scale equipment and device manufactures and licensing process which set out specific coverage obligations. The U.S. market is highly fragmented into small regional markets and there are a lot of regional operators which will likely be merged into bigger ones. As part of the deal AT&T will expand the roll out of its broadband mobile network (Long Term Evolution or LTE) to cover an additional 46.5 million people, helping to achieve the Federal Communications Commission goal of making broadband available more widely. There is clearly a trade off between market structure (number of carriers) and issues like coverage obligations, spectrum availability and price. If European lawmakers are unwilling to accept any national consolidation and wish to see extensive LTE roll out (both in metropolitan and rural areas) they shall be ready to make some concessions and make more spectrum available at a lower price while reducing the administrative burden that delays the installation of new base stations and hinders site co-sharing. In Italy, for example, due to an overly stringent limit of electromagnetic emission, site co-sharing is "de facto" unfeasible. When assessing the allegedly anti-competitive effect of the proposed deal there is an important issue to be taken into consideration: Communications Industry borders are blurring; inter industry competition embracing telecommunications operators, device manufacturers, mobile operating system makers and generally speaking the so called "Over the top" players, are a reality. Rejecting the AT&T/T-Mobile deal on the basis of a combined market share of some 39%, while most "Over the top" and Social network players enjoy market share by far exceeding 50%, would seem odd and would grant an unfair and unneeded additional competitive advantage to "Over the top" players. 


                                                                            Contact
                                                  COMMUNICATIONS & STRATEGIES
                                                                      Sophie NIGON
                                                                      Managing Editor
                                                                      s.nigon@idate.org