Brussels, 14 May 2018
Dear negotiator,
The end of competition in EU electronic communications will cripple the Connected Digital Single Market
After more than 19 months of interinstitutional exchange, ECTA is today writing to you to share its concern that the EU's vision for a Connected Digital Single Market risks being stopped dead in its tracks before it can effectively take off.
The reason: connectivity, the key ingredient powering all aspects of the Digital Single Market, is about to lose its competitive foundation in the negotiations on a proposed European Electronic Communications Code – the negotiations in which you participate.
Today, these negotiations are nearing the finishing line. But to cross that line without full awareness of the consequences may turn an apparent legislative victory into a very real and lasting policy defeat.
We, as the European Competitive Telecommunications Association, feel this is the moment to sound the alarm bell to ensure that you prioritise a better deal for competition over a weak political compromise for closing negotiations, which will irrevocably unravel the vision of a connected EU.
Allow us to explain.
The regulatory framework that the proposed Code seeks to replace is anchored to the three objectives of promoting competition, the internal market and citizen interests. And within that framework, both innovation and efficient investments in infrastructure are activities that national regulators already today are held to promote when applying regulatory principles in pursuit of these objectives.
The draft Code adds to these objectives the promotion of access to and uptake of very high capacity (VHC) connectivity. This objective is fully shared by ECTA. The means envisaged to this end, notably to ensure availability of VHC networks, do, however, give serious cause for concern in our view.
VHC connectivity needs investment.
The framework relies on competition to spur investment, while using regulatory safeguards against undertakings with significant market power (SMP) to promote competition. Experience has shown this to be the right choice: competition has driven investment and continues to do so.
Unfortunately, you are currently discussing a political compromise that will undermine existing pro-competitive safeguards and allow arbitrary inroads into competitive market functioning. Most important, it also calls into doubt the premise that competition adequately motivates investment by agreeing that undertakings with significant market power need deregulation as an incentive to invest.
However, deregulation ignoring significant market power to promote co-investment is antithetical to effective and sustainable competition. Indeed, it contradicts the well-established competition law principle that those with special power also bear special responsibility – including for investment in VHC networks.
As the EU-level association representing competitive telecommunications operators, we know very well that investment in and access to VHC networks can build a competitive and compelling business case. Yet we also know that pro-competitive regulation under the framework is what has allowed competitors to make that case in the first place.
To now create investment incentives for former monopolists through regulatory relief, while threatening competitors with extensive ('symmetrical') obligations without regard to their power in the marketplace both upsets the competitive balance and disincentives competitive investment. If you further loosen the definition of VHC networks, this will only reinforce these effects. Just as acceptance of the proposal to replace effective regulation by commitments offered by SMP undertakings only aggravates the resultant competitive imbalance.
In sum, if you adopt the Code in its current form you absolutely put the competitive fabric of EU electronic communications at risk, and with it access to VHC networks on affordable terms for all European citizens. The immediate result will be a loss of competitive momentum, innovation – that will be left to other parts of the world -, service-based competition, jobs and industry trust, increased consumer dissatisfaction as well as decreased competitive pressure on former monopolists. Under those circumstances, also the prospect of competitive entry will significantly diminish.
It is important to realise that there is little economic rationale to these proposals other than improving the balance sheets of the biggest undertakings, (and notably of those) who already hold significant market power – and have always been free to invest. In fact, by reducing competition and choice, also other industries that are currently enhancing their offers by adding connectivity will face scarcer and more costly supply – to the detriment of EU welfare at large.
While these effects will appear at different speeds throughout the EU, there is only one guaranteed way of avoiding them altogether: preserving the integrity of the SMP regime. It is therefore by far preferable for you to maintain the current framework (which has worked and continues to work) rather than to adopt the proposed Code. Otherwise, VHC connectivity may come at a high price indeed, if it comes at all.
We hope you will make the right decision.
Yours sincerely,
LUC HINDRYCKX
ECTA Executive Director
