13 September 2013
No free lunch for telecom operators – an H+K analysis of the EC proposal for a new telecoms packageIn September the European Commission presented its proposal for reforming the European telecom market. Under the banner ‘ConnectedContinent’, the legislative proposal will aim to unify this fragmented market. For stakeholders, the reform will bring with it new regulatory challenges and opportunities in equal measure. Read our analysis of how it may impact your organisation’s strategic interest.
Liberalisation in 1998: where do we stand in 2013?
Background on the newly adopted package
The proposed new rules in a nutshell
- One-stop-shopping: Introduction of an “EU passport”: operators wanting to provide services in several Member States must currently be authorised in each of them. The new package eliminates national conditions and facilitates a one-stop-shop approach. Operators of electronic communications networks and services can operate and provide their services throughout the EU-28 regardless of their location or the place of the consumer. Industry should welcome this call for consistency and the removal of red tape.
- European wireless space: Introduction of consistency between the different national radio spectrum assignment procedures. The focus should be on greater predictability for cross-border operators regarding spectrum availability in the EU-28 without diverging national assignment conditions. Radio spectrum is a public good and an essential resource for the internal market for mobile, wireless broadband and satellite communications. The proposed coordinated framework for assignment of harmonised radio spectrum should be welcomed, as it creates legal certainty and predictability, better business planning at cross-border level and it contributes to build a European wireless space.
- Easier wholesale products for fixed networks: Introduction of harmonised conditions and features across the EU when operators with significant market power are obliged to offer competitors access to their networks. A number of other regulatory measure prescribe common criteria for assures service quality connectivity. Industry should probably need to evaluate the effectiveness of the increased regulatory ex-ante rules in light of a lighter regulatory approach. Regulatory intervention should be limited to situations where market functioning fails.
- Gradual shift towards borderless pricing. The end of roaming charges for end-users? To some extent yes. Incoming call charges while travelling in the EU should be banned from 1 July 2014. Companies can also introduce “Roam Like at home” plans, the price of which will be driven by domestic competition. Alternatively, customers will be given the option to choose a separate roaming provider who offers cheaper rates (without having to buy a new SIM card). Finally, companies cannot charge more for a fixed intra-EU call than they do for a long-distance domestic call. For mobile intra-EU calls, the price could not be more than €0.19 per minute (plus VAT). In setting prices, companies could recover objectively justified costs, but arbitrary profits from intra-EU calls would disappear. These new measures do not call for a single euro-tariff. Diversification among operators remains possible. These new rules clearly foster a borderless call and data usage pattern for the European consumers. The operators may however question the impact of such regulatory stringent interventions in revenues and margins. The cream-skimming thereof may lock the appetite for investment and innovation and may also have an effect on domestic pricing that could increase.
- The EU-28 borderless consumer better protected. The package contains very detailed rules on new rights for consumers. Operators will have to comply with harmonised contract clauses and trade practices. Some examples: the right to plain language contracts with more comparable information, greater rights to switch provider or contract, the right to a 12-month contract if you do not wish a longer contract, the prohibition of longer minimum durations than 24 months, the right to walk away from your contract if promised internet speeds are not delivered. The new rules pertain also to facilitating change of provider. Improved switching rules promote market entry and competition between electronic communication providers and allow end-users to choose more easily the provider which best meets their needs. For sure, all this contributes to the creation of a European consumer space. However, the information requirements that operators will have to mention in the contracts are very detailed and regulated at EU-level. Some of the new requirements will need additional investments in IT systems and customer service. It is questionable whether some of the proposed level of details to be provided in customer contract should be regulated at EU level and not be left to commercial freedom.
- “Net neutrality”: the draft Regulation includes an obligation on providers to ensure unhindered connection to all contents, applications or services accessed by end-users, regardless of the cost or speed of their internet subscription. This obligation is qualified by the provisions on enhanced service quality (Article 23) – which have been criticised by some stakeholders as threatening net neutrality. One of the most criticised provisions allows content providers to agree deals with internet providers to assure a certain quality of service. While creating a new revenue stream for providers, thus stimulating investment in network infrastructure, this provision also risks to crystallise the significant position of some internet giants which could broker advantageous (yet potentially expensive) deals with internet provides, thus threatening new market entrants and innovation.