‘Inconsistencies’ Plague EU Telecom Regulation, Reding Says

E-communications services continue to represent the largest segment of the information & communications technology sector, according to the report for the period ended Oct. 1, 2006. Of sector revenue of about 649 billion last year, 289 billion derived from fixed and mobile telephony, fixed data services and cable. Investment rose 5% over 2005’s to 47 billion, making the 4th straight year of capital spending increases.

Fixed voice telephony continued to decline, though it’s still the chief source of revenue in the fixed market. Broadband is the fastest growing segment, helping offset the decline in voice revenue, but the gap in penetration rates among countries is widening, the report said. Revenue from mobile services slowed as the mobile voice market matured: Penetration is 103% and there are over 478 million mobile users in Europe. After a tough year in 2005, the financial outlook for major players “brightened slightly in 2006,” it said.

The regulatory environment is more problematic, the EC said. EU25 countries finished adopting the e-communications regulatory framework (NRF) into national law last year -- newest members Romania and Bulgaria are working on it -- and national regulatory authorities (NRAs) have completed most market reviews required by the NRF. But many regulatory inconsistencies remain, the report said. Some national regulators aren’t truly independent and are subject to political pressure. Appeals against NRA decisions drag on for years. Radio spectrum management is fragmented and inefficient, and many countries are lagging in deploying the pan-EU 112 emergency number. There are very different remedies for similar competition problems.

The report analyzed regulation in each country but singled out for critism Germany, which recently amended its telecom law to allow for “regulatory holidays” for new services such as Deutsche Telekom’s (DT) VDSL fiber line. The EC is concerned that the revised law “will exempt markets from regulation under conditions less onerous than those set out under Community law,” the report said. The EC has filed a fast-track infringement case against Germany for enacting the law. Germany’s broadband penetration rate is too low and based too much on DT resale products, the EC said, and the govt. continues to delay various market definitions and remedies, such as bitstream wholesale access.

A Few Surprises

The report contained several surprises for Europe’s telecom sector. The European Competitive Telecom Assn. (ECTA) issues its own reports on how well the NRF is working and many of the report’s messages mirror its own, Regulatory Affairs Mgr. Ilsa Godlovitch told us. But ECTA questioned the EC’s assertion that there’s effective competition in mobile markets. According to the report, the number of mobile services providers continues to rise, and competition is producing lower prices. But some ECTA members, seeking to offer a truly pan-EU service to business customers, have failed to negotiate contracts with operators in various countries -- suggesting the market may not be as healthy as some think, Godlovitch said.

Overall, the EC’s linkage of effective competition, high broadband penetration and greater investment in new networks is exactly what ECTA expected, Godlovitch said. ECTA supports the Commission’s proposal to include as a competition remedy the functional separation of an incumbent’s network from its service offerings, she said. But ECTA members oppose the EC’s proposal to deregulate some markets before they're fully competitive.

Incumbent operators were surprised that, despite increased competition, greater investment and more broadband uptake, the EC concluded it needs the additional remedy of functional separation. “Such a far-reaching and costly remedy, almost possible to reverse, is not appropriate in today’s competitive environment,” said European Telecom Network Operators’ Assn. (ETNO) Dir. Michael Bartholomew. The key to competition is for all players to be able to upgrade to next-generation access networks, an ETNO spokesman said. And as new content-based offerings such as YouTube become more mass-market, requiring higher bandwidth and more down- and upload capacity, Europe’s providers will have problems, he said. Functional separation isn’t the best way to encourage them to invest in access networks.

DT rivals said the report reinforces their view that broadband competition isn’t thriving in Germany. It “makes clear that a lot of the growth in the sector doesn’t come from new and improved alternative infrastructures, but from simple resale of the incumbent’s service,” attorney Axel Spies said on behalf of the German Competitive Carriers’ Assn. (VATM). Taking resale into account, Germany is actually near the bottom of Europe’s broadband rankings, Spies said.

Inconsistencies Limit VoIP Services

Numbering schemes available for VoIP services vary greatly throughout the EU, the report sad. Several countries allow providers to offer geographic and non-geographic numbers, and others restrict geographic numbers to certain kinds of VoIP services. “The shortcomings limit the ability of market players to offer Europe-wide services,” the EC said, adding that it will look at ways to address the issues in the upcoming regulatory framework review.

The U.K. Office of Communications (Ofcom), meanwhile, detailed how it will regulate VoIP. In a statement Tues., the regulator said it will: (1) Require VoIP providers to comply with the code of practice on consumer information for public electronic communication services. (2) Modify the definition of a publicly available telephone service so that the only services number that have the right to number portability are those available to the public for making and receiving national and international calls and access to emergency services through a normal telephone.

Ofcom’s move toward a more rigid regulatory scheme may have “unfortunate implications” for U.K. businesses and consumers, the Internet Telephony Services Providers’ Assn. (ITSPA) said. Providers worry that VoIP will be subject to stricter regulation than any other technology in the U.K. telecom industry. Moreover, the new rules will be hard to enforce against providers based overseas that market their services in Britain, and the extra regulatory costs will put U.K. companies at a disadvantage to international rivals, ITSPA said.