Competition is the European people’s champion

Being a liberal economist today isn’t so easy. At times, it can almost feel like being a member of a sect: everybody whispers about them but nobody confesses to being one.  However when I read Mrs. Kroes speech at the Digital Agenda Summit organized by ETNO and the Financial Times in October 2011, the little liberal economist hidden in me awakened.

It was a speech designed to make an impact and for sure its effect was felt far beyond the auditorium and its audience of mainly telecom incumbent execs. Personally, it reminded me of all those stories of failure we see in the Economic Faculty about the Planning State of the sixties when a good willing State thought it could pick up winners, steer investment and decide what was best for consumers. This was a bad idea then, and a bad idea now but we’ll come to that later.

So to Mrs. Kroes’ and her services ideas, which surprised many of us in the cable industry by focusing not on a ONE operator-Plus model, i.e., a competitive landscape characterized by an incumbent plus competitive networks, but instead on a single ONE network operator model consisting of just one network.

Let’s look at this idea in more detail. According to the ONE network operator model, service providers simply become users of the Network in the same way that vehicles – whether cars, trucks or lorries – use a highway. Who exactly owns or deploys this “highway”, whether local governments or a private company like Telefonica or Deutsche Telekom, is a secondary issue. The dominating philosophy is that it makes sense to have but ONE network, and that service competition will naturally flow by granting third parties access to the “highway” at mandatory cost-oriented prices, or even below if that serves someone’s industrial policy objectives.

It’s an idea which already influences the Commission’s rules on state aid, as according to the 2009 Commission Guidelines for the Application of State Aid rules on the deployment of broadband networks, if a private operator does not plan to deploy fibre within 3 years, governments can deploy a network using public resources. While access to THE network will be mandatory, we still end up with ONE network. It is also woven into the Commission’s Recommendation on Next Generation Access, where a model of service competition – against one of infrastructure competition – is set around the principle of cost-oriented access to the incumbent’s NGA network.

And finally the idea was present at Mrs. Kroes speech that I mentioned at the outset: A high-speed network is a policy priority –the market wants it or not- and thereby the incumbent MUST deploy that ONE high-speed network to which all other service providers will connect, and if he doesn’t want to I will force him by either offering a carrot (I will not intervene your copper prices and promise a soft fibre regulation) or a stick (I will regulate your copper prices at zero).

How does this approach connect with the idea of the ONE network? By manipulating the regulated prices of the incumbent, a negative impact is exerted too on all alternative networks which are placed at disadvantage vis a vis non-network service providers. At the end we may see ourselves in a scenario where arguably only the incumbent will develop a NGA network.

This causes the liberal economist in me to want to stand up and say something. First of all, Economic Faculty stories of the 1960s did not turn out to have happy endings. Many state-sponsored champions failed, many decisions allegedly taken to favour consumers turned against them and, in telecoms, recent history has proven that it is infrastructure competition and private initiative, not industrial policy, that has benefitted consumers in the form of innovation, higher broadband penetration and better networks.

Likewise, the liberal economist in me cannot help but persist in thinking that infrastructure competition is the best market “regulator” and that maybe infrastructure competition among “highways” is still delivering results to the benefit of the consumer.  Thanks to cable, for example, half the households in Europe can already access broadband speeds of over 30Mbps and most of those whose homes are passed by cable can get much faster. By 2020, they will be able to get 100Mbps. By investing on average 23% of capex in our networks compared to 12% by incumbents, cable has kick-started a broadband speed race wherever it has a presence: the big beneficiary time and again has been the European consumer.

To focus on ONE network would be to dismiss these benefits and the role that other network owners such as mobile and cable companies can play in achieving a highly developed Information Society in Europe . Does it really make sense to endanger this? The debate will run and run and as responsible stakeholders we look forward to a framework for next generation access in Europe that is best for consumers and best for the tax payer. As some of you would no doubt agree there is life in liberal economics yet.

Disclaimer: the views discussed in this article are the author’s own.

Cable Congress 2012


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