Examination of Witnesses (Questions 160-174)
Mrs Viviane Reding, Mr Ken Ducatel and Mr Peter Rodford
27 FEBRUARY 2007
Q160 Lord Geddes: To an extent you
have already answered this question, Commissioner, but, for the
record, let me ask it in full. Why did the Commission go for both
retail regulation as well as wholesale? The evidence we have heard
from the operators so far—but they would say that, wouldn't
they?—is that if you left the regulation just at wholesale
level, retail would sort itself out because of competition. You,
however, have gone for both. Can you explain why, please?
Mrs Reding: Because of the sheer evidence that,
in the past, it has not worked. Who knows? It might work in the
future. However, we have the evidence that the reductions on wholesale—which
have happened over the last two years and there were reductions
in wholesale, in the business links between the operators—in
nearly all the cases, at any rate in most cases, those reductions
have not come down to the retail level. These were more of an
advantage in business-to-business relations but not an advantage
in business-to-customer relations. The European Regulators Group,
the ERG, has written in black and white that this did not work.
That was the first evidence I had. The second was when I asked
the operators, in October 2005 with the website, to bring down
their prices—and they did not do it. I clearly saw that
giving the freedom to the market to solve the problem was leading
us nowhere. I do not like regulation. I am a Luxemburger. Luxemburgers
are rather non-regulatory people. We do not like that. However,
if it is necessary, then you have to go for it. That is a political
responsibility. Here we are clearly in one of those exceptional
cases where you have to have exceptional means in order to solve
a problem. Believe me, I would have preferred, having started
the transparency move with the website, that the market solved
the problem. We saw that the contrary was taking place.
Q161 Lord Geddes: When you gave us
in your introductory remarks the very interesting results of the
survey, you said—and the percentages themselves do not matter—that
a lot of, let me call them individuals, more than 50 per cent,
replied that if prices went down to normal they would use the
phone overseas.
Mrs Reding: Yes.
Q162 Lord Geddes: To an extent I
am leading you, Commissioner, but I am doing it deliberately.
Is that one of the reasons why you wanted retail regulation as
well? Because the "normal" in the context of the example
you gave is me. It is not the big business; this is the individual.
What I am interested in is the normal retail price. Is that one
of the many reasons why you have gone for regulation on retail
as well?
Mrs Reding: I have gone to regulation on retail
because I have seen that wholesale reductions were not passed
on to the citizens. We are in a double logic here. First, we are
in an internal market logic. The internal market does not function,
because you are punished when you cross a border. For instance,
I say to our students, "Go abroad for six months or one year
of Erasmus studies, because it will open your mind". At the
same time, we are punishing them when they want to communicate
while they are abroad. The same thing is happening to small and
medium businesses, where our Heads of State and of Government
say, "Get rid of this distortion of competition". It
is first a question of internal market, therefore, and then it
is the question of consumer rights and citizens. Citizens can
do nothing to avoid these high costs. Citizens also know that
there are many promises around, but very few operators have turned
these promises into fact. Let me take one or two business models.
There is the one which you probably know best, Vodafone. Vodafone
prices have gone down, and they are sure to achieve their targets
by next year. When I look at Teléfonica O2, there has been
an announcement but no price reduction yet. FreeMove Alliance,
there has been an announcement but little action on retail prices.
In the end, what does that say? That only a very small margin
of consumers—the normal consumers, our voters—see
the difference. I would like them to see the difference, without
having the operators going out of business; because we need this
business to thrive. That is why the ceiling which I proposed was
rather generous, so that business can work under this ceiling.
You can indeed make this ceiling at different levels but what
is important in the end is that the consumer, the normal consumer,
who travels to Spain, to the university, or who goes on business
to France, will see the difference and will utilise mobiles more.
I had probably my biggest discussion as a politician in Luxembourg,
because the income of the Luxemburger operators on roaming is
30 per cent. Normally it is five per cent of the total income
of an operator; in Luxembourg it is 30 per cent. Of course, they
were shouting against me and saying that I was going to bury them
all; but our calculations have shown very clearly that this will
be an equilibrium, because the volume of mobile use abroad will
be much higher. In our Europe-wide inquiry, 15 per cent of people
do not even take their mobile with them when they go abroad—because
they are afraid of the cost. If, because they know what the costs
are, they utilised their mobile in a normal way while they were
abroad—and it does not come as a surprise once they get
home—this will change the situation dramatically.
Lord Geddes: I wonder if I can move on
to my second question, My Lord Chairman, because the Commissioner
has moved very close to that, namely the convergence of rates
and competition.
Chairman: Please do.
Q163 Lord Geddes: There is an argument
that your approach will lead to a convergence of pricing and therefore
a reduction in competition. Would you comment on that?
Mrs Reding: I hear that continuously. In Luxembourg
they have even threatened to increase the national mobile phone
prices dramatically. That is something I do not see; because,
again, the ceiling is high enough in order to allow competition
and, secondly, because competition is functioning at the national
level. It is not functioning in cross-border activities, and that
is why we need to do that. You know perfectly well what the price
offers are at the national level, and the price competition is
very fierce. Imagine for one moment that one of those operators
starts to raise prices. It would simply go out of business. Secondly,
imagine that they all start to increase prices. Now we will have
fun in competition law!
Q164 Chairman: I have two points before
turning to Lord Lee, if I may. Has any research been done, or
what are the conclusions of the Commission's studies, into the
coefficient of the price elasticity of demand at the consumer
level? Perhaps we could have some information on that. Commissioner,
I think you argued that, with a reduction in price, there would
be a significant increase in demand. I am using the word "significant".
It would be interesting to know what assumptions economists have
made about the coefficient. More importantly, perhaps I may follow
on the point made by Lord Geddes on the retail level. We do understand
your arguments about the difficulty of having an operators' average
at the wholesale level—because of the difficulty of obtaining
information, perhaps the variance of degree of thoroughness of
some of the national regulators—but at the retail level
it is much easier to calculate an average. In the United Kingdom,
we know what the retail volume is in terms of the number of minutes
and we know what the prices charged are; therefore, our national
regulator can calculate whether someone has been above, in a six-month
period, an average retail price cap. Are you at all influenced
by that argument or do you still stick to the absolute cap?
Mrs Reding: Regarding the first question on
where we get our evidence from, you know that before we could
move—and it is a general rule for the work of the Commission—we
had to make this impact assessment. We did this on the basis of
the figures of the national regulatory authorities, on independent
financial research and academic studies. This was accepted by
both the Parliament and the Council. It has subsequently been
confirmed by at least three studies that I know of. The first
is the Copenhagen Economics Study. This was asked for by the European
Parliament. It was a recent study for Gordon Brown on the internal
market, and so it is very serious. They confirm our figures. Then
the Ofcom data has been used by A.T. Kerney for a Strasbourg seminar
on 17 January. They come to a similar result. The latest one is
Morgan Stanley last week, and it comes to similar results. So
the evidence seems to be the same. That is the more economic part
of our business. The consumer organisations issued a study last
week, 20 February. All the consumer organisations are in BEUC,
Bureau Européen des Unions de Consommateurs. They
assume that volumes will increase as prices come down. You have
this kind of evidence. However, in terms of an answer to the main
question, which is the economic evidence, I think that our impact
assessment was subsequently confirmed by these three bodies, and
all this is in January/February. Regarding the elasticity question,
the fact that when prices fall volumes go up, the Vodafone Europe
analysis shows that earnings from roaming before tax and depreciation
would decline by 0.5 per cent. So that is very insignificant indeed.
As you see, therefore, we have not based ourselves on one single
evidence, but we are collecting the evidence from the different
players, always acknowledging that the origin of the analysis
shows a lot about the results of the analysis. That is why you
need analysis from different points of view. However, I am confident
that the basic evidence which is on the table is that which is
sound.
Q165 Chairman: And the question about
your willingness to consider averaging at the retail level as
opposed to the wholesale level?
Mrs Reding: I prefer the very simple, non-administrative,
non-complicated, and not-leading-to-legal-uncertainty solution.
Have I mentioned the figures? The possible combination—the
6,400 possible relations. Who will (a) calculate that, (b) control
it and (c) be sure that the outcome of this calculation is not
contested in court? I want to have a solution which is applicable
and which is not creating work for law firms.
Mr Ducatel: We have 80 telecom mobile service
providers providing infrastructures in Europe, which creates a
matrix of 80 by 80 and hence 6,400 relationships which would have
to be mapped, if you take an averaging-type approach. This is
what the Commissioner talks about—which, in bureaucratic
terms, is marvellous. It is lots of jobs.
Q166 Chairman: I understand that, but
I am obviously failing to understand something. I am now talking
at the retail level, where you only have 80 operators, who can
measure the average retail price. You do not have to go back to
the network operators, because there is an absolute cap, as proposed.
Mrs Reding: But this is linked.
Q167 Chairman: It is linked; it is part
of the price—but it comes out in the retail price.
Mrs Reding: Yes, but if we have to calculate
the average, we have to calculate all these possible combinations.
Setting up the very simplistic website was already a nightmare,
because you have innumerable possible combinations when you are
roaming in Country B, with Operator X or Y. It is extraordinarily
complicated and there are extraordinarily big calculations. I
do not want—because I hate it—a regulation which will,
from the administrative point of view, make it even worse than
what we have today. I want to simplify it, so that it is crystal
clear to everybody. That is the reason why we have chosen the
ceiling based on the numbers of the national regulators: to make
it simple and not to have those calculations which would be necessary.
If you have a model where consumers get their ceiling and those
who want to opt out can get something else, you do not need supplementary
safety nets. Then it is clear. If you have another model, in order
to protect the consumer you need a safety net, and that is where
the complication starts. Retail averaging would still have to
calculate averages on the basis of volumes and revenues for all
operators, in all markets. Who will do that? Who will control
it?
Q168 Chairman: Just to answer the question
by Lord Geddes, at the retail level I think that your proposal
would be equivalent to 43¢ per minute. Am I correct? 130
per cent of the wholesale cap?
Mrs Reding: Around that.
Q169 Chairman: 42.9¢ per minute.
Mr Rodford: Depending on the weighting but,
yes, and which year's data you take.
Q170 Lord Lee of Trafford: Commissioner,
some operators have voiced concerns over the legal basis for this
regulation. Probably Vodafone would be singled out as the lead
in this regard. What is your position in relation to the use of
Article 95 and the whole possibility of a legal challenge?
Mrs Reding: You can imagine that, having the
responsibility of this domain and knowing what will be the storm
in the business, I made sure that the legal basis was sound. I
therefore asked both the legal service of the Commission and the
legal service of the Council and they both agreed that Article
95 was sound regulation, because action by Member States alone
in a cross-border problem is not enough. So it is a question of
internal market. Internal market objectives ask for internal market
regulation, and this is Article 95.
Q171 Lord Lee of Trafford: So you
feel that you are on pretty safe ground, as it were, with the
regulation?
Mrs Reding: Yes. By the way, nobody is discussing
it any more. That was at the beginning, when everything was tried
in order to block me from going ahead with this. That was one
of the things, but I have not heard it lately. Have you?
Mr Rodford: It came up in the Council working
group last autumn.
Mrs Reding: Last autumn. So it has not come
up since then.
Q172 Baroness Eccles of Moulton:
Commissioner, you said to us at some stage that, on the whole,
you would prefer less rather than more regulation. On that basis,
could you tell us what your view is about the possibility of a
sunset clause? I am not asking you too much about the sunrise
clause, because I rather gather that that would not be entirely
thought to be a good idea. However, a sunset clause which would
limit the time that these regulations would be in place—what
would be your view on the possibility of using it, and how it
could be applied and calculated?
Mrs Reding: There was a lot of discussion at
the beginning about a sunrise clause and a sunset clause. A sunrise
clause has been left by everybody, because everybody understood
that it would mean having the whole regulation much later and
with a lot of calculations. It is again what I said about the
average. That would also have happened with a sunrise clause,
and that would have been a nightmare. So no one speaks about that
any longer. A sunset clause? As I told you at the beginning, I
am not a friend of regulation and I believe that you need regulation
only if you have a problem. You do not need regulation if you
do not have a problem. I could very well imagine that, after some
years, there is no more problem and so you no longer need the
regulation. That could be a possible way out, but I will leave
that to the lawmakers, to the Council and to the European Parliament,
to decide upon. However, it is in the logic. By the way, I did
exactly the same in my proposal for the reform of the electronic
communications package, where I have also proposed taking six
out of the 18 relevant markets for analysis. Regulation is there
only as long as competition does not work. When competition works,
you can get rid of regulation. Therefore, this kind of regulation,
in its logic, is bound to fade out or to be eliminated.
Q173 Baroness Eccles of Moulton:
Is it important from the outset to establish in the lawmakers'
minds that these are regulations that in a sense should not be
there anyway? They are only there because market forces have not
worked; and therefore to get it into their thinking early on that
this is so important that those who quite like regulation continuing—because,
as we think, they prefer regulation to non-regulation—are
not given a chance to make sure that these regulations run for
as long as possible, because it has been part of the thinking,
right from the word go, that these are temporary measures.
Mrs Reding: I do not have it in front of me
now, but I think that in my basic text there was a clause de
rendezvous—a review after two years. So this as already
included in my basic text. It was not that, "Okay, we put
that there and it is going to last". My basic text had the
review clause. I have it here now. Article 12, "Review procedure".
This could be made even stronger, and then lead to what you have
in mind: to some kind of sunset clause. As you have understood,
it is something that I would be willing to think about, together
with the Parliament and the Council.
Q174 Chairman: I have a final question.
It may be improper but, because we know you have the competence
within your directorate for these matters and we are not speaking
to the Competition Commissioner or the Internal Market Commissioner,
it would be helpful to know. Can you shed any light on the convergence
of views or can you draw our attention to any public statements
made by either of those two Commissioners on this specific subject?
Mrs Reding: The proposal of the Commission was
a consensus proposal, as are all the proposals of the Commission.
So it is in complete accordance with, mostly, the Commissioner
for Competition, because she and I were working very closely indeed.
For instance, we share responsibility of the Article 7 analysis,
where ex-ante regulation and ex-post regulation have to work together.
She knows that the moment the ex-ante regulation gives its results—that
is, of opening the market—she will have more work, because
then it goes to the normal competition law. She also knows that
we are not there yet. This is an old story. I have read a speech
by my former colleague, Commissioner Mario Monti, who in 2001
banged his fist on the table and said, "Enough is enough.
We have to do something about it". Sometimes it takes time.
Now we are in 2007 and I hope that we get it done.
Chairman: Thank you very much indeed. It is an
appropriate point to end our meeting. We are extremely grateful
to you. You have been very clear. Our Clerk will send a transcript
to your office for correction if necessary. Thank you, and good
luck!
|
