Memorandum by British Telecom
What has the impact of the recent enlargements
of the European Union been on the single market?
1. It is debatable whether national telecoms
regulators in many of the new Member States are adequately resourced
or fully independent. In the light of the argument set out in
the answer to the next question and the shift of many companies'
manufacturing operations to the region in question, the potential
impact of these shortcomings extends far beyond the telecoms sector.
Are there significant barriers to firms seeking
to offer their goods or services, or to consumers accessing these
goods or services, in other Member States of the European Union?
If so, what are the most important of those barriers? What measures
are needed to overcome those barriers?
2. Services account for 70% of EU employment
and value-added but only 20% of intra EU trade. The potential
tradability of services across borders is nevertheless high. This
is particularly true with regard to high-value, knowledge-intensive
services—design, finance, IT, legal advice, marketing etc—which
account for a high proportion of the retail price of physical
products. In contrast to haircuts and household plumbing, there
is no requirement for these services to be produced in their place
of consumption.
3. Information and Communication Technologies
(ICT) allow corporations to rationalise "in-house" provision
of such services in the most appropriate geographical sites. Similar
benefits can be achieved by outsourcing of the same functions
so that firms are able to focus on their core competencies. Such
moves form part of a new business paradigm characterised by a
shift away from vertically-integrated "command-and-control"
organisations towards "flatter" structures—often
in the form of multiple firms working together in long-term relationships.
4. Taking account of the opportunities for
cross-border service provision that are offered by ICT and this
new business paradigm, there is clear scope for the EU to realise
significant additional Single Market benefits (greater competition,
economies of scale, specialisation, global competitiveness etc).
Consequently, BT strongly agrees with the emphasis on a "Single
Market for Knowledge" found in the Commission's interim Single
Market Review report to the Spring 2007 European Council.
5. In order to realise this vision numerous
obstacles need to be overcome, but improved "connectivity"
is one necessary condition. Investment in computers is not alone
sufficient to enable radical changes in finance, design, production
and marketing processes. Computers must also be effectively linked
together. As several commentators have suggested, the failure
of Europeans to do this may explain why ICT investment has had
a lower impact on productivity in the EU than in the US.
6. This failure can, in turn, be partly
attributed to obstacles faced by providers such as BT which seek
to offer seamless pan-European communications to large businesses.
Foremost among these obstacles is the widespread absence of "fit-for-purpose"
local access products which are needed to link the widely-dispersed
sites of multinational corporations and for which, in many cases,
the incumbent operator remains the only source of supply.
7. This situation results from the fact
that, to date, debates on EU telecoms regulation have generally
focused on the needs of residential telecoms users rather than
major business customers. In order to ensure the future vitality
of the Single Market and the health of the European economy, BT
believes there is an urgent need to redress this balance.
8. Our argument is summarised in the following
diagram and is set out in more detail in a recently-published
collection of studies by prominent academics, consultants and
business telecoms user-representation groups.[5]
BT's views on the way forward are set in our answers to the Committee's
other questions below.
What is your view of the Country of Origin Principle,
whereby a company registered to provide services in one Member
State is automatically qualified to provide those services in
any other Member State on the basis of home country regulation?
Does this Principle constitute the best basis for single market
measures?
9. BT strongly supports the Country of Origin
principle and remains concerned by draft legislation which may
undermine it in the e-commerce and broadcasting areas—particularly
for contracts involving consumers. This may mean that an online
service provider has to be aware of 27 different sets of national
rules and thus may shy away from providing pan-EU services.
Do the concepts of the "national champion"
and "economic nationalism" pose a threat to the single
market?
10. BT perceives a strong correlation between
continued state ownership of former monopoly operators and inadequate
implementation and enforcement of EU telecoms regulation.
11. In addition, the drive to encourage
companies to invest in next generation broadband access networks
poses a threat to the existing level of service competition as
large operators argue for regulatory forbearance in return for
new investment. When this investment is seen in terms of national
performance and international league tables, the risk to service
competition is intensified.
Is the EU telecommunications market genuinely
cross-border at present?
12. In the fixed telecoms sector, market
liberalisation—particularly local loop unbundling (LLU)—has
provided significant opportunities for cross-border investment.
However, the increased competition associated with LLU has necessarily
been limited to geographic areas where the density of potential
customers provides new entrant service providers with the economies
of scale needed to justify the required investment. As a general
rule, such density is available only to operators targeting households
and small firms.
13. Operators which have the provision of
services to large businesses as their main focus occupy a very
different position. Such customers typically require the simultaneous
connection of multiple, widely-dispersed sites. Even after aggregation
of the needs of all potential customers, the density of these
sites will justify investment in local access only in very few
cases. In most areas, provision of services to large businesses
on the basis of infrastructure competition will remain uneconomic
for the foreseeable future and the purchase of local access links
from the incumbent operator remains a key input.
14. Regulation of such links varies widely
between Member States. In many cases inadequate application of
EU rules on accounting transparency, and the absence of published
service performance indicators (delivery times, repair times etc)
mean that incumbent operators' obligations to provide customers
with non-discriminatory prices and service levels cannot be effectively
enforced. A further problem is the practice of incumbent operators
resorting to appeal procedures, which involve suspension of NRA
decisions and take several years to complete.
15. In such a context, a cross-border operator
wishing to offer business customers a similar service in a number
of Member States faces considerable difficulty obtaining suitable,
comparable products and services, and may not have access to inputs
equivalent to those used by the incumbent operator's retail arm.
16. This situation creates major distortions
of competition. Where an incumbent operator is able to take advantage
of a regulated input in another Member State but it is not mandated
to supply the corresponding wholesale service in its home market,
it is unfairly advantaged when bidding for the supply of integrated
business services covering the two countries in question.
Is the current EU regulatory framework for telecommunications
sufficiently technology neutral?
17. In principle, yes. But at national level
there has been a tendency for NRAs to define markets in terms
of current technologies or specific standards. Local access links
configured to work with the Ethernet technical standard provide
a striking example. Although retail versions of this product are
rapidly becoming ubiquitous, provision of a wholesale equivalent
is mandated only in four Member States (including the UK). In
the light of the lower costs associated with the Ethernet standard,
this situation is distorting competition elsewhere in the EU.
Against this background, requirements for technology neutrality
could usefully be reinforced.
Does this regulatory framework require modernisation?
18. In order to solve the problems identified
in previous answers, a number of points require attention:
— Proper implementation of the existing
regime's requirements regarding accounting transparency and key
performance indicators.
— An addition to the menu of remedies
which NRAs can use to deal with an operator with Significant Market
Power so that it is possible to impose a requirement for full
"equivalence of inputs" between the operator's retail
arm and its wholesale customers (by functional separation, if
appropriate).
— Introduction of a requirement for
NRAs' market analyses and choice of remedies to take account of
the particular circumstances of business users.
— Introduction of time limits for court
decisions in appeal cases and tightening of the rules on interim
injunctions which suspend NRA decisions.
— Establishment of fully-independent
NRAs.
— Enhancement of the role currently
played by the European Regulators Group (ERG) in promoting harmonised
national-level implementation of EU requirements (eg, more detailed
best practice recommendations and a requirement for NRAs to explain
in detail when they decide not to adopt the recommendations).
— Establishment of additional Commission
veto powers over remedies proposed by NRAs which are likely to
be ineffective or to take effect too slowly (possibly subject
to a formal opinion from the ERG and the surveillance of the European
Court).
19. Other points which BT believes should
be addressed in the current Review of the E-Communications Framework
include the following:
— Greater flexibility in radio spectrum
use.
— Adaptation of various telephony service
rules to cope with a non-metallic and/or IP service.
— Universal service rules and funding
arrangements.
Further details on these points may be found
in BT's reply to the Commission's recent consultation on the Review.
See
http://ec.europa.eu/information_society/policy/ecomm/doc/info_centre/public_consult/review_2/comments/bt_2006r_nov_consultation.pdf
29 June 2007
5 The Economic Benefits from Providing Business with
Competitive Electronic Communication Services.
http://www.btplc.com/Thegroup/Regulatoryinformation/Consultativeresponses/BTdiscussionpapers/Electronic/index.htm Back
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