New EU telecoms rules to spark heated debate

3 Jul 2006

New draft recommendations from the European Commission on telecoms regulation contain far-reaching implications for both the mobile market and the retail telephony market and look set to spark off heated debate amongst telcos and regulators alike, a leading telecoms analyst has warned.

When the new draft recommendations published Friday become final, they will replace the existing documents which define the 18 ‘relevant’ telecoms markets. Relevant markets refer to those susceptible to ‘ex ante’ regulation by national regulatory authorities (NRAs).

According to research firm Analysys, the markets most likely to be impacted include retail voice calls and wholesale internet connectivity.

Unless there is a relevant market and a party found to have significant market power, such as an incumbent operator, no ex ante remedies such as price controls or transparency can be applied.

Without a relevant market, consumers will have to rely on the competitive nature of that market and light-touch regulations applied to telecoms providers.

“The most interesting aspects of the current draft are the removal of a significant number of the markets and the modifications it makes to a number of the others,” says James Allen, principal consultant at Analysys.

“The recommendation also explicitly calls for responses from the industry on a number of contentious issues, which is sure to result in heated discussion.”

According to Allen, under the current draft recommendations, markets withdrawn from the ‘relevant market’ term include retail telephone call markets and the market for retail low-speed leased lines.

“This will give the retail divisions of incumbent operators much greater pricing flexibility for calls (eg discounts for big customers). Only one of the 25 EU NRAs have withdrawn all retail voice call regulation on the basis that there was no relevant market [PTS in Sweden], so this is a bold move by the Commission, moving ahead of the NRAs to remove retail ex ante regulation,” says Allen.

The most significant modification to a market definition, within the draft recommendation, is in the mobile telephony area where the market for mobile termination is extended to include SMS termination.

“Again, the Commission is ahead of most of the NRAs; only the French regulator, ARCEP, has created a relevant market for SMS,” says Allen.

“The most likely effect would be lower wholesale SMS revenues; this does not mean that retail prices for mobile SMS will necessarily fall, though fixed-to-mobile SMS might become cheaper.”

Beyond these important, proposed changes, the recommendation also discusses a wide variety of issues including the vexed issue of self-supply and focuses more on data, broadband and internet than before.

For example, it even discusses whether internet interconnection, or wholesale internet connectivity, would be a relevant market, before deciding against this.

Allen adds: “This is the right answer; internet peering and transit are highly successful and unregulated markets which do not need ex ante intervention.

“An interesting question is why it is discussed at all; perhaps the Commission is trying to put a stake in the ground on this issue,” says Allen.

By John Kennedy