The European Union is struggling to shift into higher gear on the internet. After promising to take action for over a year, the European Commission will be presenting its recommendations this autumn. They are meant to encourage investment in next-generation networks while preventing a return to monopolies on this new market. For European officials, ultra-fast optical fibre networks offer unhoped-for potential for innovation by allowing new online content and services, which translate into growth and new jobs.

The figures speak for themselves: only 1% of Europeans have an optical fibre internet connection, compared with 12% in Japan and 15% in South Korea. The United States is also ahead of the EU, but just barely, with only 2% penetration. The Commission nonetheless failed to tackle the question of investment in ultra-fast networks as part of the EU’s recent telecoms reform (the telecoms package) completed at the end of 2009. Germany and certain other countries were very critical of this failing, along with the European Parliament and the giants of the sector, France Telecom, Deutsche Telekom and Telefónica.

The deployment of new internet networks in Europe, expected to cost hundreds of billion of euro and to take years to complete, is now identified as one of the Union’s priorities. The goal is to connect all Europeans to basic broadband (DSL) by 2013 compared with 93% in 2008, but above all to reach 100% high-speed coverage (at least 30 megabits per second) by 2020 compared with 23% today, with 50% of European households having an ultra-fast connection (more than 100 megabits per second).

The Commission’s delay in publishing its recommendations confirms the importance of the initiative, which is nevertheless not binding in nature (although national courts will have to take the recommendation into account in the event of litigation between operators). Pressure on the EU executive is building up. Unlike the former monopolies, the new telecoms competitors generally lack the financial means to take on the huge investment required to build such networks or the customer base to ensure a return on investment. The ‘new entrants’ consequently stress the need to maintain for fibre networks the current European rules that guarantee competing operators access to the copper networks of the former monopolies through price regulation at national level. “On optical fibre, the duplication of networks would be costly and inefficient,” confirms the Commission in a recent version of its draft recommendation obtained by Europolitics. The idea is to strike a balance between providing incentives for investment in the new networks and maintaining competition and low prices on telecoms markets.

COMMON PRINCIPLES

The general objective of the future recommendation is supposedly to “speed up deployment of the internal market by increasing legal certainty and encouraging investment, competition and innovation on the high-speed market, particularly during the transition to the new networks”. The Commission will argue that common “principles” are needed for the different national policies that regulate the new networks. The national regulators, for example, could impose “long-term access prices” on new entrants, which wish to access this infrastructure. This would ensure a return on investment for the network owners. Other possible options could be to give competitors a refund if they agree to lease a certain number of lines from the dominant operator or to grant network builders a “risk premium” on top of the access price billed to competitors.

According to the draft recommendation, risk assessment will depend on demand – on both wholesale (between operators) and retail (sales to consumers) markets – on population density and regions covered (especially for urban areas where risk is considered to be lower), on the cost of deployment and the degree of competition.

Another common principle the Commission could suggest is “equivalence” between the services of the dominant operators and those of new entrants. In other words, the network owners must not be allowed to discriminate against their competitors to enhance the value of their own internet services.

PRESSURE FROM INDUSTRY

The industry is sure to keep up the pressure on the Commission until the EU recommendations are published in September or October. On one side, the former monopolies and main investors in the new networks, represented by ETNO, are pressing for “more targeted regulation,” ie varying in intensity in terms of competition in a given region. They also seek “greater flexibility” in network access prices and above all risk-sharing mechanisms between network builders and competitors wishing to access their infrastructure. The Commission’s Digital Agenda recognises that “co-investment and risk-sharing mechanisms should be promoted”. This represents an evolution in a policy focused until now on competitors’ access to markets.

On the other hand, the new entrants, represented by ECTA, are calling for European “non-discrimination” principles. Regulations on the new fibre networks vary widely from one country to the next, notes ECTA, “ranging from explicit restrictions on access adopted in Germany and Spain to the total absence of regulatory action in a number of member states and to fibre unbundling measures to offer greater choice to consumers in the Netherlands”.

With these recommendations on the new networks, the telecoms package, which member states will have to apply by May 2011, will supposedly help prevent further competition problems in the telecommunications sector, including fibre.

Only 1% of Europeans have an optical fibre internet connection, compared with 12% in Japan and 15% in South Korea