FTTH Council Neelie Kroes Milan 10 feb 2011

SPEECH/11/93Neelie KroesVice-President of the European Commission responsible for theDigital AgendaThe right regulatory environment forrolling out Next Generation NetworksFibre to the Home Council Europe Conference,Milan, 10 February 2011

Ladies and Gentlemen,It is great to be here with you looking at our digital future. I hope to find new digitalbuddies today, and that we will be able to implement the Digital Agenda and build abetter future for Europe together.At the heart of the Digital Agenda is ensuring that Europeans can get all theadvantages and benefits that come from access to superfast broadband.Succeeding in this ambition is central to our economic future.Maximising broadband access obviously takes a mix of players and a mix oftechnologies, and the role of fibre is central. You are not our only consideration, butyou are absolutely key. It not possible to maximise access while failing on fibre. Thatis how seriously we take your issues.While the EU broadband market is moving towards higher speeds because of fibreand cable, time is against us. The current rate of new connections – now down to25,000 a day – is simply not enough to meet our 2020 targets. So we have tointensify our efforts and get higher investments on the ground.I am convinced that regulatory clarity is crucial for such investments. Thats why oneof the first key actions of my mandate as Digital Agenda Commissioner was theadoption of the long awaited NGA Recommendation.The NGA Recommendation indeed brings more clarity for both regulators andinvestors. It ensures a consistent regulatory approach across Europe. This clearerframework should help make the choices and investments that will lift Europe’soverall competitiveness.The Recommendation is carefully drafted to preserve investment incentives for theroll-out of next generation networks. But at the same time it ensures that suchnetworks remain open to alternative operators, in order to allow competition inbroadband services for the benefit of European consumers.You might ask: “how will the Recommendation help us increase investment?”First, in setting cost-oriented prices for third-party network access, regulators willhave to take investment risk fully into account by means of a risk premium. Thatwould mean regulated firms could continue making attractive margins and earn verysolid returns on capital invested. In the present climate of lower yields in many assetclasses, this increases the attractiveness of NGA investments.Second, the NGA Recommendation allows regulated firms significant price flexibilitywhen they deploy Fibre to the Home (FTTH). In particular, the Recommendationallows setting lower access prices to the unbundled fibre loop in return for up-frontlong-term or volume commitments. It does this while ensuring that efficientcompetitors are not squeezed out of the market.These provisions strike a good balance between investment incentives and theneed to protect competition. It took long and intense discussions with stakeholdersto agree on these principles. So in my view, everybody should now play by the rules.It is disappointing to see that some NRAs have departed significantly from importantprovisions of the Recommendation. And that includes regulatory measures in largeMember States which clearly deviate from the core principles of theRecommendation. 2

There are NRAs which believe that we do not need price control and cost orientationfor access to the fibre network. Other NRAs make such access subject to scarcelyjustified conditions. And then we see cases where symmetric regulation goes so farthat non-dominant operators appear to face a disproportionate regulatory burden.Whatever may be the variations in local conditions, I am afraid that these highlydiverse national approaches will not contribute to a stable European approach toNGA roll-out and competition.The Commission will work hard to improve on this. And to turn the good provisionsof the Recommendation into good practice, we will provide our full support to NRAsand BEREC.We want all players to have access to the same fair investment conditions, and wewant to make sure there are good consumer offers from the start. That is why theNGA Recommendation places special emphasis on competition, in particular:- fair access prices; and- strictly-enforced non-discrimination obligations imposed on dominant vertically integrated network operators.In relation to both these points we will work closely with BEREC, NRAs and you, theindustry, to come up with a set of key principles. Consistency across Europe isessential.This is both a matter of fairness and of maintaining the best possible investmentclimate.For example, getting the access price right has to work on several levels. Incomegained from selling access needs to be at levels that would not prohibit the sellerfrom investing in the transition from copper to fibre.Some argue that regulators need to force copper access prices lower in order to cutmargins. In that line of thinking fibre becomes a more attractive investment, andthere is more competition on copper networks. Perhaps.We need to bear in mind, however, that much cheaper copper prices may erodebroadband retail prices and, as a result, make fibre based products less attractive toinvest in.We cannot afford to lose sight of the bigger picture. We have to see that it might beunwise to save a small amount on broadband access today, at the expense of futuredevelopments - and many euros of lost income - because of poor networks.At the same time, we cannot put ourselves in a situation where unreasonably highaccess prices kill off competition. In such a scenario an oligopolistic market withpoor networks and services will again be the likely long-term outcome.What I believe matters most is that access products need to be priced in aconsistent manner and along some good modelling principles.Consistency means that access prices for products which are part of the same valuechain should be calculated according to the same cost standard. And goodmodelling principles should induce regulators to be as faithful as possible to thecosting model chosen.Only then can we ensure that we get both: the right incentives for a migration toNGA and the prospect that access seekers can still climb the ladder of investment. 3

In line with that effort, it is also critical that we strictly monitor the actions ofdominant network operators which are vertically integrated. Too often such firmstend to discriminate against competitors in favour of their own downstreambusiness. This is quite predictable, but never acceptable. I urge national regulatorsnot to hesitate to take action against any company found doing this.But giving guidance is not the only way in which we can assist. The revised telecomframework confirms the central role of the Article 7 procedure in promoting acompetitive Single Market. Indeed, it now grants the Commission the power to opena second phase investigation on the appropriate and consistent application ofremedies. And we are ready to use this new tool to ensure a properly functioningmarket.This is not a warning but a request for deeper cooperation. Once the new telecomframework is in place, we will work hard with the BEREC and individual NRAs to ironout any serious inconsistencies in the application of remedies. Such inconsistenciesin similar situations could, otherwise, undermine the internal market in electroniccommunications which we are all striving for.Across the board, we take the view that similar regulatory challenges should be metwith similar tough rules and remedies in all Member States. Europe does not need27 approaches to NGA challenges.In conclusion I say that neither regulators nor operators can address our broadbandchallenges alone – we need each other. For my part, while I drive a hard bargain, Iam also your biggest supporter. Thank you. 4

FTTH Council Neelie Kroes Milan 10 feb 2011

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FTTH Council Neelie Kroes Milan 10 feb 2011 — Document Transcript