Digital Networks Act proposals have competition implications

Telecoms law experts Jeroen Schouten and Julie Campana, and competition law specialist Tadeusz Gielas, all of Pinsent Masons, were commenting after the proposals were contained in a draft new EU Digital Networks Act (DNA) put forward by the European Commission.

Under the Commission’s plans, there would be an “orderly transition” from legacy copper networks to ‘fibre-to-the-home’ (FTTH) networks across EU member states. Each country would have until 31 October 2029 to prepare a transition to fibre plan – and until 31 December 2035 to ensure their telecoms networks are copper-free, subject to limited exceptions.

The proposals contained in the DNA reflect recommendations made by former European Central Bank president and Italian prime minister Mario Draghi in his 2024 report into EU competitiveness (328-page /11.5MB PDF) in which he called on EU policymakers to “introduce cut-off dates to phase out copper networks” in order to “incentivise the deployment of new infrastructures”.

Draghi said improving broadband speed and capacity is essential if the EU is to compete with other major economies around the world and highlighted how the EU had fallen behind the US, South Korea and Japan on 5G adoption. Draghi said the regulatory regime and approach to competition hinder the ability of EU technology companies to invest in improved digital infrastructure, advocating for more cross-border mergers, greater harmonisation of rules, and a reduction in “country-level ex ante regulation” – which he said “disincentivises investments and risk-taking”. He said a copper ‘switch off’ would “enhance the return profiles of investments in new technologies” that offer improved connectivity.

Schouten said: “Some smaller EU countries have expressed hesitancy regards the idea of a copper switch-off. In some cases, those countries have significant copper-based networks in place owned by national incumbent operators, so there would be a lot of cost involved in upgrading to fibre optic networks with a higher bandwidth.”

“The problem some of those countries have is that the national incumbent operators there often lack the scale to invest significantly in fibre optic network deployment, meaning that it seems likely that there will need to be some further cross-border consolidation across the EU telecoms market if this copper switch-off is to be paid for,” he said.

Campana added: “There are competing public policy issues at play here. On the one hand, strategic analyses undertaken – including by Draghi – highlight the economic benefits on offer from unlocking investment in improved digital infrastructure. On the other hand, achieving the scale necessary within the telecoms market to deliver that investment will almost inevitably mean greater consolidation. More mergers and acquisitions may support efficiency and long-term infrastructure rollout, but they may also risk reducing consumer choice, increasing prices, and raising barriers to entry for small, innovative companies – the likes of which the EU says it is also keen to support.”

Competition law expert Tadeusz Gielas of Pinsent Masons said: “The DNA emphasises the importance and application of EU competition law in the telecom sector, also noting that guidelines for firms with ‘significant market power’ and any ex ante regulatory measures must reflect competition law principles. The Commission will continue to carefully assess mergers to prevent anticompetitive outcomes, and it is anticipated that the ongoing review of the Commission’s EU merger guidelines will lead to a more flexible and pragmatic approach to industry consolidation in sectors critical for preserving Europe’s global competitiveness – including telecoms.”

“By simplifying cross-border rules, the DNA could help facilitate consolidation among telecom operators. Historically the European Commission assessed telecom mergers on the basis of national markets and was reluctant to approve, under EU competition rules, M&A deals that would reduce the number of major telecom firms from four to three. However, the Commission increasingly recognises that EU telecom providers may need greater scale to invest in 5G and fibre, potentially paving the way for cross-border M&A activity in the sector,” said Gielas.

Gielas added: “In the UK, the Competition and Markets Authority (CMA) has recently approved a landmark ‘four-to-three’ telecoms deal conditional on the parties’ commitment to heavily invest in nationwide 5G network rollout; and subsequently adopted a more flexible merger review approach to help support the UK government’s focus on driving economic growth and investment. Likewise the DNA, by facilitating a single EU-wide telecoms market, could help telecoms to scale-up, drive investment, and support the EU’s future digital growth and innovation ambitions including in the development of cloud and AI capacities.”

Also set out in the draft DNA are plans for a single EU authorisation and passporting regime for the provision of electronic communication networks and services.

Currently, relevant providers seeking to operate across the EU must notify each national telecoms regulator in the countries they wish to operate in. They are then subject to the authorisation regimes in place in those jurisdictions.

The European Commission wants to change the current system in two main ways: first, by enabling providers to obtain EU-wide market access on the basis of a single notification; and second, by moving towards a more harmonised authorisation framework – it has proposed to limit the conditions that each EU member state can impose on providers seeking to operate in their national market.

Spectrum management would also be harmonised in the EU, if the Commission’s DNA proposals are implemented.

Spectrum management refers to how radio frequency bands are allocated for use. Currently, notwithstanding the global drive for harmonisation that results from the annual World Radiocommunication Conference, each EU country can decide what purpose the same frequency band is used for and by whom. This can result in inconsistencies within the EU, as well as inefficiencies over the use of spectrum – a finite resource – and interference to services.

A more harmonised authorisation regime for spectrum license holders would also apply, under the plans.

Schouten said the proposals stand to benefit the biggest telecoms operators operating on a cross-border basis, as it would reduce the burdens entailed in obtaining spectrum licenses across multiple national markets in the EU.

He said: “At the moment, telecoms operators wishing to acquire rights to use spectrum across the EU must engage with individual national telecoms regulators, which in many countries are under-resourced and operate slow and opaque licensing processes. A move towards a more open, centralised market would benefit such companies, but it would diminish autonomy at member state level in spectrum allocation. Reducing autonomy has direct consequences for the availability of spectrum for smaller, innovative technology providers, for example, those providing internet-of-things connectivity, and for the allocation of spectrum for use by local private networks.”