A new pan-EU telecoms market - what it might look like

Out-Law Analysis | 06 Feb 2013 | 2:12 pm | 5 min. read

FOCUS: The European Commission's bid to create a more unified telecoms market across Europe could bring about the end of roaming charges, but only if operators get something in return. 

The Commission is reportedly planning to put in place measures to encourage the creation of a pan-EU telecoms market, one in which operators and customers could provide and buy services across national borders more easily than they can just now.

Telecoms operators usually work on a national basis and claim that fragmented regulation and the high cost of building infrastructure abroad make this the best way to operate. Where they operate in a number of countries, as Telefonica and Vodafone do, it is usually through subsidiaries, with licence from the parent to behave differently in each country.

If change is coming it is useful to examine what each group of people wants, and what the likely outcome of negotiations will be.

What does the Commission want?

The Commission wants there to be a single market for telecoms in the European Union. This means that providers could operate across national borders and that they would behave the same way towards users in Germany as they would towards users in Spain.

It believes that this will increase competition, and that this would in turn deliver lower prices for consumers and business users. It would also make it more likely that roaming charges would disappear, which has been a long term aim of the Commission. Roaming charges have already been subjected to significant regulation by the Commission.

The Commission sees the existence of national markets within the EU as a hindrance to those goals, whilst it also wants industry to provide the infrastructure capacity needed to keep pace with the growing consumption of data through mobile technology in particular.

For all of this to happen there would almost certainly need to be a single regulator for all EU telecoms.

What do users want?

Users want lower prices and an end to roaming charges. Users in countries where charges are higher look across borders to neighbouring countries and wonder why users there pay less for the same service and from a company often tied to the same parent firm.

What do operators want?

The larger operators want a single regulator for telecoms, or at least much more co-operation and harmonisation of regulation. This would make it easier and cheaper to do business in the EU because one they would no longer have to comply with 27 different sets of regulations.

They also want it to be easier to share network infrastructure between themselves without triggering competition investigations. They want to be able to take advantage of the network infrastructure rivals have already built, such as through sharing of radio frequency spectrum or licensing agreements for the use of network cables. In addition they also want EU competition rules to be relaxed so that it is easier to takeover smaller operators based abroad.

Whilst operators want one regulator, they want any integration to stop short of a full EU-wide market.

What happens next?

The Commission has said it will seek to make it easier for telecoms operators to expand their business across the EU, and formal plans are expected to be announced later this year, according to a recent report by the Financial Times.

The Commission has already set out some initiatives to encourage network sharing between rivals. Last year it called on national telecoms regulators across the EU to create a regulatory environment that better enables spectrum sharing and one which incentivises market players to participate.

There are approximately 1,200 fixed-line providers currently in operation across the EU and nearly 100 other mobile network operators. In addition there are approximately 200 mobile virtual network operators (MVNOs) – companies that offer consumers services under their brand but which contract others to provide those services. For example UK MVNO Virgin Mobile's services are provided by Everything Everywhere and Tesco's MVNO Tesco Mobile is supplied by O2.

Telecoms firms believe the fragmentation of the market makes investing in new infrastructure a less attractive proposition, and that it would be in the European Commission's interests to sanction a greater consolidation of the market.

Though a reduction in the number of telecoms firms operating may seem to run counter to the Commission's aim of creating more competition, the EU Commission is keen on a harmonised market containing large companies operating in a consistent way across borders.

Making it easier to complete cross-border mergers and takeovers in the market will arguably foster investments in telecom infrastructure and will provide the kind of benefits to consumers that the Commission is seeking to deliver.

French telecoms operators have cautiously welcomed the prospect of a single EU telecom market. Stéphane Richard, chief executive of France Telecom Orange, has said that there was no chance of such a market developing whilst 27 different national regulators exist and are responsible for overseeing their part of the EU market.

The horse trading over how a new EU telecoms market should function could deliver an end to the network terminantion charges that consumers hate so much, but there may just be too many vested interests for this to happen. The Commission's best chance at creating this single market would be to accept greater network and spectrum sharing by operators in return for the elimination of roaming charges.

This greater spectrum sharing is a more realistic aim that full pan-EU integration. A pan-European telecoms infrastructure used by all telecoms firms is great in theory but is not practically achievable in the short term.

The sharing will only be possible, though, if the Commission can successfully put pressure on national telecoms regulators to allow this. Change is only really possible if a new central regulatory body is given increased control over national regulatory bodies, but this is not going to happen any time soon. The Commission suggests that this is not an option at present, meaning we will be left with 27 national regulatory authorities (NRAs) and BEREC (the Body of European Regulators for Electronic Communications).

When telecoms regulation was last reformed the Commission wanted to take control over the NRAs, but backed off to such an extent that its only power is make recommendations to them. Therefore, one option may be to increase the control that a central regulatory body may have over the NRAs.

The problems that regulators can create were illustrated by the number of regulatory hoops that O2 and Vodafone had to go through in the UK to engage in network sharing. It is likely the European Commission will propose an easing of these competition restrictions to promote more sharing.

But in return for making it easier for operators to consolidate the Commission may force operators to share their networks and equipment with smaller companies. Regulators have already done with fixed line operators across Europe. This would increase competition, which is the Commission's main aim. The pooling of competitors' telecoms infrastructure will make it easier for companies to compete in markets they could otherwise not reach.

An increase of the capacity utilisation of telecom infrastructure will most likely make it easier for small telecoms to gain access to infrastructure on terms which allow those small telecoms to compete with the former monopolist telecoms.

The result of the coming negotiations is likely to be a compromise based on infrastructure sharing, and not the pan-EU borderless telecoms market the Commission hopes for.

Jon Fell, Florian Von Baum and Emmanuel Gougé are telecoms law experts at Pinsent Masons, the law firm behind Out-Law.com