Promoting Competition in the New EU Member States' Electronic

Communications SectorInstitutional Aspects

Anna PisarkiewiczAnna Pisarkiewicz

European University InstituteEuropean University Institute

Outline of the presentationOutline of the presentation

1.1. The importance and developmentThe importance and development of the electronic of the electronic communication sectorcommunication sector

2.2. Historical background: development of Historical background: development of telecommunications in Central and Eastern Europe (CEE)telecommunications in Central and Eastern Europe (CEE)

3.3. The infringement proceedings against new EU Member The infringement proceedings against new EU Member StatesStates

4.4. Adequate and well-balanced institutional setting as a Adequate and well-balanced institutional setting as a prerequisite for effective regulation of the sector.prerequisite for effective regulation of the sector.

5.5. ConclusionsConclusions

Why is the telecoms sector so Why is the telecoms sector so important for Europe?important for Europe?

Electronic communications: the largest segment (44.5%) of the Electronic communications: the largest segment (44.5%) of the overall ICT sector with an annual turnout of €289 billion (ICT - overall ICT sector with an annual turnout of €289 billion (ICT - €649 billion), accounting for around 4% of the jobs in the EU€649 billion), accounting for around 4% of the jobs in the EU

Reliance of economic and social activities on telecoms services Reliance of economic and social activities on telecoms services and infrastructureand infrastructure

Rapidly changing market (the growth of voice-over-internet Rapidly changing market (the growth of voice-over-internet protocol telephony, VoIP; the uptake of television services through protocol telephony, VoIP; the uptake of television services through broadband lines)broadband lines)

Prices charged by the telecom sector Prices charged by the telecom sector → a direct cost of doing → a direct cost of doing business in Europebusiness in Europe

Benefits to the consumers: prices have fallen on average by Benefits to the consumers: prices have fallen on average by around 30% in the past decadearound 30% in the past decade- - against an average price increase of 20%against an average price increase of 20%

Introduction of competition →Introduction of competition → higher standard of services + higher standard of services + increased responsiveness of the former PTOs to the existing increased responsiveness of the former PTOs to the existing market conditions and consumer demandsmarket conditions and consumer demands((European Commission, 12th ImplementationEuropean Commission, 12th Implementation Report, SEC (2007) Report, SEC (2007) 403403))

2. Historical background2. Historical background 44

Phases in the development of European Phases in the development of European telecommunicationstelecommunications

1. 1. MonopolyMonopoly:: The starting period: from late 19th century until 1987 The starting period: from late 19th century until 1987

2. 2. LiberalizationLiberalization::

a. The Regulatory Model of the Green Paper Phase: 1987-1996a. The Regulatory Model of the Green Paper Phase: 1987-1996

b. The Transitional Model of 1992 Review and 1994 Green Paper: b. The Transitional Model of 1992 Review and 1994 Green Paper:

1996-19971996-1997

c. The Full Liberalization Model: 1998-2003c. The Full Liberalization Model: 1998-2003

3. 3. New Regulatory FrameworkNew Regulatory Framework Phase: 25 July 2003 – November Phase: 25 July 2003 – November 20072007

4. 4. Reforming the current telecom rulesReforming the current telecom rules: November 2007 – up to : November 2007 – up to nownow

2. Historical background2. Historical background 55

Telecommunicationsas Natural Monopoly

TelecommunicationsAs Competitive Marketplace

Competition

Privatisation

Liberalisation

Deregulation

Monopoly

State --> private ownership

more than one operator

lifting of price regulation

COMPETITION = Market driven supply, User choice of services, and Lower prices

Phases in the development of European Phases in the development of European telecommunicationstelecommunications

MonopolyEarly Deregulation

NationalCompetition

InternationalCompetition

Incumbent is King:

Preoccupation with:

Drivers: Drivers:

• Infrastructure• Interconnect• Coverage• Product

Management

• Pricing Schemes

• Segmentation

• Loyalty Programs

• Service Quality

• Global Alliances

• Intense

Customisation

• Multi-Service Packaging

• Roaming

Consolidation

Drivers:

• Global Alliances

• Shake-out• Horizontal

Integration• Converged

services

• Infrastructure belongs to one operator• high price level• limited service availability

From Monopoly to ConsolidationFrom Monopoly to Consolidation

Historical background:Historical background:development of telecommunications in the EECdevelopment of telecommunications in the EEC

Specific strategies and problems in theSpecific strategies and problems in the development ofdevelopment oftelecommunications in CEE:telecommunications in CEE: High priority of broadcasting v. low priority of High priority of broadcasting v. low priority of

telecommunicationstelecommunications Diverse paths of development in CEE before World War IIDiverse paths of development in CEE before World War II

- some facilities owned bycompanies, such as Ericsson- some facilities owned bycompanies, such as Ericsson

Yalta and Postdam (1945): nationalization of the Yalta and Postdam (1945): nationalization of the subsidiaries of foreign telecom providerssubsidiaries of foreign telecom providers

The Marxist-Leninist view: The Marxist-Leninist view: material productionmaterial production as the as the only source of economic welfare and growthonly source of economic welfare and growth

The existence of enormous competing needsThe existence of enormous competing needs Substantial gap between urban and rural areasSubstantial gap between urban and rural areas

Historical backgroundHistorical background

Political: the need to control information flowPolitical: the need to control information flow Cold war: isolation of the CEE telecom industryCold war: isolation of the CEE telecom industry Western policy of curtailing the East’s ability to buy advances Western policy of curtailing the East’s ability to buy advances

telecommunications technology from the West: tight export telecommunications technology from the West: tight export restrictions for „sensitive technology”restrictions for „sensitive technology”

Political changes of 1989: telecommunications infrastructure Political changes of 1989: telecommunications infrastructure becomes crucial for the economic growthbecomes crucial for the economic growth

State run monopolies in the West v. in the East: the legacy of the State run monopolies in the West v. in the East: the legacy of the former Communist regime.former Communist regime.

Challenges: enormous financial investments needed, but the Challenges: enormous financial investments needed, but the creation of a regulatory environment has proven to be even more creation of a regulatory environment has proven to be even more challengingchallenging

Convergence phasesConvergence phases inin CEE CEE

1990 2002 –200?

Consolidation of Market Economy,

candidate into EU and NATO

EU post accession

Period

Knowledge based economy

and information Society

RegainingIndependence,Establishingdemocracy

2010

Number of infringement proceedings in the Number of infringement proceedings in the electronic communications sectorelectronic communications sector

(incorrect implementation)(incorrect implementation)

EU-15EU-15(41 infringement proceedings)(41 infringement proceedings)

Germany: 6 Germany: 6

Belgium, Finland: 5 Belgium, Finland: 5

Luxembourg, Portugal: 4 Luxembourg, Portugal: 4

Austria, Netherlands, Spain: 3 Austria, Netherlands, Spain: 3

France, Greece, Italy, Sweden: 2 France, Greece, Italy, Sweden: 2

Denmark, Ireland, UK: 1Denmark, Ireland, UK: 1

EU10+2EU10+2(54 infringement proceedings)(54 infringement proceedings)

Poland: 11 Poland: 11

Slovakia: 7 Slovakia: 7

Cyprus, Latvia: 6 Cyprus, Latvia: 6

Malta: 5Malta: 5

Estonia: 4Estonia: 4

Lithuania, Slovenia: 3Lithuania, Slovenia: 3

Bulgaria, Czech Republic, Hungary: 2Bulgaria, Czech Republic, Hungary: 2

Romania: 1Romania: 1

Main issues in the infringement proceedingsMain issues in the infringement proceedings(number of proceedings)(number of proceedings)

1.1. 112 emergency number: 15112 emergency number: 15

2.2. Failure to carry out market review: 11Failure to carry out market review: 11

3.3. Directory services: 11Directory services: 11

4.4. Independence and effectiveness of NRA: 6Independence and effectiveness of NRA: 6

5.5. Privacy Directive (SPAM): 6Privacy Directive (SPAM): 6

6.6. Must carry: 5Must carry: 5

7.7. Restrictions of power of NRA on the wholesale level: 4Restrictions of power of NRA on the wholesale level: 4

8.8. Restrictions of power of NRA on the retail level: 2Restrictions of power of NRA on the retail level: 2

Main issues in the infringement Main issues in the infringement proceedingsproceedings

1.1. Independence and effectiveness of NRA: 6 Independence and effectiveness of NRA: 6 proceedings:proceedings:Bulgaria, Cyprus, Luxembourg, Poland, Bulgaria, Cyprus, Luxembourg, Poland, Slovenia, SlovakiaSlovenia, Slovakia

2.2. Restrictions of power of NRA on the Restrictions of power of NRA on the wholesale level: 4 proceedingswholesale level: 4 proceedingsGermany, Poland, Slovakia, FinlandGermany, Poland, Slovakia, Finland

3.3. Restrictions of power of NRA on the retail Restrictions of power of NRA on the retail level: 2 proceedingslevel: 2 proceedingsGermany, SlovakiaGermany, Slovakia

Institutional setting as a prerequisite Institutional setting as a prerequisite for effective regulationfor effective regulation

„„The development of a new and stable institutionalThe development of a new and stable institutional frameworkframework

for more democratic,for more democratic, more market-oriented economies inmore market-oriented economies in

thesethese countriescountries [CEE] [CEE] cannot be accomplished by simply cannot be accomplished by simply

freeingfreeing prices and introducing privateprices and introducing private ownership of capital but ownership of capital but

needs more encompassing institutional reforms”.needs more encompassing institutional reforms”.

(Blanchard, Dornbusch, Krugman, Layard & Summers, 1991; Clague (Blanchard, Dornbusch, Krugman, Layard & Summers, 1991; Clague

& Rausser, 1992; Murrell, 1991)& Rausser, 1992; Murrell, 1991)

Expected increase in a number of disputes that may arise:Expected increase in a number of disputes that may arise:1.1. TThe need to clarify existing rules through court interpretationhe need to clarify existing rules through court interpretation2.2. Differences between the 2002 and 1998 framework and it can Differences between the 2002 and 1998 framework and it can

be expected that more differences will emerge once the be expected that more differences will emerge once the revision process of the current framework is completedrevision process of the current framework is completed

3.3. Legal weaponry as an instrument to improve market situationLegal weaponry as an instrument to improve market situation4.4. Multi-level adoption and application of numerous rules that Multi-level adoption and application of numerous rules that

market players have to comply with: national, European and market players have to comply with: national, European and international.international.

[1][1] Nihoul, P. and P. Rodford (2004). Nihoul, P. and P. Rodford (2004). EU Electronic Communications Law: EU Electronic Communications Law: Competition and Regulation in the European Telecommunications MarketCompetition and Regulation in the European Telecommunications Market, Oxford , Oxford University Press.University Press.

Effective dealing with an increased number of disputes: Effective dealing with an increased number of disputes: various (institutional) mechanisms established under the various (institutional) mechanisms established under the 2002 regulatory framework.2002 regulatory framework.

Institutional setting as a prerequisite Institutional setting as a prerequisite for effective regulationfor effective regulation::its practical importanceits practical importance

Institutional setting as a prerequisite:Institutional setting as a prerequisite:building a delicate balancebuilding a delicate balance

1.1. timely implementation of timely implementation of a a flexible legislation flexible legislation that can follow the rapidly changing market that can follow the rapidly changing market ((legislative powerlegislative power) )

2.2. adequately empowered independent national adequately empowered independent national regulatory authorities (exercising prerogatives regulatory authorities (exercising prerogatives of the of the executiveexecutive) and finally, ) and finally,

3.3. independent and sufficiently equipped independent and sufficiently equipped knowledgeable courts (knowledgeable courts (judiciaryjudiciary).).

Institutional setting as a prerequisiteInstitutional setting as a prerequisite::National Regulatory Authorities (NRAs)National Regulatory Authorities (NRAs)

Independence of NRAs: legal basis Article 3(2) Framework Independence of NRAs: legal basis Article 3(2) Framework

Directive 2002/21/EC:Directive 2002/21/EC:

““Member States shall guarantee independence of national Member States shall guarantee independence of national regulatory authorities by ensuring that they are fully distinct from regulatory authorities by ensuring that they are fully distinct from and functionally independent of all organizations providing and functionally independent of all organizations providing electronic communications networks, equipment or services. electronic communications networks, equipment or services. Member States that retain ownership or control of undertakings Member States that retain ownership or control of undertakings providing electronic communications networks and/or services providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory shall ensure effective structural separation of the regulatory function from activities associated with ownership or controlfunction from activities associated with ownership or control.”.”

Institutional setting as a prerequisiteInstitutional setting as a prerequisite::National Regulatory Authorities (NRAs)National Regulatory Authorities (NRAs)

Independence of NRAs in the infringement proceedings:Independence of NRAs in the infringement proceedings:

1.1. The CRC, The CRC, BulgarianBulgarian NRA: NRA: • Doubts with regards to the division of regulatory functions Doubts with regards to the division of regulatory functions

between the NRA and the State Agency for Information between the NRA and the State Agency for Information Technology and Communications.Technology and Communications.

• Lack of the legal and functional independence from the Lack of the legal and functional independence from the operators (the State Agency’s Chairperson was a member of operators (the State Agency’s Chairperson was a member of the incumbent’s board).the incumbent’s board).

• State’s preferential share on the incumbent = veto rights on State’s preferential share on the incumbent = veto rights on certain decisionscertain decisions

• Lack of sufficient human and financial resourcesLack of sufficient human and financial resources

2.2. CyprusCyprus has failed to ensure independence of NRA from all has failed to ensure independence of NRA from all operators of electronic communications networks and/or services operators of electronic communications networks and/or services as the Minister of Communications and Works as well as the as the Minister of Communications and Works as well as the Council of Ministers while empowered with regulatory prerogatives Council of Ministers while empowered with regulatory prerogatives were also controlling the incumbent. were also controlling the incumbent.

Institutional setting as a prerequisiteInstitutional setting as a prerequisite::National Regulatory Authorities (NRAs)National Regulatory Authorities (NRAs)

3. 3. In Slovenia, In Slovenia, the Ministry involved in the managing of the fixed-line incumbent, the Ministry involved in the managing of the fixed-line incumbent, which itself controls the largest mobile operator, has some regulatory tasks. which itself controls the largest mobile operator, has some regulatory tasks. APEK, the Slovenian NRA, has been mostly criticized for its lack of initiative when APEK, the Slovenian NRA, has been mostly criticized for its lack of initiative when acting as a supervisor of remedies imposed on operators with SMP.acting as a supervisor of remedies imposed on operators with SMP.

4. 4. The Polish The Polish telecom NRA, UKE, has been deprived of its independence when the telecom NRA, UKE, has been deprived of its independence when the government has passed on 24th August 2006 the law on state personnel, which government has passed on 24th August 2006 the law on state personnel, which has granted the Polish Council of Ministers (Prezes Rady Ministrów) an unlimited has granted the Polish Council of Ministers (Prezes Rady Ministrów) an unlimited discretion to dismiss the head of the national regulatory authority. At the same discretion to dismiss the head of the national regulatory authority. At the same time, provision laying down a 5-year term of office has been removed from the time, provision laying down a 5-year term of office has been removed from the 2004 Telecommunications Act together with another provision including an 2004 Telecommunications Act together with another provision including an exclusive list of circumstances in which the head of the NRA could be dismissed. exclusive list of circumstances in which the head of the NRA could be dismissed.

5. 5. Slovakia Slovakia has initially failed to separate regulatory functions from the has initially failed to separate regulatory functions from the management of the incumbent operator, both exercised by the Ministry of management of the incumbent operator, both exercised by the Ministry of Transport, Post and Telecoms. This failure has been recently addressed through Transport, Post and Telecoms. This failure has been recently addressed through the amendment of national legislation, which has transferred the Ministry’s the amendment of national legislation, which has transferred the Ministry’s shareholding in the incumbent to the Ministry for Economy. Such separation of shareholding in the incumbent to the Ministry for Economy. Such separation of regulatory and operational functions allowed the Commission to close the regulatory and operational functions allowed the Commission to close the proceedings, which have been initiated in April 2005 when Slovakia received a proceedings, which have been initiated in April 2005 when Slovakia received a letter of formal notice. letter of formal notice.

National Regulatory AuthoritiesNational Regulatory Authorities

The age of regulatory institutions and its impact on theThe age of regulatory institutions and its impact on the

effectiveness of regulation: TRANSPARENCY:effectiveness of regulation: TRANSPARENCY:

1.1. Lack of experience and expertiseLack of experience and expertise

2.2. Learning experienceLearning experience

(risk of copying policies of the EU-15 without assessing (risk of copying policies of the EU-15 without assessing

them)them)

Institutional setting as a prerequisiteInstitutional setting as a prerequisite::national courts and judicial review of NRAsnational courts and judicial review of NRAs

Right of appeal: Article 4 Framework Directive 2002/21/EC:Right of appeal: Article 4 Framework Directive 2002/21/EC:

„„Member States shall ensure that effective mechanisms Member States shall ensure that effective mechanisms exist at national level under which any user or undertaking exist at national level under which any user or undertaking providing electronic communications networks and/or providing electronic communications networks and/or services who is affected by a decision of a national services who is affected by a decision of a national regulatory authority has regulatory authority has the right of appealthe right of appeal against the against the decision to an appeal decision to an appeal body that is independentbody that is independent of the of the parties involved. This body, which may be a court, shall parties involved. This body, which may be a court, shall have the have the appropriate expertise availableappropriate expertise available to it to enable to it to enable it to carry out its functions. Member States shall ensure that it to carry out its functions. Member States shall ensure that the merits of the case are duly taken into accountthe merits of the case are duly taken into account and that there is an effective appeal mechanism.and that there is an effective appeal mechanism.

Institutional setting as a prerequisiteInstitutional setting as a prerequisite::national courts and judicial review of NRAsnational courts and judicial review of NRAs

Example: PolandExample: Poland

If the appeal is granted, SOKiK (Competition and Competition If the appeal is granted, SOKiK (Competition and Competition Tribunal) shall overrule the challenged decision in parts or in the Tribunal) shall overrule the challenged decision in parts or in the entirety, or amend the challenged decision in parts or in the entirety, or amend the challenged decision in parts or in the entirety and rule on the merits. (Art. 479(64) KPC (Polish Code of entirety and rule on the merits. (Art. 479(64) KPC (Polish Code of Civil Procedure)Civil Procedure)

[…] SOKiK is not a regulatory authority within the meaning of […] SOKiK is not a regulatory authority within the meaning of Article 190 of the Polish Telecommunications Act and there are no Article 190 of the Polish Telecommunications Act and there are no grounds to expect that it would be creating regulatory policy w in grounds to expect that it would be creating regulatory policy w in the substitution of the President of UKE. The court’s role is limited the substitution of the President of UKE. The court’s role is limited to justice (Article 175 par. 1 of the Polish Constitution), and it to justice (Article 175 par. 1 of the Polish Constitution), and it consists in a controlling function and not a creative one.consists in a controlling function and not a creative one.[1][1]

[1][1] (2007). Telekomunikacja Polska S.A. v. Prezes Urzędu (2007). Telekomunikacja Polska S.A. v. Prezes Urzędu Komunikacji Elektronicznej, SOKiK. Komunikacji Elektronicznej, SOKiK. Sygn. akt XVII AmT 17/07Sygn. akt XVII AmT 17/07..

ConclusionsConclusions

Infringement proceedings: institutional issues arise mostly Infringement proceedings: institutional issues arise mostly in the new EU Member States.in the new EU Member States.

Fragmentation of regulation: should Fragmentation of regulation: should aan institutional n institutional harmonization follow the substantial harmonization in the harmonization follow the substantial harmonization in the European Community electronic communications law?European Community electronic communications law?

A sufficiently clear, fast and adequate appeal process for A sufficiently clear, fast and adequate appeal process for the decisions issued by the national authorities should be the decisions issued by the national authorities should be put in place in all the Member Statesput in place in all the Member States: : is it desirable to have is it desirable to have a wide scope of judicial review? (especially given lack of a wide scope of judicial review? (especially given lack of proper expertise)proper expertise)

Does consistent application of the EC rules require Does consistent application of the EC rules require homogeneous standards for judicial review across all 27 EU homogeneous standards for judicial review across all 27 EU Member States?Member States?