TCS Daily


Brussels Calling

By Guoda Steponaviciene - October 19, 2005 12:00 AM

The European Commission is planning to review the EU's electronic communications regulatory framework next year, including defining an efficient spectrum management strategy. This sounds serious. Considering its vaunted effort to create "growth and jobs" one would expect essential changes to finally realize Europe's ICT (Information communication technology) economic potential; this goal is repeated constantly in the context of the Lisbon agenda. But should we really expect the Commission to admit the suppressive nature of the present regulatory framework?

In the middle of 2005, two documents were released that already give us a hint about where the Commission is headed. The first one is the Commission staff working document -- RSPG (Radio Spectrum Policy Group) opinion on secondary trading of rights to use radio spectrum and the Review of the scope of universal service in accordance with article 15 of directive 2002/22/EC.

Just like all material resources, radio spectrum is scarce. Its distribution, done by regulatory authorities rather than the market, doesn't ensure the highest efficiency possible. A logical solution, already in place for decades in Australia and New Zealand, is secondary trading of rights to use radio spectrum. This idea was considered at the Radio Spectrum Policy Group in the late 2003. After public consultations and a study on secondary trading by outside consultants the RSPG presented its opinion.

The response was lukewarm -- as always when it comes to market liberalization in the EU. "The RSPG considers that secondary spectrum trading could be beneficial in certain parts of the spectrum, provided that sufficient safeguards are implemented by administrations to ensure that the potential benefits of this introduction are not offset by adverse consequences". This statement sounds correct, supporting an obvious truth that in some cases some solutions could be efficient. However, this is supposed to be a policy statement, pinpointing the trend to member states' administrations in modeling an efficient spectrum policy. In this case, it doesn't indicate any change.

More than that, the RSPG foresees a highly restricted way of trading, with the regulators' right to withdraw the authorization for reasons of public interest, and the idea to keep administrative incentive pricing along with trading. The present statements on the efficient spectrum policy do not promise sufficient changes to ensure this efficiency. They are politically correct, but this kind of efficiency cannot be politically correct by definition as it implies the removal of inefficient market players.

In reviewing the scope of universal services the EC raises several questions: Is fixed telephony still a universal service? Are mobile telephony and broadband already universal services? And, who should carry the costs of universal services?

The answers provided, I suppose, are satisfactory for the bulk of market participants because, most importantly, no extension of the scope of universal services is foreseen. The answers aren't a surprise either, as the trends indicated in the EC's document are based on the past years' statistics and were already felt in the market back in 2002.

The review concludes that mobile communications meet the criterion of use by a majority of consumers, but it also meets the criterion of availability due to high geographic coverage and flexible pricing. Therefore it can not create social exclusion. For this reason, mobile telephony is not recognized as universal service but will be further considered as a part of review process.

Broadband is not yet used by the majority of population so it won't be considered as universal service but must be also kept under review because its usage is growing rapidly.

The conclusions on the fixed telephony are not as clear as the previous two. The Commission admits that mobile telecommunications and broadband access are the major service changes with implication for the scope of universal service. Mobile telephony has already taken a share from the fixed telephony market and the broadband is at the beginning of this process which, most likely, will accelerate.

This means that fixed telephony is losing its importance as a universal service. The most logical act to follow would be to question weather it is still reasonable to keep universal service obligations (public phones, etc.) for fixed telephony, while consumers can chose mobile telephony with even greater coverage and pricing convenience. The conclusion presented in the review is purely formal: "fixed telephony service meets the criterion of availability to and use by a majority of consumers and must therefore remain in the current scope of universal services"...

But if suddenly one remembered that universal services are supposed to solve the problems of people in real need and these services do have costs covered in any case by consumers, the conclusion wouldn't look simple at all.

If people who can't afford fixed telephony have access to mobile telephony (as admitted by the EC in the same review), why must certain fixed telephony services still be provided not on the market bases? Is it because one service is fixed to a place and the other to a person? This is just one more artificial criterion that makes no sense to real consumers.

Another concern is cost. The price of unnecessary universal service has to be covered by somebody. Remember the sound goals of Lisbon: efficiency, economic growth. Presumably these apply to all economic agents. In light of an EU-wide battle for economic dynamism and efficiency such logical inconsistencies look rather strange. The Commission's current e-communication policy demonstrates once again how regulatory decisions lag behind market solutions. No wonder, despite all the talk, that the EU fails to meet its Lisbon goals.

The author is Vice-president of the Lithuanian Free Market Institute

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