The envisaged purchase of a controlling stake of Telecom Italia by Chinese investors (Hutchison) is shaking the debate about the future of the Italian telecommunications market, and also raising questions about consequent implications: will Telefonica stay or leave? Should Telecom Italia’s fixed network be separated? And so on.

However, a preliminary analysis should be dedicated to the fact that antitrust authorities (the European Commission, eventually in coordination with the Italian competition authority) will have a say on the entire operation. To time, an authorization to the merge appears unlikely, at least on the basis of the information publicly available.

Hutchison is reported to contribute its Italian assets, i.e. the company 3 Italia (a mobile operator owning around 10% of the Italian mobile market) into Telecom Italia, so as to get a corresponding shareholding. The industrial integration resulting thereof is likely to rise competition concerns, because of the relevant market position of Telecom Italia in Italy (being the biggest operator in the mobile market, together with Vodafone, and the dominant one in the fixed). A consolidation of the market to the benefit of a dominant player will not be welcomed by antitrust authorities, while a similar operation taking place amongst minor players would have more chances to succeed. To make an example, last year in Austria a merge between two minor players (Orange and Hutchison, respectively n. 3 and 4 in the Austrian mobile market) was finally cleared, although with difficulties and subject to the imposition of specific remedies (a mandatory MVNO access, inter alia). Therefore, it is unlikely that a merge between Telecom Italia (the n. 1 in Italy) and 3 Italia (the n. 4 in the mobile market) will receive an easy green light.

Remarkably, this is a problem not only for Telecom Italia. The other Italian mobile players, namely Vodafone and Wind, would welcome 3 Italia to disappear by whatever merge, because this operator is the more aggressive one in the market in terms of tariffs. The consolidation of the market into only three operators (Telecom, Vodafone and Wind) would decrease competition and allow the operators left to stabilize their businesses and maybe even increase prices.

Telecom Italia is well aware of the above antitrust constraints and since months, supported by other historical operators such Dutsche Telekom ecc., is going around in the EU claiming that the European Commission (namely DG Competition headed by Commissioner Almunia) should lift mergers conditions in order to favour  industrial consolidation and especially market integration. This campaign is however based on fragile assumptions: in order to enhance markets integration, Telecom Italia and other incumbents should propose cross-border merges (i.e. between operators based and operating in distinct European markets), not transaction taking place within national borders. Even Almunia confirmed in various occasions that national consolidation is not helping European integration, while cross-border merges would.

(in other posts in my blog I explained that European historical operators have no interest in European integration, since they can extract more profits from territorial fragmentation, like in the case of international roaming)  

To conclude: the purchase of Telecom Italia’s stake by Hutchison cannot take place by way of exchange and integration with 3 Italia. The Italian subsidiary of the Chine Group will likely need to be sold to a third party to let the entire transaction to go ahead. A potential purchaser will likely be an operator already present in Italy, which could get benefits from the integration. It could be the case of other mobile operators (Wind), fixed altnets (Fastweb, Tiscali or BT) or even MVNOs wishing to climb the infrastructure ladder. Therefore, Telecom Italia will have to be carefull in order no to reinforce too much the competitors.

A kind of accident for the liberalization of the collecting society sector, occurred today in Luxembourg at the European courts, will not however stop the process. 

The General Court of the European Union has partially annulled a very important decision of the European Commission concerning anticompetitive coordination in the field of copyright management. The decision at stake accused CISAC (an association representing around 100 collecting society in the world) together with around 20 of its European member to restrict competition by way of concerted practices as well as by recommending the use of anticompetitive contractual clauses (exclusive and affiliation conditions).

This decision will be certainly flagged with excitement by European collecting societies, a sector which in the recent times was regularly accused of of a variety of sins: lack of transparency and innovation, excessive prices, ridicule administrative costs, old-fashioned business models, artificial market fragmentation and anticompetitive practices. Fact is, a directive aimed to radically reform the sector is currently discussed between Parliament and European Council.

However, the annulment decision does not mean declaration of innocence. Firstly, parts of the anticompetitive allegations (namely exclusivity and affiliation clauses) have been confirmed. Secondly, with regard to the existence of concerned practices, the court was not convinced of the evidences brought by the European Commission, which does not mean – however – that the conducts at stake are legitimate. It will be up to the European Commission to be more convincing at higher levels (Court of Justice) or to start another investigation in order to collect more substantial evidences. Thirdly, the simple fact that the court confirmed that the contractual clauses recommended by CISAC were anticompetitive is a clear indication that the sector is affected by a large competitive problem. However, this presumption is not sufficient to prove the existence of a concerted practice under antitrust legislation, and the Commission failed on that.

Despite the outcome of the above decision, we can say that the effects of the European Commission’s investigation have been somehow achieved in any case. Following the condemnation in 2008, some collecting societies started to modernize and move ahead, developing practices which previously were rare: multi-territorial licenses, exception to territorial limitations, representations of foreign authors and commercial users ecc. Although the sector continue to be rigid and delayed by historical legacies and interests, there is no doubt that a mechanism has been started, and some collecting societies are moving faster then others. The current annulment decision may reinforce in some of them (the most conservative) the temptation to resist, however the clock will not turn back anymore. More liberalization and competition are naturally expected in this sector, and despite the accident caused by the European court’s decision, other factors will continue to push for this change to happen: stakeholders (including consumers), authors (most of them not happy about the current system), European Institutions (aiming at consolidating the digital european activities into a unique single market).

Background:

CISAC (International Confederation of Societies of Authors and Composers) is a non-profit non-governmental organisation representing collecting societies, on worldwide basis, managing copyright relating to, inter alia, musical works.

The collecting societies acquire the management of those rights either by direct transfer from the authors or by transmission from another collecting society managing the same categories of rights in another country. They grant exploitation licences to commercial users, such as broadcasting undertakings or organisers of live shows. The prices of those licences are the source of the royalties that the authors receive, after the management expenses of those collecting societies have been deducted.

CISAC’s members use a model contract for reciprocal representation agreements. That contract serves as a non-binding model for reciprocal representation agreements concluded between CISAC’s members for the purposes of conferring licences covering public performance rights of musical works. Each collecting society agrees, reciprocally, to confer the rights over its repertoire to all of the other collecting societies for the purposes of their exploitation in the respective territories of those collecting societies. Because of the network created by all of those reciprocal representation agreements, each collecting society can propose a worldwide portfolio of musical works to commercial users, but only for use in its own territory.

Following various complaints by commercial users since 2000, the European Commission started an investigation ending in 2008 with a prohibiton upon 24 European collecting societies  from restricting competition, in particular by limiting their ability to offer their services to authors and commercial users outside their domestic territory. The Commission decision, which concerns solely the exploitation of copyright via the internet, satellite and cable retransmission, does not call into question the very existence of reciprocal representation agreements. It does, however, prohibit:

- membership clauses: clauses in the model contract which restrict authors’ ability to affiliate freely to the collecting society of their choice;

- exclusivity clauses: clauses in the model contract which have the effect of providing all collecting societies, in the territory in which they are established, with absolute territorial protection vis-à-vis other collecting societies as regards the grant of licences to commercial users;

- a concerted practice which was found to exist between the collecting societies and by which each collecting society limits, in the reciprocal representation agreements, the right to grant licences relating to its repertoire in the territory of another collecting society party to the agreement.

The Commission did not impose fines on the collecting societies but did require that they remove the clauses in question from the model contract and bring an end to the concerted practice.

Today Commissioner Kroes announced, via and ad-hoc press conference, the adoption of a well-expected proposal of regulation for the reduction of costs of rollout of broadband high-speed networks. On the same day,  Berec, the agency of European telecom regulators, adopted quite a negative opinion on Kroes’ proposed reform of access regulation (a rejection which had been already anticipated, although in diplomatic manners, 2 weeks ago).

The emphasis dedicated by Commissioner Kroes to the adoption of the draft regulation (the good news) reflects also the intent to minimize the media impact of the Berec’s opinion (the bad news). With regard to the latter, Berec is rejecting the substance of the Commission’s proposal, while sharing in a diplomatic ways the objectives of the Kroes’ reform. The national regulators refuse to follow the Commission’s diktat as how to regulate telecom networks (with regard to pricing and non-discrimination) and invoke their autonomy in deciding how to address specific national cases (while the Kroes’ proposal was quite prescriptive and rigide as to which remedy to apply).

Now, it is interesting to see what will happen next: it is difficult to believe that the Commission will completely disregard the Berec’s (non-binding) opinion, since a fair cooperation between the 2 bodies is necessary to guarantee the good functioning of the framework. Commissioner Kroes has now to return to her people and verify whether there is the possibility to adapt the current draft of the recommendation to the Berec’s wishes. Not an easy job, however, because Berec’s requests substantially water down the entire Kroes’ reform, therefore margins of manouver are limited.

The bitterness of the Berec’s move is somehow compensated by the success represented by the other event of the day, i.e. the proposed regulation on reduction of installation costs of high-speed networks. This is quite an important  step for the development of fibers networks in Europe, because it introduces some important innovations that, depending on the country affected, may change dramatically the way to lay down new infrastructures: public utilities such as energy, gas, water, airports, harbours, waste recycling, public lighting ecc, will be obliged to give access to their infrastructures (cabinets, ducts, towers) no operators intending to use them to deploy fibres networks. To time, this was possible only on commercial basis (and in fact in some countries such option never worked effectively), in the future will be obligatory and, in case of unjustified refusal, the national regulator will be entitled to intervene and fix modalities and price of access.

In addition, the proposed regulation aims at simplifiyng the administrative processes by introducing unified point of contacts and, in particular, by setting the maximum term of 6 months for granting or refusing authorizations or permits.

]]> http://radiobruxelleslibera.wordpress.com/2013/03/26/the-ups-and-down-of-european-telecom-regulation/feed/ 1 innoword Immagine http://radiobruxelleslibera.wordpress.com/2013/03/15/consolidation-in-the-european-telecom-market-the-understood-misunderstanding/ http://radiobruxelleslibera.wordpress.com/2013/03/15/consolidation-in-the-european-telecom-market-the-understood-misunderstanding/#comments Fri, 15 Mar 2013 15:53:02 +0000 innoword http://radiobruxelleslibera.wordpress.com/?p=1710 ]]>

The European Council, which met in Brussels in March 14-15, finally acknowledged, upon request of the European Commission, the question about need for more integration for the telecom single market:

“Digital Agenda and other services (October 2013): the European Council notes the Commission’s intention to report well before October on the state of play and the remaining obstacles to be tackled so as to ensure the completion of a fully functioning Digital Single Market by 2015, as well as concrete measures to establish the single market in Information and Communications Technology as early as possible;“

Thus, the European Commission, under the initiative of Neelie Kroes, responsabile for the Digital Agenda, is now going to prepare a strategic position, maybe a communication, to be presented to and approved by the European Telecom Council in October 2013. However, concrete information about specific measures to be taken are scarce.

It is interesting to see that many voices are advocating for a major integration of the European telecom market, however with different scopes and interests to pursue. It is not a misunderstatanding: in the reality, everyone is aware that the consolidation projects are different and may serve different scopes, but is confident that the result will be diverted towards the preferred scenario.

The incumbents, i.e. the former monopolist running the legacy infrastructures (Orange, Telecom Italia ecc.) are advocating for more national consolidation. They believe that operators in Europe are too many, and this number should be reduced via national mergers. According to ETNO, such national consolidation should free resources for the investments.

Such position is not shared Almunia, the European Commissioner for competition, according to which a simple merging process at national level would be detrimental for competition (and in fact he announced that antitrust authorizations will not be lifted, as it happened in Austria and Holland). The consolidation should happen instead at cross-border level, i.e., by allowing incumbents or other operators to buy telcos abroad and compete against other incumbents (as it rarely happens now in the fixed sector: there are few cases in the Nordic countries, and also Orange in Slovakia and Telefonica in Germany).

In other words, we are facing 2 different philosophies of consolidation: (i) the incumbents operators wishing a European (fixed) market of few big operators situated in different geographich areas and possibly non competing againts each other: Orange in France and Poland; Deutsche Telekom in Germany, Slovakia, Hungary, Greece, Romania and Croatia; Telefonica in Spain and Czech; and so on; (ii) Almunia recommending that consolidated  operators should be competing against each other in all markets, as it happens sometimes in the mobile sector already now.

In this respect, the position of Commissioner Kroes is not sufficiently clear yet. She has been frequenlty advocating for consolidation, presenting the example of China and US having few national operators. However, she never apparently considered that the difference between Europe and other areas lies in the number of telecoms markets: Europe has to deal with 27 national markets, US and China with only one each: the difference in the number of operators is there. Kroes she never clearly remarked the difference between national and cross-border consolidation processes, unlike Almunia. Therefore, a clarification from the Dutch commissioner, also with respect to the view of Almunia, is due to come in the next weeks.

The telecom market integration strategy, expected by October 2103, will be therefore a good basis to finally understands whether the European Commission intends to strenghten competition and enhance genuine integration in the European telecom market, or just to empower incumbents operators to bring the national markets back to monopolies.

Berec, the European agency of communications regulators, today announced its intention to delay the adoption of an opinion on the proposal of Commissioner Kroes to strongly reform European network access regulation (via a well-known proposal of recommmendation). After 2 days of Conclave in Slovenia, the national regulators only found an agreement about an executory summary and then postponed the adoption of the final opinion by 2 weeks. A press release was published only today.

Commissione Kroes also published a statement, thanking Berec for the “positive opinion” (although no opinion has been drafted yet!).

It is not a surprise that Berec is supporting the general principles pursued by Commissioner Kroes with her proposed recommendation, because such objectives are non-controversial and are part of the acquis communautaire: enhancing of broadband investment environment across Europe, continuing to promote competition, ensuring a transparent, predictable, and stable regulatory environment in support of the roll out of NGA networks. No doubt that Berec and everybody in the market agrees on this.

However, beside such (non controversial) objectives, the innovative part of the Kroes recommendation lies in details which are susceptible to dramatically alter the current regulatory framework (enacted in 2009 with Commissioner Reding). In this respect, the press release suggests that Berec is seeking important changes to the draft recommendation in several and substantial areas, such as the outcome of the proportionality test in the matter of non-discrimination; the conditions for removal of cost-orientation; the principles of the proposed margin squeeze test and the cost modelling approach put forward by the Commission.

With regard to the most controversial part of the proposed recommendation, namely the proposal to “freeze” (save indexation) the price of access to traditional telephony networks (copper legacy networks), Berec clearly intends to defend the discretionary powers of its members:

“BEREC supports the Commission’s aim of achieving predictable and stable copper prices in line with the principle of cost orientation, which will help encourage efficient investment in NGA and provide a competitive safeguard to third-party access seekers. BEREC and the Commission agree that the modelling approach used by an NRA should reflect, among other things, the network architecture being pursued, which in turn would generate prices that reflect the actual costs faced by operators in each market”.

TRANSLATION: “Dear Commissioner, no way that you impose us to set the same price from Lisbon to Bucarest, passing by Bonn and Palermo. The copper access prices should reflect national market and competition conditions (network architetture, costs ecc) and therefore we can’t accept a Eurotariff. This is not roaming!”.

That’s the situation. European Commission and Berec have officially shaken their hands, taken a beautiful family picture and shown to be happy in front of the cameras. However, it is likely that the final outcome of this story (i.e. the final opinion of Berec) will be a bit less positive than Commissioner Kroes intends, and the national regulators may pretend substantial changes. Kroes seems to be ready for some concessions but, firstly, she expects a generic supports from Berec in the official venues. Berec prefers to avoid open conflicts also because the positions amongst members are diffentiated. Therefore, a peaceful official picture is in the interest of everybody. However, the agreement on the Kroes’s proposal (meaning the substantial details, not the incontroversial generic principles) is still to come.

A case of web-blocking occurred in Italy is re-opening the discussion about what should be done in order to fight efficiently and definively child-pornography in the Internet.

Yesterday 14 February 2013 the Italian police imposed the block of the domain name 25.media.tumblr.com, an archive used for images uploaded on a blogging platform. The decision was taken because of the likely existence of paedo-pornographic content on the website. In Italy there is a specific police agency, the so-called CNCPO (National Centre for the Fight against Online Pedopornography) managing a black list of websites which are deemed to host pedopornographic material. Normally, when the Italian police finds such illicit content in the web, the suspected website is added to the list and ISPs are immediately notified to block access to the related domain. The police agency operates straight on the basis of evidences, without previous court authorisation, however subsequent jurisdictional review is always admitted.

In the case at stake, it is clear that the blocking measure had overreaching effects, because access has been denied to any kind of content existing on the platform. People holding or looking for licit content got into troubles and did not have a clear and manageable procedure to disable the block. Even now, while writing the present post and people are discussing in the Internet how to circumvent the block, it is not clear yet whether the block has been finally resolved.

This event, and the related confusion caused in the Italian market, seems to be an interesting opportunity for a general re-thinking of the overall matter.

Child-pornography is an horrible crime and when occurring in the Internet shall be addressed via effective and secure repressive measures. In this respect, European ISPs have been longly claiming that website-blocking is not an appropriate instrument, because it can be easily circumvented through specific technologies available in the market at cheap prices. In other words, web-blocking does not work with respect to people seriosuly committed to watch and exchange  paedo-pornographic content (i.e. paedophiles and other criminals), while it may works for people accidentally and unintentionally falling onto such material (children, teachers, families and so on). In addition, web-blocking involve collateral and problematic damages, such as blocking access to licit content uploaded in the same website.

The only effective way to fight child  pornography in the Internet consists in removing illicit content at the source, i.e. deleting the original files hosted in the servers. Such measure permits to definitively destroy paedo-pornographic content in the web and also to get closer to the criminals making use or profit of it. In comparison to that, web-blocking is just like putting the garbage under the carpet.

And so, why police and many politicians, in Italy but also abroad, insist so much with web-blocking rather than hosting removal?

Web-blocking appears to be an easy solution for the police, because it consists in just sending (normally via fax) an order to the ISPs to block access to a website. Politicians claim to have taken measures against an horrible phenomenon. Citizens and electors may have the perception that the problem has been finally solved, because the paedo-pornographic content apparently disappeared. However and unfortunately, such horrible content is still online and accessible, as explained above.

To sum up, only content removal works effectively, however it requires better organization, because, in case the illicit content is hosted abroad, policies and authorities of different countries must be able to cooperate promptly and effectively. Statistics show that paedopornographic content is mostly hosted within the EU or in the US, therefore improved international cooperation is needed and should be possible.

The recent European Directive 2011/92/EU of 13 December 2011 on combating the sexual abuse and sexual exploitation of children and child pornography reflects the suggested approach. Pursuant to its article 25(1), Member States shall take the necessary measures to ensure the prompt removal of web pages containing or disseminating child pornography hosted in their territory and to endeavour to obtain the removal of such pages hosted outside of their territory.

In addition to that, as a faculty and not as an obligation (article 25(2) Member States may also enforce web-blocking, subject however to a number of safeguards.

Directive 2011/92/EU must be transposed into national law by Member States, including Italy, by the end of 2013.

***

Beside Italy, fight against child pornography in the Internet is addressed in major European countries in various means.

In France a recent legislation (so-called Loppsi law of February 2011)requires ISPs to block access, immediately and without a court order, to sites included on a blacklist set up by an ad hoc agency. Notably, since 2008 ISPs were committed, by way of a voluntarily agreement, to block websites containing paedophile content (and other illicit material such as content related to terrorism and racial hatred).

In United Kingdom the solution is similar, however it is managed by way of self-regulation. A private body, the Internet Watch Foundation, runs a child sexual abuse blacklist on the basis of which ISPs block access to those websites (on a voluntary basis).

In Germany the measures to be taken consist in content removal, since the 2010 law on combating child pornography (focussing on website blocking) was repealed in 2011.

Also in Spain the repression against paedo-pornographic content consists in hosting removal. There were initiatives, in the Parliament and also in the public opinion, to address the problem also via other means, however to time no further legislation has been adopted.

The European Union seems to produce plenty of initiatives and ideas in the area of copyright in the digital world. Recently, an unusual team consisting of 3 European commissioners (Barnier, Kroes and Vassiliou) set out the actions to ensure that copyright framework stays fit for purpose in the digital environment. A communication adopted in late December 2012 identified the areas of analysis, debate and (possibly) solutions to be discussed with stakeholders: cross-borders barriers; user-generated content; audiovisual and culturale heritage; text and data mining. In parallel, the European Commission will work on its on-going review of the EU copyright framework, based on market studies and impact assessment and legal drafting work, with a view to a decision in 2014 whether to table the resulting legislative reform proposals.

The problem with such initiatives is that they represent the umpteenth “problems setting” exercise in a digital world which is running and changing faster than the heads of Brussels believe. Instead of a clear an immediate action, the Commission is engaging in continued analyses over the digital sector with the aim to collect best practices, encourage voluntarily agreements and eventually come out with some proposals. Since this process may be completed only at the end of the 5-years mandate (2014), then it will up to the new Commission (in 2015) to eventually act. But the new Commission will not be bound by the mere proposals suggested by the former one (unless a formal proposal is tabled and approved before the end of the mandate, which is very unlikely).

In other words, while the debate is going on, concrete results are unlikely to occur in a reasonable time. This is really disappointing, since the need to reform the copyright in the online environment is urgent and old, as it was already invoked and identified in due time by many stakeholders (and in fact there is a mention thereof even in the European Digital Agenda in 2010). The question is why  an entire Commission’s mandate (2010-2014) was not sufficient to provide a solution. There are many reasons for that and in fact the answer is complex.

Firstly, one should consider that the competence for a copyright reform became a matter for internal confrontation within the offices of the Commission. Thus, the involvement of 3 European commissioners in the same project reflect tensions and search for a compromise. Mr. Barnier, the European Commissioner for the Internal Market, remains cleary competent for the copyright reform, however this power must be split with others now, although on the basis of a vagous political agreement rather than on a clear distribution of competences. In general, a decision-maker would never be happy about such a solution: however, if there is some resistance to take a decision, then this complex architecture may become an alibi.

Secondly, since the start of Barnier’s mandate in 2010, his offices have been permanently and strongly lobbied by the copyright industry aiming at solving the problems of the digital market with the unique instrument of repression. According to copyright industry, piracy is the main problem to address in the digital economy and therefore repressive measures are justified, such as: internet filtering; website blocking; Internet disconnection; consumers’ fines; public pillory;  and so on. The Barnier’s offices have never been too keen to follow this path, also considering the opposite view (and analysis) of consumers, civil society and telecom industry. However, since the copyright industry is the natural constituency of DG Internal Market, the offices tried  to convince the telco industry and other concerned stakeholders to enforce on a voluntarily basis some of repressive measures recommended by the copyright holders. The idea did not work out, however: consumers associations did not join the discussion (they likely felt a trap), while the telco industry refused to sign agreements which would create obligations and liabilities not envisaged in the relevant European directives. The civil society was never really involved in the debate.

Thirdly, an unexpected court tsunami dramatically changed the balance of the debate. Between 2011 and 2012 the Cort of Justice of the European Union destroyed the legal paradise of the copyright industry.  With the Sabam/ Scarlet and Sabam Netlog cases the European judges decided that repressive measures, such as filtering for instance, are in general disproportionate, contrary to privacy principles and fundamental rights in general, and also illegal vis-à-vis the freedom of business of the telecom operators. Such new jurisprudence completely unbalanced the debate: the copyright industry, which for long time have been attacking on the basis that repression is the solution for everything, had to step back and it started a positions defensive war. Thus, since repression was not possible anylonger, they decided to resist at any cost against any other proposal, including the reform of copyright.

Finally: the panic, i.e. the ACTA and the ITU debates on Internet copyright and Internet freedom. Irrespective of the merits of these treaties, it became clear that such matters are politically sensitive and politicians must be very prudent when proposing regulations. ACTA failed because the initial untrasparent negotiations constituted an original sin which was never cleaned up, even when the last versions of the treaty had solved most of the reasons of concerns.  The same lack of transparency of procedures as well as clarity of intentions  was the cause of the collapse of the ITU agreements in Dubai in December 2012. The European Commission learned the lesson and became very prudent.

All the above give us a key of comprehension of the current scenario. While a structural rethinking of copyright for the digital sector is urgently needed, as it is clear since years, Barnier does not seem adamant to complete his term with a reform. The new wave of analyses, studies and workshops, about problems and possible solutions (which have been partially already debated in the past) are legitimate but may also become instrumental to delay decisions. Kroes is taking part to this exercise because she needs to show care for her stakeholders (telcos and Internet users), while she is reinforcing her competences and profile. Mrs Vassiliou, bringing the cultural diversity as a valuable resource of the EU but also as an alibi for not going too far, completes the family picture.

Today there was lot of agitation on the press because of an alleged deal between Google and Orange, whereby the former would pay for the Internet traffic conveyed over the network of the latter. Some press is claiming that this is a revolution for the Internet, other fear that this will be the end of net neutrality. However, certain and clear details of the deal are scarce.

I suspect there might be is a misrepresentation and also an overestimation of the events. apparently, the source of the information is Orange, which for some reasons would like to present the event has an historical achievement.

However, as far as I understood, Google and Orange may have signed just a direct peering agreement, i.e. an agreement for the mutual exchange of Internet traffic. Such agreements do not normally provides for payment, when the exchanged Internet traffic is balanced, while a payment may be due when there is an unbalance. This is a simple matter of commercial negotiation. The reasons for Google and Orange in closing such an agreement may be that direct peering will facilitate the customers’ experience of Orange’s subscribers when accessing Google’s services. In other words, no specific quality service will be provided, however the access to Google services is expected to improve because of the traffic being directly routed between the 2 operators, instead of transiting via more complex international network connections.

This is my understanding of the deal. There is no substantial news, because peering agreements are ultra-normal in this area, and payments are subject to customary negotiations. I do not see any prejudice for net neutrality, as far as the traffic will not be differentiated.  Unless the deal contains spectacular secret clauses, nothing more to report. Sorry!

Today  (January 10, 2013) the European Consumers organization BEUC sent a letter to Neelie Kroes warning the European Commissioner for the Digital Agenda about the potential negative impact of her proposed reform on the broadband market.

BEUC refers to the draft Recommendation on non-discrimination and costing methodologies announced by Commissioner Kroes in July 2012 and published in December. According to Kroes, such a reform would be necessary to boost investments in the broadband market in order to achieve the targets of the Digital Agenda. In practice, the new framework would grant ex-monopolist companies (such Deutsche Telekom, Telefonica ecc.) very high revenues from telecom networks, while making more difficult for alternative operators to get access to the same networks to sell competing services. Because of this unbalanced treatment, ex-monopolists are strongly supporting such a reform, while alternative operators fear that the plans of Kroes will kill competition and lead the entire market back to re-monopolization.

BEUC claims that high access prices in the market will result in higher prices for consumers without, in any case, any potential benefit in terms of broadband deployment and migration to high-quality connection services at reasonable prices. According to BEUC, there is no certainty that the paramount cash-flow guaranteed by the Kroes reform to the advantage of ex-monopolists will results in investments. Fact is, in the absence of durable competition, ex-monopolists could be induced to divert that money to dividends payments and other non-productive purposes, while continuing to use the old-fashioned telephony copper networks. While not focusing specifically on competition issues, BEUC recognises that “…the objectives set in the EU Digital Agenda can only be achieved if telecoms markets are effectively regulated”.

It is worth-noting that BEUC is a very prudent organization and such kind of strong, direct letters are normally very rare. This initiative is a clear sign that consumers organizations are seriously concerned about the pro-incumbents approach surprisingly taken by the Dutsch politician since July 2012. Similar concerns are feared by the Italian Consumers Association Altroconsumo.

Here the text of the BEUC letter:

DRAFT RECOMMENDATION ON NON-DISCRIMINATION OBLIGATIONS AND COSTING METHODOLOGIES RELATED TO THE ACCESS TO ELECTRONIC COMMUNICATIONS NETWORKS

Letter sent to Vice-President of the European Commission Neelie Kroes

L2013_003/MGO/MST/rs – 10 January 2013

Ms Neelie Kroes, Vice-President, European Commission, BERL 10/226, 1040 Brussels

Ref.: L2013_003/MGO/MST/rs 10 January 2013

RE: Draft Recommendation on non-discrimination obligations and costing methodologies related to the access to electronic communications networks.

Dear Vice-President,

I write on behalf of The European Consumer Organisation (BEUC) to express our concerns regarding the approach put forward by your services with respect to the draft Recommendation on non-discrimination obligations and costing methodologies related to the access to electronic communications networks.

The draft Recommendation will set a common cost methodology for the wholesale prices to be paid by alternative operators to incumbents in order to get access to telecom networks. According to this draft which has been submitted to the Body of European Regulators for Electronic Communications for its opinion, the average monthly rental access price of the full unbundled copper local loop in the EU should be set between €8 and €10.

In our opinion, keeping high price of wholesale access to copper networks is contrary to the interests of consumers. In addition, the draft Recommendation provides neither the guarantee nor the real incentive for incumbents to invest in ultra-fast broadband networks. BEUC is therefore highly concerned that the approach chosen by your services will result only in high prices for European consumers without providing them with a high-quality connection at a reasonable price.

We are also concerned that your services have not taken into account the views expressed by consumer organisations1 in the context of the public consultation that was launched in 2011 in preparation of the Recommendation. In our view, cost methodologies have to be integrated in a program that aims to promote innovation and creates incentives for operators to invest in the Next Generation Access networks. It is crystal clear that the objectives set in the EU Digital Agenda can only be achieved if telecoms markets are effectively regulated, the right approach of setting the wholesale costs is chosen and the investments in ultra-fast broadband networks are safeguarded.

If adopted in its current form, BEUC fears that the EU will fail in delivering ultra-fast broadband access to its citizens. Therefore, BEUC suggests the final Recommendation includes a clear requirement for the operators to invest in the Next Generation Access networks. At the same time, this guarantee must be accompanied by a proper monitoring by National Regulatory Authorities.

Given the significantly divergent approach chosen by your services, we urge you to thoroughly assess its impact on retail markets to ensure that benefits in terms of choice, affordable price and quality of telecommunications service are delivered to European consumers. In this respect, BEUC truly believes the involvement of all stakeholders is crucial and will only benefit the final Recommendation.

Yours sincerely,

Monique Goyens

Director General

According to rumours gathered and published by the Financial Times, the representatives of the biggest ex-monopolist telcos (Orange, Telefonica, Deutsche Telekom, Telecom Italia ecc) met with Joaquìn Almunia, European Commissioner for Competition, suggesting the idea that the creation of a centralised telco newco would resolve investments and competition problems in Europe.

It is worth-noting that the main scope of the meeting (hold on November 28, 2012 by the way) was different: the big telcos have been asking Almunia to ratify, or at least not to oppose, the envisaged regulatory reform announced by commissioner Kroes last July and published in December.  The ex-monopolist are strongly supporting such a reform, while alternative operators and consumers fear, by contrast, that such a reform will kill competition in the market and lead to re-monopolization. Fact is, the Kroes reform presents many potential conflicts with basic competition principles (such as the mandatory subsidy from copper networks to fibres networks, at exclusive advantage of ex-monopolists), therefore it will be interesting to see what Almunia and his officers will have to say about.

Apart from above, it is surprising to see that the big European telcos consider market fragmentation as a big problem for their business. This position is astonishing because, in the reality, the business of European ex-monopolists is based on country fragmentation. Let’s try to understand why.

Firstly, there is no rule impeding European telcos to open a business in whatever of the 27 European country and compete. However, at least in the fixed sector, this does not happen for the ex-monopolists, which prefer to stay home and enjoying domestic monopolistic profits. Eventually, they can buy another ex-monopolist abroad (like Telefonica in Czech, Orange in Poland, Deutsche Telekom in Hungary and Greece). However, such a move does not bring competition or consolidation, because the 2 incumbents continue to run separately the distinct businesses. Did the Greek consumers see any difference in the market when OTE was bought by Deutsche Telekom? Or did Italians get any benefits when Telefonica bought a stake in Telecom Italia?

There are few exceptions to the above: Orange (in Slovakia, Belgium, UK and Spain) and Telefonica (in Germany, but next to sell and leave). It is worth-noting that such “off shore” operations are legacies of the 2000 scenario, when most of the ex-monopolists tried expanding abroad relying on the expectations promised by the Internet bubble. However, in the last 10 years this trend was dramatically reversed: ex-monopolists have been selling everything abroad and concentrating in their domestic market. I really do not remember the last time when an ex-monopolist entered a foreign market and disturbed the local incumbent, it was lot of time ago.

The reasons for this domestic-centric approach are both competitive and regulatory: for an ex-monopolist, it is easier to play as a dominant operator at home or abroad (if it succeed in buying another incumbent), while it is a risky business if it tries to enter a new market and compete with another incumbent. Fact is, competing abroad would require the construction of a new network or negotiating access with a local incumbent, and the ex-monopolists prefer to remain on the safe side.

To sum up, the European fragmentation allows ex-monopolists to carry on a territorial cartel which otherwise would be normally prohibited by antitrust law.

The situation is similar, but more tricky, in the mobile sector. Unlike the fixed sector, the grant of 4-5 national licences encouraged mobile operators to move abroad. However, the European fragmentation remains the same, and the evidence of that is shown by the international roaming business.  Many international operators (Orange, Telefonica, Deutsche Telekom, ecc.) present in various countries could eliminate roaming tariffs and offer services with a unique pan-European tariff, since their customers would remain on the same network. However, such operators continue to charge roaming tariffs, and they justify such fees on the excuse that their customers is abroad (but on the same network, nevertheless!). This means that the European fragmentation is not a problem. By contrast, the European fragmentation is the business.

This said, why bringing the bluff up to Almunia? The main reason is political: if Almunia gives the green light to the incumbents-welcomed-Kroes-reform, then they could offer something in exchange (but just a sign: there is no reason to lose the benefits of the European fragmentation). In addition, ex-monopolists would like to have free-hands when the Kroes reform will become operational and various smaller operators will be forced to leave the market. Incumbents would like to buy such operators and reinforce national consolidation, possibly without suffering the antitrust control they faced in Austria and Switzerland. It is doubtful that Almunia will help them on this, however they will try. Finally, the envisaged network-newco will not change, in any case, the competitive scenario, because in each country consumers will continue to face the same monopolistic network. A Belgian consumer, for instance, will get Internet from Belgacom at certain conditions, and when moving to France will have to subscribe from Orange at different conditions. The fact that the 2 networks may be controlled by the same newco will not change the consumer perspective and experience. This is what ex-monopolists like: to pretend to change everything, while making sure the nothing changes.

UPDATE January 10, 2013: The porte-parole of Almunia officially denied that the project of European network was discussed at the meeting of November 28, 2012. Considering the price increase of the listed telcos’ shares following the FT article, I believe that the stock exchange authorities should investigate ……

UPDATE January 16, 2013: the CEO of Orange, Stéphane Richard, has officially denied the existence of a plan for a European network, confirming that the news published by FT were not grounded