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Author: Tony Lavender, Stefano Nicoletti and Matthew Howett
27 November 2006
The European Commission is preparing to take action against a new German media bill that would grant Deutsche Telekom a 'regulatory holiday' concerning its €3 billion investment in its high speed network.
Comment: Almost a year ago, the German government created a storm over its decision to exempt DT from regulatory actions so that the company could recoup its investment without having to share the network with competitors - a so-called 'regulatory holiday' for DT. Viviane Reding, the EU commissioner, has on many occasions publicly rejected this proposal.
The latest development in this long-running saga was on 22 November, when the German government made some minor amendments to the bill including providing a definition of 'new markets', limiting the definition of new markets to new services and products, and excluding new infrastructure (such as a high-speed network). The implications of this would be quite severe. For instance, if DT were to link VDSL network expansion to the new products such as IPTV, it would effectively be creating a new market - but one free from regulation.
The EU obviously objects to this. It is worth noting that under the pending proposed reform of EU framework, 'new markets' are defined as a grey area. These are markets where the criteria to assess whether a market should be regulated ex ante or not, are not applicable.
This debate provokes a wider, more interesting question: does the current regulatory framework provide incentives for investment in next-generation access networks? Dutch incumbent KPN has already started its network upgrade, without a regulatory holiday being granted from the Dutch regulator, and other countries are considering the same move. But every country has its own features and what matters now is creating the flexibility to introduce innovative services that will benefit the consumer.
Action against Germany, if it is going to go ahead, sends a clear message to operators across Europe: they are not going to enjoy a period of exclusivity or a 'regulatory holiday'. Reding does not seem willing to leave room for negotiation on this. We believe that regulatory 'grey areas' are not helpful in an industry that is changing fast and that needs some regulatory certainty around new investment. What is required is a much clearer view on the treatment of emerging markets and an ethos of competition (which regulatory holidays definitely don't engender by their very nature). The European Commission needs to produce much clearer guidance and not be afraid of the problem at the detail level.
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