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Promoting Competition in the New EU Member States' Electronic Communications Sector Institutional Aspects Anna Pisarkiewicz European University Institute.

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Presentation on theme: "Promoting Competition in the New EU Member States' Electronic Communications Sector Institutional Aspects Anna Pisarkiewicz European University Institute."— Presentation transcript:

1 Promoting Competition in the New EU Member States' Electronic Communications Sector Institutional Aspects Anna Pisarkiewicz European University Institute

2 Outline of the presentation 1. The importance and development of the electronic communication sector 2. Historical background: development of telecommunications in Central and Eastern Europe (CEE) 3. The infringement proceedings against new EU Member States 4. Adequate and well-balanced institutional setting as a prerequisite for effective regulation of the sector. 5. Conclusions

3 Why is the telecoms sector so important for Europe? Electronic communications: the largest segment (44.5%) of the overall ICT sector with an annual turnout of 289 billion (ICT - 649 billion), accounting for around 4% of the jobs in the EU Electronic communications: the largest segment (44.5%) of the overall ICT sector with an annual turnout of 289 billion (ICT - 649 billion), accounting for around 4% of the jobs in the EU Reliance of economic and social activities on telecoms services and infrastructure Reliance of economic and social activities on telecoms services and infrastructure Rapidly changing market (the growth of voice-over-internet protocol telephony, VoIP; the uptake of television services through broadband lines) Rapidly changing market (the growth of voice-over-internet protocol telephony, VoIP; the uptake of television services through broadband lines) Prices charged by the telecom sector a direct cost of doing business in Europe Prices charged by the telecom sector a direct cost of doing business in Europe Benefits to the consumers: prices have fallen on average by around 30% in the past decade Benefits to the consumers: prices have fallen on average by around 30% in the past decade - against an average price increase of 20% Introduction of competition higher standard of services + increased responsiveness of the former PTOs to the existing market conditions and consumer demands Introduction of competition higher standard of services + increased responsiveness of the former PTOs to the existing market conditions and consumer demands (European Commission, 12th Implementation Report, SEC (2007) 403)

4 2. Historical background 4 Phases in the development of European telecommunications 1. Monopoly: The starting period: from late 19th century until 1987 2. Liberalization: a. The Regulatory Model of the Green Paper Phase: 1987-1996 b. The Transitional Model of 1992 Review and 1994 Green Paper: 1996-1997 1996-1997 c. The Full Liberalization Model: 1998-2003 3. New Regulatory Framework Phase: 25 July 2003 – November 2007 4. Reforming the current telecom rules: November 2007 – up to now

5 2. Historical background 5 Telecommunications as Natural Monopoly Telecommunications As 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 telecommunications

6 Monopoly Early Deregulation National Competition International Competition Incumbent is King: Preoccupation with: 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 Consolidation From Monopoly to Consolidation

7 Historical background: development of telecommunications in the EEC Specific strategies and problems in the development of telecommunications in CEE: High priority of broadcasting v. low priority of telecommunications High priority of broadcasting v. low priority of telecommunications Diverse paths of development in CEE before World War II Diverse paths of development in CEE before World War II - some facilities owned bycompanies, such as Ericsson Yalta and Postdam (1945): nationalization of the subsidiaries of foreign telecom providers Yalta and Postdam (1945): nationalization of the subsidiaries of foreign telecom providers The Marxist-Leninist view: material production as the only source of economic welfare and growth The Marxist-Leninist view: material production as the only source of economic welfare and growth The existence of enormous competing needs The existence of enormous competing needs Substantial gap between urban and rural areas Substantial gap between urban and rural areas

8 Historical background Political: the need to control information flow Political: the need to control information flow Cold war: isolation of the CEE telecom industry Cold war: isolation of the CEE telecom industry Western policy of curtailing the Easts ability to buy advances telecommunications technology from the West: tight export restrictions for sensitive technology Western policy of curtailing the Easts ability to buy advances telecommunications technology from the West: tight export restrictions for sensitive technology Political changes of 1989: telecommunications infrastructure becomes crucial for the economic growth Political changes of 1989: telecommunications infrastructure becomes crucial for the economic growth State run monopolies in the West v. in the East: the legacy of the former Communist regime. State run monopolies in the West v. in the East: the legacy of the former Communist regime. Challenges: enormous financial investments needed, but the creation of a regulatory environment has proven to be even more challenging Challenges: enormous financial investments needed, but the creation of a regulatory environment has proven to be even more challenging

9 Convergence phases in CEE 1990 2002 –200? Consolidation of Market Economy, candidate into EU and NATO EU post accession Period Knowledge based economy and information Society Regaining Independence, Establishing democracy 2010

10 Number of infringement proceedings in the electronic communications sector (incorrect implementation) EU-15 (41 infringement proceedings) Germany: 6 Belgium, Finland: 5 Luxembourg, Portugal: 4 Austria, Netherlands, Spain: 3 France, Greece, Italy, Sweden: 2 Denmark, Ireland, UK: 1 EU10+2 (54 infringement proceedings) Poland: 11 Slovakia: 7 Cyprus, Latvia: 6 Malta: 5 Estonia: 4 Lithuania, Slovenia: 3 Bulgaria, Czech Republic, Hungary: 2 Romania: 1

11 Main issues in the infringement proceedings (number of proceedings) 1. 112 emergency number: 15 2. Failure to carry out market review: 11 3. Directory services: 11 4. Independence and effectiveness of NRA: 6 5. Privacy Directive (SPAM): 6 6. Must carry: 5 7. Restrictions of power of NRA on the wholesale level: 4 8. Restrictions of power of NRA on the retail level: 2

12 Main issues in the infringement proceedings 1. Independence and effectiveness of NRA: 6 proceedings: Bulgaria, Cyprus, Luxembourg, Poland, Slovenia, Slovakia 2. Restrictions of power of NRA on the wholesale level: 4 proceedings Germany, Poland, Slovakia, Finland 3. Restrictions of power of NRA on the retail level: 2 proceedings Germany, Slovakia

13 Institutional setting as a prerequisite for effective regulation The development of a new and stable institutional frameworkThe development of a new and stable institutional framework for more democratic, more market-oriented economies in these countries [CEE] cannot be accomplished by simply freeing prices and introducing private ownership of capital but needs more encompassing institutional reforms. (Blanchard, Dornbusch, Krugman, Layard & Summers, 1991; Clague & Rausser, 1992; Murrell, 1991)

14 Expected increase in a number of disputes that may arise: Expected increase in a number of disputes that may arise: 1.The need to clarify existing rules through court interpretation 2.Differences between the 2002 and 1998 framework and it can be expected that more differences will emerge once the revision process of the current framework is completed 3.Legal weaponry as an instrument to improve market situation 4.Multi-level adoption and application of numerous rules that market players have to comply with: national, European and international. [1][1] Nihoul, P. and P. Rodford (2004). EU Electronic Communications Law: Competition and Regulation in the European Telecommunications Market, Oxford University Press. [1] Effective dealing with an increased number of disputes: various (institutional) mechanisms established under the 2002 regulatory framework. Effective dealing with an increased number of disputes: various (institutional) mechanisms established under the 2002 regulatory framework. Institutional setting as a prerequisite for effective regulation: its practical importance

15 Institutional setting as a prerequisite: building a delicate balance 1. timely implementation of a flexible legislation that can follow the rapidly changing market (legislative power) 2. adequately empowered independent national regulatory authorities (exercising prerogatives of the executive) and finally, 3. independent and sufficiently equipped knowledgeable courts (judiciary).

16 Institutional setting as a prerequisite: National Regulatory Authorities (NRAs) Independence of NRAs: legal basis Article 3(2) Framework Directive 2002/21/EC: Member States shall guarantee independence of national regulatory authorities by ensuring that they are fully distinct from and functionally independent of all organizations providing electronic communications networks, equipment or services. Member States that retain ownership or control of undertakings providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory function from activities associated with ownership or control.Member States shall guarantee independence of national regulatory authorities by ensuring that they are fully distinct from and functionally independent of all organizations providing electronic communications networks, equipment or services. Member States that retain ownership or control of undertakings providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory function from activities associated with ownership or control.

17 Institutional setting as a prerequisite: National Regulatory Authorities (NRAs) Independence of NRAs in the infringement proceedings: 1. The CRC, Bulgarian NRA: Doubts with regards to the division of regulatory functions between the NRA and the State Agency for Information Technology and Communications.Doubts with regards to the division of regulatory functions between the NRA and the State Agency for Information Technology and Communications. Lack of the legal and functional independence from the operators (the State Agencys Chairperson was a member of the incumbents board).Lack of the legal and functional independence from the operators (the State Agencys Chairperson was a member of the incumbents board). States preferential share on the incumbent = veto rights on certain decisionsStates preferential share on the incumbent = veto rights on certain decisions Lack of sufficient human and financial resourcesLack of sufficient human and financial resources 2. Cyprus has failed to ensure independence of NRA from all operators of electronic communications networks and/or services as the Minister of Communications and Works as well as the Council of Ministers while empowered with regulatory prerogatives were also controlling the incumbent.

18 Institutional setting as a prerequisite: National Regulatory Authorities (NRAs) 3. In Slovenia, the Ministry involved in the managing of the fixed-line incumbent, 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 acting as a supervisor of remedies imposed on operators with SMP. 4. The Polish telecom NRA, UKE, has been deprived of its independence when the 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 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 2004 Telecommunications Act together with another provision including an exclusive list of circumstances in which the head of the NRA could be dismissed. 5. Slovakia has initially failed to separate regulatory functions from the management of the incumbent operator, both exercised by the Ministry of Transport, Post and Telecoms. This failure has been recently addressed through the amendment of national legislation, which has transferred the Ministrys shareholding in the incumbent to the Ministry for Economy. Such separation of regulatory and operational functions allowed the Commission to close the proceedings, which have been initiated in April 2005 when Slovakia received a letter of formal notice.

19 National Regulatory Authorities The age of regulatory institutions and its impact on the effectiveness of regulation: TRANSPARENCY: 1. Lack of experience and expertise 2. Learning experience (risk of copying policies of the EU-15 without assessing them)

20 Institutional setting as a prerequisite: national courts and judicial review of NRAs Right of appeal: Article 4 Framework Directive 2002/21/EC: Member States shall ensure that effective mechanisms exist at national level under which any user or undertaking providing electronic communications networks and/or services who is affected by a decision of a national regulatory authority has the right of appeal against the decision to an appeal body that is independent of the parties involved. This body, which may be a court, shall have the appropriate expertise available to it to enable it to carry out its functions. Member States shall ensure that the merits of the case are duly taken into account and that there is an effective appeal mechanism.

21 Institutional setting as a prerequisite: national courts and judicial review of NRAs Example: Poland If the appeal is granted, SOKiK (Competition and Competition Tribunal) shall overrule 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 Civil Procedure) If the appeal is granted, SOKiK (Competition and Competition Tribunal) shall overrule 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 Civil Procedure) […] SOKiK is not a regulatory authority within the meaning of Article 190 of the Polish Telecommunications Act and there are no grounds to expect that it would be creating regulatory policy w in the substitution of the President of UKE. The courts role is limited to justice (Article 175 par. 1 of the Polish Constitution), and it consists in a controlling function and not a creative one.[1] […] SOKiK is not a regulatory authority within the meaning of Article 190 of the Polish Telecommunications Act and there are no grounds to expect that it would be creating regulatory policy w in the substitution of the President of UKE. The courts role is limited to justice (Article 175 par. 1 of the Polish Constitution), and it consists in a controlling function and not a creative one.[1][1] [1] (2007). Telekomunikacja Polska S.A. v. Prezes Urzędu Komunikacji Elektronicznej, SOKiK. Sygn. akt XVII AmT 17/07. [1] (2007). Telekomunikacja Polska S.A. v. Prezes Urzędu Komunikacji Elektronicznej, SOKiK. Sygn. akt XVII AmT 17/07. [1]

22 Conclusions Infringement proceedings: institutional issues arise mostly in the new EU Member States. Infringement proceedings: institutional issues arise mostly in the new EU Member States. Fragmentation of regulation: should an institutional harmonization follow the substantial harmonization in the European Community electronic communications law? Fragmentation of regulation: should an institutional harmonization follow the substantial harmonization in the European Community electronic communications law? A sufficiently clear, fast and adequate appeal process for the decisions issued by the national authorities should be put in place in all the Member States: is it desirable to have a wide scope of judicial review? (especially given lack of proper expertise) A sufficiently clear, fast and adequate appeal process for the decisions issued by the national authorities should be put in place in all the Member States: is it desirable to have a wide scope of judicial review? (especially given lack of proper expertise) Does consistent application of the EC rules require homogeneous standards for judicial review across all 27 EU Member States? Does consistent application of the EC rules require homogeneous standards for judicial review across all 27 EU Member States?


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