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Open Access: Europe's Secret Weapon?

Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
7/9/2008
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It's easy to lose the will to live while navigating the European Commission's labyrinthine "Information Society Thematic Portal." But the temptation to head rapidly in another direction – any direction – needs sometimes to be resisted, because what Europe's premier regulatory agency does in the telecom sphere still matters a great deal. Indeed, as determined explorers will quickly find, there are signs that the Commission's long-running effort to create a new EU Telecoms Reform package is coming to a head, and that it could have a galvanizing impact on the European telecom scene.

Just this Tuesday, for instance, the Commission published a letter in which it "welcomed the European Parliament vote to strengthen the EU's Single Market for Telecoms." That may not sound like big news, but buried in the announcement is a potential showstopper. Parliament, the letter notes, "agreed that national regulators should be able to require a dominant operator to separate its access infrastructure and its service arms, in order to give other competitors a fair chance to offer services using that infrastructure."

This decision takes EU countries another step toward the open-access networks that Commissioner Viviane Reding – who is responsible for telecom regulation within the EU – clearly favors in principle. The Commission has said several times that it wants to reduce regulation in some areas in order to focus on "intensifying competition" in the broadband access area. Already, both Reding and the Council of Ministers have stated their strong opposition to so-called "regulatory holidays" in which dominant incumbents can shut out competitive service providers when they invest in new access networks based on fiber.

In other words, European incumbents will not get the kind of regulatory relief that Verizon Communications Inc. (NYSE: VZ) secured before it built out its FiOS network in the U.S. In a speech in June, Reding said that there must be "adequate access [for alternative operators] to passive [optical] infrastructure" – a statement that implies a fiber-based broadband environment at least as open as today's DSL-based environment.

The European Commission cannot act alone; it must secure the support of both the Council of Ministers and the European Parliament. But as the statement above makes clear, there are strong signs that all three are now lined up behind a plan to make it a lot easier for national regulators to mandate separation between the provision of infrastructure and the provision of services. This has already happened in countries such as the U.K., but in most others it has not. And while the initial call is only for functional separation, it is an important milestone on the road to true structural separation.

If Europe does head down this track, it will be creating an environment that is strikingly different from either the U.S. or most Asian countries. Will it work? Though evidence varies, on the whole it suggests that the more separation there is, the more choice there is – leading to higher-speed, lower-priced services.

Ever since the first efforts to create competitive telecom markets back in the 1980s, regulation has mattered to market development, and it still matters today. In a few weeks' time, the Commission will publish its full recommendations on Next Generation Access. If you have an interest in Europe, we recommend you check them out.

— Graham Finnie, Chief Analyst, Heavy Reading

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