EU telecom regulation – Good bye Neelie Kroes. Welcome to Juncker’s ICT team: Ansip, Katainen and Oettinger. Let’s hope you can deliver on promises made but not kept by Neelie Kroes
The EU Commission is at a make or break moment to save the telecom industry from continued decline from their misguided policies. Not a moment too soon, the commission is transitioning to a new leadership formed by European Commission President-Elect Jean-Claude Juncker, former head of state of Luxembourg. Meanwhile outgoing Vice President for the Digital Agenda Neelie Kroes quipped, “The Digital Agenda is so important that I will be replaced by three men.”
The three men Kroes refers to are German Günther Oettinger, Commissioner for Digital Economy and Society (approved); and the pending appointments of former Finnish Prime Minister Jyrki Katainen as Vice President for Jobs, Growth, Investment and Competitiveness and former Prime Minister of Estonia Andrus Ansip, Vice President Designate for the Digital Agenda.
Much of what the new politicians have said is what they believe people want to hear: rebooting the economy, increasing competitiveness, and creating jobs. But until we see effective action, the rhetoric is just the EU’s old wine in new bottles.
Strand Consult had the sense of déjà vu during the hearing of Andrus Ansip. Neelie Kroes said similar things four years ago, but her record has been disappointing. Indeed if there was any politician who had the opportunity to deliver on the Digital Agenda, it was Neelie Kroes. An economist and pragmatist, she was outspoken critic of the EU’s policies which dis-incentivized investment, innovation, and entrepreneurship.
At her hearing four years ago Kroes suggested that her term should “herald a generation of growth” and welcome the “new Nokias, Skypes and GSM standards”. She committed to six building blocks for the Digital Agenda including (1) research and innovation; (2) infrastructure, namely the “right incentives without re-monopolizing networks”; (3) trust and security; (4) digital skills; (5) open standards and interoperability starting with governments; and Digital Single Market, a single market in the EU for all digital business. Unfortunately the EU’s Digital Agenda Scoreboard reports that progress has been minimal.
Ansip reiterated similar principles in his hearing. Called the “Robot” in Estonia, he is known for his automatic presentations. But he could have said it simpler by summarizing, “My political program is to realize the promises made by Kroes that were not delivered.”
Strand Consult and others have documented the detrimental effects of the EU’s heavy-handed regulatory policies that treat telecommunications like a utility. A decade ago the EU accounted for a third of the world’s capital expenditure in communications networks. That amount has fallen to less than one-fifth today. Meanwhile the Americans, who are just 4% of the world’s population, have enjoyed nearly a quarter of the world’s communications capex for a decade. The EU just can’t keep up. Read more in Strand Consult’s report The EU’s Broadband and Telecom policy is not working. Europe is falling further behind the US.
Additionally a University of Pennsylvania study comparing official data from the US and EU shows that next generation network access coverage reached 82% of American households but just 54% of European in 2012. Rural coverage fared even worse in the EU, just 12%. The US does four times better for its rural residents. Perhaps most telling is that those governments that have attempted to promote fiber to the home strategies generally do worse in total and rural coverage than the EU overall, namely Sweden, Italy and France. Meanwhile countries such as Denmark, which have an explicit market-led, technology neutral approach to broadband, fare better than the EU overall and have investment rates approaching the US.
Kroes had the right ideas but ultimately not the courage to force the EU to take the bitter pill. Instead she was co-opted by populists who just wanted placebos of “feel good, look good” policies of free mobile roaming and net neutrality, a policy she long opposed, calling it “a badly designed remedy (which) may be worse than the disease – producing unforeseen harmful effects long into the future… And we don’t want to create obstacles to entrepreneurs who want to provide tailored connected services or service bundles, whether it’s for social networking, music, smart grids, eHealth or whatever.”
Policies such as net neutrality and free roaming have no connection to reducing employment and improving competitiveness, the stated goals of the Digital Agenda. In fact, the EU Commission just released the results of year-long investigation of the internet content and transit markets, conducted with information collected in a raid of Telefonica, Orange, and Deutsche Telekom, and found no evidence of net neutrality violation. The EU Parliamentary vote in favor of net neutrality, now awaiting approval of the Council of Ministers, has no evidence for support. Read more about Strand Consult’s net neutrality report Understanding Net Neutrality and Stakeholders’ Arguments.
“Roam like home” was another policy not based in sound analysis. Strand Consult raised the issue of the perverse arbitrage opportunities created when government attempts to harmonize prices without harmonizing underlying costs. We explained that consumers could buy cheap SIM cards in Lithuania and then use them in high cost Germany. Read the research note. As a result of our finding, the EU was forced to admit that free roaming would be subject to “fair use” but was not able to find a way to enforce such a policy without the surveillance of networks or users. Read follow up research note.
The EU Commission has spent four years talking about the importance of the Digital Agenda, culminating in a poor decision by the Parliament. The EU cannot afford to waste another four years, lest it plunge the economy into yet another crisis, a digital one. Read the research note.
The track records and the tough talk of the new Commissioners gives Strand Consult some optimism, but there is not an easy road ahead. Another commissioner, the no-nonsense Margrete Vestager, former Deputy Prime Minister of Denmark, has consistently driven reforms in the country and has respect across the board. Estonian Ansip represents a country with a modern framework for telecommunications and widespread adoption of digital technologies.
Vestager and Ansip have been smart to focus attention to the lack of a level playing field between the telecom industry and internet companies. Specifically, Vestager has been critical of the tax avoidance strategies enjoyed by Apple and Amazon. While “legal” on the one hand, these strategies may in fact be in violation of EU state subsidy rules. Both Vestager and Ansip have focused on data privacy and how rules need to be updated to protect Europeans. This is political speak that American internet companies such as Google, Facebook, Apple, and Twitter should be on guard about their business models predicated on data collection. However it’s not clear what the Commission can do. The cookie law that went into effect over two years ago, the pop-up banner used to request users’ permission to collect data on all European websites, is considered either a joke or a disaster, as Strand Consult has heard from some consumers and regulators.
The Juncker ICT team offers an ambitious set of proposals, largely what was presented by the Commission for years ago, albeit with increased priority for telecommunications infrastructure. Strand Consult encourages the Commission to focus first and foremost on deregulating infrastructure. This Commission needs action on this front immediately as it is the point of greatest pain, where the greatest economic value can realized, and provides the foundation for digital ecosystem. Juncker estimates that a rational approach to telecommunications policy, investment, and infrastructure can yield half a trillion euros to the EU economy over its term.
When questioned about net neutrality at his confirmation hearing on October 6th, Ansip noted his support of the Open Internet where content and applications are not blocked. He also observed that there is no net neutrality if small and medium sized businesses cannot get a foothold in search engines, indicating that he understands that market power is an issue across the Internet value chain, not just with ISPs. He supports the ability of application providers and consumers to contract for the quality of service they need for specialized applications.
We hope that the new Commissioners will hold fast to their promises and principles and not allow themselves to be hijacked by parliamentary populists. While many net neutrality supporters like to claim that the issue has strong backing in Europe, the bigger challenge is that nearly 40% of Europeans don’t have the digital skills they need for the jobs of the Internet age and the region is too fragmented to compete globally. If the EU Parliament really cared about the people of Europe, they would channel their energies to support digital readiness and digitally enabled employment, not the slogans employed by the lobby organizations that get them elected.
We bid farewell to Mrs. Kroes, a woman with great intentions but few results in her tenure. We hope that the three men who replace her can deliver on her promises made four years ago.