10 June, 2015

ETNO Think Digital interview – Putting Europe back in the driver’s seat.

David Cantor, Attorney & Advisor, Telecommunications Law & Strategy: “My own feeling is that the only revolutionary way forward, with a real chance of putting Europe back in the driver’s seat, is to repeal the sector ex-ante regulatory framework.” #ThinkDigital

The European Commission has recently published its Digital Single Market Strategy (DSM). What is your take on the strategy?

To be frank, I don’t see things moving forward meaningfully anytime soon. The impression one gets is that a great deal is being targeted, but that little is being prioritised for the short term.

Regrettably, I see the Commission’s latest DSM proposal going much the same way as its previous Connected Continent proposal – in current Brussels parlance, the so-called Telecom Single Market (TSM) proposal.  As you know, TSM has been a dismal failure, and in my view that failure has in large part reflected an unrealistic effort to achieve political consensus around numerous thorny but incremental measures. The debate has now been reduced to arguments between the European Parliament and the Council over the crumbs left over from an original Commission proposal which had been widely considered to be rather ambitious.  And my feeling is the multi-pronged DSM strategy which has recently been articulated by the Commission is even more unrealistic, in terms of any near-term prospects for success.

Although the official focus has recently shifted from TSM to DSM, to my mind the central challenge remains the same.  The overarching imperative all along has, in my view, been to focus on the forest, not the trees.  If Europe means to deploy a compelling industrial policy, geared to re-energising its telecom sector and to grappling proactively with the new global digital environment, then the central challenge is how best to incentivise very substantial investment in next-generation broadband infrastructure Europe-wide.  The potential success of any EU DSM strategy depends, first and foremost, on whether Europe will deploy high-capacity, leading-edge networks ubiquitously and without further undue delay.   I see this as sine qua non. 

Currently the Commission might be seen to be changing the subject of the debate, but my guess is that little will be gained by piling additionally intractable issues on top of the already tired policy conundrum around stimulating massive new investment in core network infrastructure.  For example, a key point in the Commission’s new DSM strategy is cross-border copyright – a separate major issue which, in its own right, has been debated for decades and is by no means a “walk in the park”!  Clearly there can be little doubt that geo-blocking of digital content runs counter to the very notion of a digital single market.  That said, I don’t perceive any basis for optimism that substantial progress will actually be achieved on this front over the foreseeable term.  And in any event, the new highlight on content alongside conduit won’t make it any easier to resolve what’s already been at stake with the Commission’s failed TSM proposal.  It seems to me the bottom line here is that any and all issues around digital content will be constrained by limited telecommunications network capacity.

Let’s zoom in on the content of the DSM. The second pillar of the Commission’s strategy refers specifically to « an ambitious overhaul of telecoms rules ». What is your view on the framework review?

One major issue here is the very difficult problem of national spectrum management, which the Commission has flagged again in its DSM strategy.  This, to my mind, is an area in which the contours of the original TSM proposal might have had a significant impact.  However it’s by now sufficiently clear that, short of an unexpected treaty change or a dramatic new consensus among Member States at legislative level, fundamental reform of the received model of national spectrum management remains unlikely on the near horizon. 

The relatively modest approach to incremental reform urged by the Commission in this area is laudable though, and one would hope that appreciable progress in the direction of far more harmonised European spectrum management will be achieved before too long.

The recent talk around lightening up regulation of European telcos, or  evening out regulation of telcos and OTTs that compete with them in the same markets is also of great moment. There are various proposals floating around, and I suspect the Commission needs to decide its preferred approach sooner than later.  My own feeling is that the only revolutionary way forward, with a real chance of putting Europe back in the driver’s seat, is to repeal the sector-specific framework which gives rise to ex-ante regulation of telcos.  The notion of equivalent regulation of Internet services, which thrive on disrespect for national borders, is exceedingly problematical – both from a technical as well as a geopolitical point of view.  The Commission should focus instead on the urgent priority of releasing European telcos from the horrendously complex, multi-levelled regulatory burdens under which they now operate.  This is the real elephant in the room!

A sustained project of liberalising national telecom markets throughout the EU began a quarter century ago now, and I believe that the central objectives have since been largely achieved.  It happens I contributed for several years to the elaboration of the original sector liberalisation framework, and I can tell you that the intention was hardly a permanently institutionalised regime. The goal was to establish and ensure meaningful competition in national telecom markets, without presuming that the resultant system of harmonised national regulation would remain in place indefinitely.  Current technological and market realities signal it’s now time for the EU to declare victory on national market liberalisation, and let the nationally administered ex-ante framework go.   

My advice to Vice President Ansip, Commissioner Oettinger and Commissioner Timmermans would therefore be to call for a near-term repeal of the ex-ante regulatory framework, rather than contemplating any new set of complex regulatory proposals built on the received model.  Applicable competition rules, at both EU and national level, would continue to govern troublesome issues requiring expeditious resolution, most notably local bottlenecks around Internet access.  The point here is that the existing framework of EU electronic communications regulation is ill-suited – both substantively and procedurally -- to expeditious resolution of the most important issues impacting competition and consumer welfare in the new digital era.  The endless effort to adapt a fundamentally anachronistic regulatory approach is counter-productive, and it is holding Europe back.

Apart from trimming down an inordinately expensive army of sector regulatory professionals (which now inhabits Europe’s telecommunications space at national and EU level, throughout the public as well as private sectors), I’d submit the EU has little to lose and much to gain by unleashing telcos from the onerous current framework. 

Assuming the Commission’s much-heralded goal of eradicating European telecom market fragmentation along national lines is to be taken seriously, then it’s long past time to recognise that the established paradigm of national ex-ante regulation is obsolete and that it serves to undermine that goal categorically.  Stimulation of unprecedented private investment in 21st Century broadband infrastructure, especially pan-European networks, requires realisation of regulatory certainty and predictability as the prevailing norm.  But as matters stand, Europe remains handicapped by maintenance of twenty-eight separate national regulatory authorities whose approaches may diverge.

The interminable official debate around TSM and DSM exacerbates regulatory uncertainties which are endemic to the current, slow-moving system.  A largely unregulated European telecom sector would, in stark contrast, hold the promise of ushering in sustainable private investment in new digital infrastructure at levels heretofore unthinkable, enabling consolidation and recapture of European market power on the global stage.  

Without compromising basic rules of fair competition for the sake of enhanced global competitiveness, it’s time for all the key stakeholders concerned to hone in on the absolutely central priority of building out new European digital infrastructure.

The DSM strategy is all about industrial policy, but what about competition policy? How will changes in market dynamics affect the current landscape?

Whether or not a more compelling approach to European telecom sector regulation (or “unregulation”) may be in the cards, there will always be a need for applicable competition rules to be invoked for purposes of resolving problematical issues at both local and European level.  This may be manifested by appropriate intermediation on the part of national competition authorities or the Commission’s competition service, and/or in legal actions brought by private parties in national courts.

DG COMP will in all events continue to vet proposed mergers and acquisitions caught by the jurisdictional rules contained in the EU Merger Regulation.  And as Competition Commissioner Vestager’s pertinent recent comments around “data as currency” may be taken to suggest, there is a growing need for those jurisdictional rules to take stock of new business models which major players in the global digital ecosphere have exploited to capture dominant positions in various Internet segments, without reference to revenue.  It was fairly serendipitous that Facebook’s acquisition of WhatsApp last year was caught by the EU Merger Regulation, and before that Google’s globally significant acquisition of the traffic and navigation app Waze was not caught at all.

It will be interesting to see how Commissioner Vestager approaches further cases involving consolidation of European national telecom markets, as well as cross-border M&A including hypothetical deals like Vodafone – Liberty Global with a potentially pan-European dimension.  As to the former, the ongoing debate around whether the conditions accompanying the Commission’s clearance of Hutchison – Orange in Austria resulted in maintenance of sufficient price competition may prove telling.  And while I think it’s unlikely that Airdata’s just-announced court challenge of the Commission’s clearance of Telefonica – EPlus in Germany will succeed, this continuing controversy also signals that the operative jurisprudence remains somewhat unsettled.

With the pace of European telecom M&A picking up day by day, it’s likely DG COMP’s involvement in vetting the competition issues which may be implicated case-by-case will have a far more profound effect on shaping the sector going forward than any DSM or TSM proposal currently emanating from DG CONNECT. 

The future structure of the European telecom and broader digital space is presently being determined more by private M&A than anything else.  Although it appears that BT’s pending acquisition of EE in the UK will be vetted for competition purposes at UK level, the fact that DT would become a major BT shareholder as an outcome of that deal can be seen to implicate a broader, pan-European dimension of the deal -- giving rise to speculation of a full-on DT-BT combination down the road.

There is a lot of discussion around online internet platforms. What role do you think regulation needs to play here?

When it comes to the issue of regulating online platforms, I think Europe needs to ask itself two basic questions. First, why do Americans succeed while Europeans fail in the OTT space?  And second, what’s the best response?

Commissioner Vestager recently expressed caution about the idea of systematic Internet platform regulation that might be overtaken by market developments, which is interesting given the recent pressure from France and Germany to regulate OTTs that offer services similar to those offered by telcos.  Indeed, to my mind this also raises the corollary question why the activities of European telcos offering services in direct competition with OTTs should at this stage be regulated at all.  One can only wonder about the potential European market restructuring that is being stymied by a weighty paradigm of ex-ante telco regulation that’s outlived its useful life.

I might insert a curious aside here with reference to the Commission’s focus, in the context of its recently announced DSM strategy, on obstacles to cross-border e-commerce. Specifically, one of the items the Commission wants to examine is cross-border parcel post.  I don’t know about you, but I’ve never had a problem here in Brussels receiving a package on time from Amazon UK or Amazon France.  I can’t say precisely why American companies manage to succeed so well while European players appear to fall short in the cross-border e-commerce space, but it would surprise me if this turns crucially on available parcel post services or, for that matter, on the presence or absence of Internet platform regulation.

European competition authorities have recently focussed discussions on internet search engines. What do you think will happen here?

I think it was high time for DG COMP to take the longstanding Google search case to a formal Statement of Objections, following several failed attempts to settle the case over recent years.  The Commission’s credibility as adjudicator was being undermined by how long it took to reach this stage, which in turn served to cast doubt on the more general efficacy of EU competition law.  As to which direction the Google search case is now likely to take, it’s hard to say and I’d hesitate to offer a specific prediction as to the final outcome.  I seriously doubt there will be a structural remedy breaking up Google, as was floated in the European Parliament at one stage, but it seems equally unlikely that Google will manage to avoid making significant behavioural concessions.  Recent indications suggest Google is still hoping for a settlement.  It seems Commissioner Vestager, for her part, is committed to respecting and relying upon the formal legal procedures which have long been in place for purposes of administering justice as may be necessary.  However I’d also observe that, in her short tenure to date, Mme Vestager has taken a great deal onto her plate across various sectors, so it will be interesting to see how she manages.

Incidentally, a propos Google (but not the search case), I’ve read in recent days that the U.S. Internet app developer Disconnect has filed an EU competition complaint against Google, around the exclusion of its “Disconnect Me” app from the Google Play app store.  This is a fascinating development which may be of great interest to telecom operators.  As I understand it, Disconnect Me allows its users to opt into alternative privacy and security settings while using Google’s Android smartphone operating system – thus impeding the ability of Google and others to track and collect Android users’ personal information for advertising purposes.  Disconnect’s tech is now being marketed via a distribution agreement with at least one major European mobile operator, enabling subscribers using Android to exit Google’s system for generating its core revenue.  In other words, here we have an upstart US OTT battling against Google-Android’s market dominance not just before EU DG COMP, but also in commercial partnership with an important ETNO member.

By ETNO #ThinkDigital, Brussels, 10.06.2015


David Cantor, Attorney & Advisor, Telecommunications Law & Strategy

David Cantor is a leading communications lawyer working from Brussels. He counsels and represents major international players and others in the telecommunications sector, on matters ranging from pioneering regulatory and antitrust cases to substantial M&A and privatization transactions. With decades of experience, David is a seasoned veteran among the small group of top-rated EU "electronic communications" law specialists. He also brings to bear diverse experience with matters arising in neighboring TMT fields -- including Internet and privacy law, customary as well as new digital media, venture capital and emerging technologies. David previously led the international telecoms practice group of Weil, Gotshal & Manges LLP. Before that he developed the Brussels telecoms practice group of Stanbrook and Hooper, where he frequently advised the European Commission. He works both independently and in collaboration with various colleagues and firms throughout the world. David's professional standing is widely recognized among industry leaders, regulators and the international financial community. He is regularly engaged as a high-level strategic advisor.

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