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A New Vision for European Policy for Electronic Communications

ETNO Conference

J. Scott MarcusBrussels, 25 June 2014

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This past Sunday, 22 June, marked the anniversary of France‘s surrender to Germany in 1940.

France had suffered enormous casualties during the Great War of 1914-1918, which was characterised by trench war, machine guns, and the use of poison gas.

The French built massive fortifications along their frontiers with Germany (the Maginot Line) and Italy (the Alpine Line) in order to provide time to mobilise an army in the event of a likely German attack.

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The Germans managed to bypass the Maginot line by sending tanks through the Ardennes forest in Belgium.

France fell in six weeks.

A classic example of generals fighting the last war instead of the next war.

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A new vision for European policy for electronic communications

How do regulatory mechanisms differ from other policy instruments?

Why was the current framework put in place?

What is the Single Market, and why do we think that we want it?

What policy challenges does Europe really face in regard to electronic communications?

What can we take away from all of this?

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The lessons of history

“Those who cannot remember the past are condemned to repeat it.”

- George Santayana

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Regulatory Mechanisms

It is crucial to bear in mind ‘the distinction between “bureaucratic accountability” (i.e. the control of appointed bureaucrats with a narrowly defined mission) and “democratic accountability” (i.e., the control of elected politicians with an open mandate).’

‘In a representative democracy, the ultimate instrument for holding politicians accountable is an election.”

Regulatory accountability depends on circumscribing the decision authority of the regulator so as to operate largely within the ambit of a defined scope of authority and a defined set of rules.

For regulatory authority and accountability to be credible, it needs to be stable over time, and needs to be somewhat insulated from the vagaries of potentially shifting political winds.

- based on Guido Tabellini, CEPS (2002)

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Motivations for the current framework

Insufficient investment in networks, leading to inadequacy of networks to meet demand.

A lack of consistent nets and services across the EU, leading to high costs and inefficiency for European (multi-national) enterprises.

A regulated monopoly structure that hindered innovation in ICT services, thus undermining overall European competitiveness.

Fragmentation of networks, resulting in loss of potential economies of scale.

Less than optimal economic / social development, once again reflecting impediments to innovation.

- based on Nicholas Garnham (2002)

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Motivations for the current framework

In other words, the Regulatory Framework for Electronic Communications was largely an effort to introduce competition into an industry that still stood on the verge of liberalisation.

Today, that liberalisation is substantially complete.

What are the next set of challenges that Europe faces in regard to electronic communications?

What policy tools will be best suited to addressing the next set of problems?

Are the next set of challenges even amenable to further embellishment or elaboration of regulatory instruments?

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Inherent tensions in the vision of the Single Market

With the Single Market, we seek

Free movement of goods, services, people and capital;

Reduction in transaction costs;

European economies of scale; and

Elimination of fragmentation;

Yet we also embrace

Cultural and linguistic pluralism, which we rightly view as a strength of Europe; and

A range of national prerogatives (subsidiarity).

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The European Union is not unprecedented

From roughly 1777 to 1789, the United States operated under the Articles of Confederation and Perpetual Union.

"Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated.“

Under the Articles, the United States had no president, no coherent control over foreign policy, and limited ability to enforce itsdecisions.

The system was abandoned in 1789 in favour of a federal system.

The cultural and linguistic heritage of most Americans of the day was somewhat less diverse than that of Europe today.

European voters and politicians are far from such a solution today.

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Inherent tensions in the vision of the single market

The Single Market for electronic communications is difficult to fully achieve because markets are not at the same state of development.

This is not a failure of regulation or policy.

It is merely the economic reality today, reflecting path dependencies.

“The fault, dear Brutus, is not in our stars but in ourselves.”

William Shakespeare, Julius Caesar

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Policy challenges going forward

There are many! A few samples:

Fixed and wireless broadband supply and demand.

Insufficient production of desirable audio-visual content.

Insufficient use of ICTs on the part of many European firms, especially SMEs. (86% of EU SMEs do not sell via the web.)

A culture that is insufficiently conducive to digital entrepreneurship.

Many programmes to promote cross-border e-government services, not a single one of which is delivering much.

Research programmes that produce inter-firm linkages, research papers, and highly qualified graduates, but so far have failed to produce much in the way of marketable products or services.

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Achieving DAE broadband goals in Italy

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Demand side challenges

Limited consumption of audio-visual content.

Limited availability of high quality audio-visual content in the Italian language.

Causes appear to be numerous and complex.

A declining number of fixed lines.

Penetration of fixed broadband that is stalled.

An aging population.

Too few personal computers.

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Bandwidth consumption is low

Source: Cisco VNI online data, WIK calculations

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20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Italy France Germany Spain UK Japan South Korea USA

MB

/mon

th/s

ubsc

riber

Consumer video Other traffic

GB

/mon

th/fi

xed

netw

ork

subs

crib

er

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The linkage between consumption and available speed is unexpectedly weak

Source: OECD / Ookla, WIK calculations

0

5

10

15

20

25

30

35

40

Italy

France

German

ySpa

in

United

King

dom

Korea

Japa

n

United

Stat

es

Subscriptions per 100 inhabitants

> 10 mbps > 4 mbps / < 10 mbps < 4 mbps

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Fixed Lines Declining

Likely only 18 million fixed lines in 2020

Scant coverage for 24.5 million permanent HH

14.86

7.31

14.68

7.42

14.48

7.50

14.30

7.53

14.16

7.51

14.00

7.66

13.78

7.76

13.55

7.78

13.37

7.73

8.00

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13

Telecom Italia fixed access lines OLO access lines

21,1022,17

21,67

Source: AGCOM

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Problems with production of European audio-visual content

The European audio-visual sector has historically had a prodigious output, having produced 1,142 feature films in 2008 compared to 520 in the USA.

US films nonetheless accounted for more than 67.1% of cinema admissions within the EU in 2009, versus 26.7% for European films.

US enterprises also accounted for the majority of fictional content on European television screens.

Few European works get much circulation outside of their country of origin.

The challenges thus have less to do with the volume of production, but more to do with what is produced, and for what audience, and with how it is distributed.

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A new vision for European policy for electronic communications

How do regulatory mechanisms differ from other policy instruments?

Why was the current framework put in place?

What is the Single Market, and why do we think that we want it?

What policy challenges does Europe really face in regard to electronic communications?

What can we take away from all of this?

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A new vision for European policy for electronic communications

We need a broader vision that is based on a full a pallet of public policy instruments, and not solely on ex ante regulation.

This is a consequence, not of the failure of EU regulation, but rather of its success in achieving its initial goals.

The next set of challenges are much harder than the last set.

Making regulation stricter, or more consistent across the Member States, is not necessarily the solution to every problem that we now face.

We should resist the temptation to constantly layer more complexity on to the regulatory system.

Making the system more effective is to the good.

We should also strive to make the system simpler.