The European Commission is due to issue a decision today on a proposal by Italian regulator AGCOM to increase wholesale access prices by 24% over two years for telecoms providers.
Though the Commission's comments on AGCOM will not be binding, nonetheless the decision should send a clear signal across the bloc that regulators will not get away scot-free with setting unjustifiably high access prices.
The devil will still be in the detail, say sources, who claim EU Digital Agenda Commissioner Neelie Kroes will not be tough enough in her comments on AGCOM's proposal in order to buy the EU executive some wiggle room when it comes to resetting network pricing models for the whole bloc.
"If the Commission's comments are too detailed they will be bound when they are writing their recommendation," said an industry source.
"Of course the European Commission knows there is something wrong with AGCOM's pricing but it is not clear how deep their comments will go," the source continued.
Kroes is expected to issue guidelines on wholesale charges before the end of the year, a decision which was forecast in her 'European Digital Agenda'.
A litmus test for Kroes
Kroes' decision has been painted as a litmus test to show her regulatory muscle in the telecoms sector and to keep promises made on making the telecoms market more competitive.
Incumbent networks have argued that they need higher access prices to invest in rolling out next generation fibre networks as copper networks become obsolete.
However, figures from the Italian market indicate that those investments have not been forthcoming even while the incumbent's profits have been rising steadily, sources say.
Telecom Italia's profits reportedly went up by 3% last year while investment staved off and projected investment for 2010-2012 is 20% less than previous levels.
Non-incumbent firms who depend on access to the local loop to provide competitive services are worried that if Italy's regulator is allowed to hike access prices, then other regulators will follow suit.
The charge in Italy will hit €9.48 per month in 1 January 2012 up from €7.64 at the end of 2009.
Industry sources also allege that higher access prices will prevent upgrades to fibre because incumbents can make higher returns while "sweating their original copper assets".
"Such practices will further slow-down take-up of broadband and will undermine competition in the telecom markets at the expense of European consumers," said Kostas Rossoglou from pan-European consumer organisation BEUC.
According to recent studies the problem extends beyond Italy.
Consultants Progressus calculated from France Telecom's accounts that the company had gained around €1bn per year from failing to invest in network upgrades, while German consulting group WIK estimated that Deutsche Telekom gained €2 bn per year by failing to invest.
