Innocenzo Genna is chairman of the European Competitive Telecoms Association (ECTA), which gathers European alternative telecoms operators. It includes emerging companies like Tele2, and giants like British Telecom and AT&T.
Developing new fibre connections for a super-fast Internet has become a key issue in Brussels. For many, it would also be a way of letting the economy recover and leaving the crisis behind. Debate centres around how to reward those who invest in new lines. The Council seems to support the idea, suggested by the Commission, of a risk premium to pay to investors for accessing their networks. The Parliament bends instead towards risk sharing.
The Parliament pursues a legitimate objective in trying to spur investment in Next Generation Networks (NGNs). But often it looks at the wrong instrument. It is in fact insisting on risk sharing without understanding how it works. This is in fact a veiled regulatory holiday, which will seriously undermine competition. If you deny access to an essential good or if you give it at an impossible price, it is the same thing.
But the idea of risk sharing is that you can access services as long as you have participated in their development, thus sharing the original risk.
It is not clear yet what risk sharing will actually involve. I have the impression that after losing the battle on regulatory holidays, incumbents are re-proposing the same concept in the new form of risk sharing. We have to clarify that risk is not the same for everybody. For incumbents it is limited. The risk is indeed high if an operator lacks a sufficient market share, or has low cash flow or does not own civil infrastructure. Incumbents have all of these.
Why, then, are fibre-based services in Europe offered mainly by new entrant operators at the moment ?
It is true that new entrants own important pieces of the new networks, but this has been possible in very particular circumstances. For example, when local authorities participated in NGNs, like in Amsterdam or Stockholm. Or in new neighbourhoods of cities.
Indeed, when new building blocks are developed, it makes sense to deploy fibre instead of copper, like in Slovenia and Norway. In Italy there is the exceptional case of Fastweb, which led investment in fibre, exploiting the easy finance available in the years of the dotcom boom. However, these examples cannot be considered as models, and in any case are limited to small areas. They are not nationwide.
ECTA supports the idea of a risk premium to be paid by smaller operators to access the network deployed by incumbents, thus offering final users more choice. But don't you think that, especially during the crisis, the prospect of a premium might not be enough to stimulate investment by big operators?
Broadband penetration keeps growing. The telecoms sector gets bigger. The crisis is there, but has a small impact on big operators. Telecoms is not the car industry. The turmoil instead has a bad effect on smaller telecoms operators, which rely on more limited cash flow and need support from banks or venture capital. In any case, we cannot forget that incumbents are usually network operators. It is their duty to develop networks.
Why have they not invested yet?
They could have done so already. Indeed, many incumbents have already deployed fibre, but are not using it. They did not invest mainly for tactical reasons. They had still advantages in the broadband market. Now that market is becoming competitive, they are pushing to go to fibre to re-create monopolies. The same happened in the transition from dial-up to broadband. Dial-up was competitive. Broadband was initially deregulated. In the passage, incumbents could get enormous market shares exploiting the lack of rules. The new transition brings the same potential to incumbents, if clear rules are not decided in advance.
Assuming that the fibre market develops by offering real alternative services to broadband.
Consumers are clearly not interested in paying more without new services. It is necessary to offer something more and better. However, the transition to fibre is unavoidable. It is a natural evolution of the network. Cooper lines deteriorate with time. When you dig, copper is replaced with fibre. And also when you build new neighbourhoods, it is normal to deploy fibre instead of copper. All business forecasts agree that bandwidth is needed more and more. And fibre increases it exponentially more than copper.
What's your model for developing NGNs then?
KPN in Holland, KDC in Denmark and BT in the UK open their networks to competitors. This way, they make money both in the wholesale and retail markets. They renounce the idea of being completely dominant in the retail market, but all in all they remain the top operators, by bundling retail and wholesale revenues. Instead, the German or Spanish model is based on vertical integration, which leaves no room for alternative operators, ultimately damaging consumers, which will have less alternatives for services.
But does an overly competitive market, with downsized incumbents, not make them more vulnerable to hostile foreign takeovers?
Buying companies such as Telefonica or Deutsche Telekom is very unlikely both for political and economic reasons. I don't see a risk in that sense at the moment. Small operators are instead buyable, However, Tiscali and H3G are on sale and nobody is able to swallow them. It is smaller operators that should get bigger, not the other way around. Instead, with risk sharing, the mechanism of mobile termination rates is reproposed, through which small operators paradoxically subsidized the bigger.
Talking about mobile termination rates, the Commission seems determined to go ahead with plans to slash them, regardless of fierce opposition from many member states and incumbents.
There is a disagreement on the methodology of calculation to be applied to cut mobile termination rates. The international benchmark is favoured by many incumbents, as an alternative to the LRIC (Long-Run Incremental Cost) backed by the Commission. I'm in line with Commissioner Reding, because I think LRIC is the most transparent model and allows having tariffs based on costs. The international benchmark will improve after the use of LRIC. Using the benchmark, now that markets don't have rigorous pricing, would not be positive.
Do you think Commissioner Reding will be reconfirmed in her position?
Apart from a few tactical and diplomatic mistakes, she has proved to be an independent commissioner, deaf to the pressure of the most powerful lobbies. She made her decisions looking especially to consumers. Maybe she created jealousies because she gained more visibility than her predecessor. But all in all, she has been the 'saviour' of competition in the telecoms sector.