Telecoms: study hits out at EU network investment policy

European rules that enable new market entrants to use the incumbent’s network under the Access Regulation are affecting investment in the sector and detrimental to consumers in the long run, says a new study supported by Deutsche Telekom.

The study particularly underlines the decrease in investment by new entrants, such as Tele2 or Tiscali, due to a lack of interest caused by the EU regulation on open access to networks. According to the research, delivered by the Berlin-based European School of Management and Technology (ESMT), “the reliance on incumbents’ existing networks is depriving Europe of 25.1% of new infrastructure investment” which the new entrants would have carried out with different legislation in place.

The study acknowledges that new entrants’ investment levels relative to their turnover are higher than for incumbents, but nevertheless underlines that the amount of investment is clearly lower than would be possible – a net loss of 18.1 billion euros in missing investment.

“Whilst regulation has resulted thus far in lower prices for the consumer and the provision of greater services, services-based competition can only go so far. Optimum consumer choice in terms of price and innovation will only be achieved by new entrants committing to their infrastructure investment”, commented Lars-Hendrik Roller, President of ESMT and an author of the study.

“We welcome this important contribution to the debate that is ongoing. It is a very important study that we will certainly keep in mind”, Bernd Langeheine, Director for Electronic Communications Policy at the European Commission’s Information Society DG, commented during a conference in Brussels last week hosted by the Bruegel think tank.

Nevertheless, the Commission held its line on open access legislation. “Guaranteeing access could be seen as necessary for entrants to have legal certainty. And this can increase the interest for investment”, said Langeheine. “We believe the framework is sufficiently flexible to allow investment by both incumbents and entrants”, the EU official added.

The European Competitive Telecommunication Association (ECTA) confirmed its position in line with the European Commission’s approach. “We must encourage investment when it is viable, but sometimes there is no need for duplication of infrastracture”, commented Ilsa Godlovitch, head of regulatory affairs at ECTA.

Whilst calculating a decrease in new entrants’ investment, the report found that “investment by incumbent providers remains roughly the same as a result of open access regulation”. This remark was labelled as completely new by Langeheine. “We welcome, as a new subject of debate, the report conclusion affirming that the intensity of market regulation has no impact in investment of incumbents”, he said.

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