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disco-tech | Discovery Institute's Technology Blog: EU Telecom Review Archives

July 10, 2006
EU's Review 2006 of telecom rules risks repeating the mistakes of U.S. telecom reform

The member of the European Commission in charge of telecom, Viviane Reding, admits that these are "times of convergence where we can access music, emails and media content using different terminals and networks and where also the borders between fixed-line and wireless are disappearing." She has therefore initiated a review of the EU telecom rules -- with a focus on opening up more spectrum, regulating less in markets "where competition is
already effective" and achieving "competition and investment."

On the positive side, Reding advocates phasing out ex-ante sector-specific regulation -- leaving control with competition law and authorities -- and reducing the variety of regulatory approaches in recognition that "neither technology nor economic interest nor consumer behavior know national borders anymore."

According to Reding, many telecom industry officials are urging her to follow the U.S. model. She believes they are referring to the breakup of Ma Bell in 1984. Some people see divestiture as the sine qua non of competition in telecom. In fact, competition pre-dates divestiture, which was mainly an effort to identify and prevent hypothetical anticompetitive machinations. This is not an insignificant distinction. Competition arose when new technology -- microwave transmission -- slashed the cost of transport, not as a result of regulators' clairvoyance.

Still, Reding is right in observing that consumers in the U.S. have "true choice" in broadband access. But we wouldn't be where we are today if we had adopted structural separation -- i.e., ripping apart the wholesale and retail functions of a telecom carrier into separate entities so new entrants can free ride on the carrier's network investments -- or if we hadn't allowed cable operators to invest $100 billion in broadband networks free of regulation and then deregulated DSL.

We debated these schemes for years, and most observers concluded that they tend to diminish the incentives of incumbents and new entrants alike to invest in new services, and -- in the words of Justice Stephen Breyer -- create "not competition but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms."

Reding, unfortunately, is hoping that the EU will impose structural separation and she is critical of Germany for not mandating "bit-stream access" -- Euro-jargon for net neutrality.

In the U.S., nearly every time Congress or the FCC have attempted to update telecom law or regulation, they have created more new regulation than they have eliminated. The best example is the 1996 Act, which former FCC Chairman Reed Hundt admitted earlier this year that some believe demonstrates that lawmakers and regulators cannot predict the results of their actions, "and so should do nothing." I expected Hundt to argue that this would lead to the end of civilization. But what he said was, "By this reasoning, few of us would get out of bed in the morning."

To see the full set of remarks, go to: Review 2006 of EU Telecom rules: Strengthening Competition and Completing the Internal Market


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