Opinion

Brussels drops the call on Europe’s single digital market

The European Commission's reforms are too coy about making the changes that would create a true digital single market.

By: Date: September 13, 2013 Topic: Innovation & Competition Policy

This article was first published in the Wall Street Journal.

If Europe had a genuine single digital market, every citizen and company could subscribe to any telecom operator active on the Continent. Pan-European operators could compete across different countries. New technologies would be profitable and rapidly deployed. High-speed access to the Internet would be available to all.

Unfortunately, the long-awaited telecom package unveiled Wednesday evening by Digital Agenda Commissioner Neelie Kroes will not get Europe there—or at least not as quickly as some hoped.

Achieving a single market for digital services requires a bold and coherent strategy. The European Commission should make clear that it prioritizes end-customers, whether they are citizens or businesses, for whom telecommunications is a primary means of fostering social cohesion within Europe and enhancing economic growth. More clarity on telecom policy would also spur investment and competition, to the benefit of European consumers.

Such clarity is absent in this week’s reform package. The legislation was adopted without prior public consultation, creating speculation that the text was shaped by behind-the-scenes political pressure. The result can hardly be called a milestone in the path to a single digital market.

The Commission proposal only mildly addresses the issue of market segmentation, for instance. The creation of a single European regulator and the EU-level allocation of wireless spectrum would be the most straightforward way to overcome national fragmentation and promote the establishment of truly pan-European telecom operators. Instead, the Commission’s proposal mostly relies on an "authorization system" under which operators doing business abroad would be regulated by their home regulator. This is no guarantee of enhanced competition, particularly if regulators are subject to home-country political pressure to back national champions at the expense of customers in host countries.

Likewise, the Commission is merely attempting to coordinate national spectrum auctions instead of encouraging EU-level auctions. Under this week’s proposal, the Commission will retain a veto right if a licensing process creates barriers to the internal market. Yet this is still far inferior to pan-European auctions, which would encourage mobile operators to compete at a continental level rather than merely at a national one.

One of the Commission’s flagship initiatives—to cap wholesale roaming fees—falls similarly short in this week’s package. Earlier drafts proposed cutting roaming fees by up to 90% through the introduction of a €0.03 per minute cap on voice calls and €0.015 per megabyte for data transmission.

Roaming fees are high in Europe because customers cannot "punish" a foreign operator that is charging too much for accessing its network. They can only subscribe—or not subscribe—to telecom operators in their home country. So regulating roaming fees makes sense if competition in the wholesale roaming market cannot be guaranteed.

In the Commission’s final proposal, however, these limits have been dropped. Instead, the proposal promotes the creation of "multilateral roaming agreements": Two operators in such an arrangement would treat each others’ customers largely as their own, and charge roaming fees accordingly. But cooperation agreements may be viewed with suspicion by antitrust authorities, which could make operators less eager to participate.

The Commission’s approach will also affect so-called "alternative roaming operators," which are operators to which mobile customers can separately subscribe when using their devices outside their home country. Brussels previously endorsed this business model as a way to contain roaming costs, but under this week’s proposal, operators in multilateral roaming arrangements would not be forced to give alternative roaming operators access to their networks. This would make it risky for such operators to enter the market, which could open further possibilities for anticompetitive abuses.

The Commission, in other words, recognizes the existence of a market failure and announces that excessive roaming fees will be slashed. But in the final proposal, it has introduced more uncertainty than there was before.

The proposal’s approach to net neutrality does not provide for much more certainty, either. The Commission proposes harmonization of the relevant European legislation, leaving open the possibility for operators to offer different levels of service quality at different prices, provided the principle of an Internet open to all is preserved.

Economic theory suggests that price or quality discrimination are not necessarily bad for customers. Varying the price of Internet services in line with their burden on network capacity might enable more efficient allocation of Web traffic. So the Commission’s proposal is probably correct on substance.

Yet price discrimination could lead to antitrust abuses: Operators could, for instance, charge mobile users more for using services, such as Skype or Google Talk, that represent a competitive threat. The success of the net-neutrality regulation will therefore depend on national regulators’ and antitrust authorities’ ability to identify anticompetitive behavior and enforce competition law in a timely manner.

The Commission’s proposal introduces some positive changes, but it is too coy. Above all, it fails to foster the development of a new digital era in Europe, which would bring certainty and confidence to consumers and to the industry.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Brexit consequences for EU’s ICT policy

Bruegel senior fellow Scott Marcus welcomes former European Regulators Group chairman Kip Meek to explore the consequences of Brexit for ICT policy-making in Europe

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: September 25, 2018
Read article

Parliamentary Testimony

European Parliament

The role of independent expertise in legislative process

Testimony before the European Parliament Committee on the Internal Market and Consumer Protection (IMCO).

By: Zsolt Darvas and J. Scott Marcus Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: July 18, 2018
Read article More by this author

Parliamentary Testimony

European Parliament

The potential impact of Brexit on ICT policy

Testimony before the European Parliament's Committee on Industry, Research and Energy (ITRE).

By: J. Scott Marcus Topic: European Parliament, Innovation & Competition Policy, Testimonies Date: June 27, 2018
Read article Download PDF More on this topic

Working Paper

How big is China’s digital economy?

The rise of influential Chinese digital giants, including Baidu, Alibaba, Tencent and Xiaomi has shown the world that China is a global leader in digital innovation and it is not surprising that China has started to influence the global digital market. But is China exploiting its full potential in this area? To answer this question, the authors assess how big China’s digital economy is relative to the rest of its economy, and how China performs compared to the rest of the world.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: May 17, 2018
Read article More on this topic

Blog Post

Completing Europe’s banking union means breaking the bank-sovereign vicious circle

Several euro area leaders, including the German chancellor, her finance minister, and the French president, have recently referred to the need to “complete the banking union.”. These public calls echo those made in more formal settings, and inevitably raise the question of what criteria should be used to assess the banking union’s completeness.

By: Isabel Schnabel and Nicolas Véron Topic: Finance & Financial Regulation Date: May 17, 2018
Read article More on this topic More by this author

Blog Post

How e-commerce reshapes markets and firms’ strategies

The development of e-commerce has affected both demand and supply fundamentals of markets, changing the way competition works. In the effort to develop a frictionless and welfare maximizing digital single market across the EU, it is necessary to carefully review the disruptive forces on e-commerce on markets and firms’ strategies.

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: May 7, 2018
Read article More on this topic More by this author

Blog Post

Getting accustomed to Brexit - UK and the customs union scenario

The Labour Party’s support of customs union membership has the potential to change the course of Brexit, with 13 months left to close negotiations. This week we review the commentary around the possibility of a post-Brexit EU-UK Customs Union.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 5, 2018
Read article More on this topic More by this author

Blog Post

Trust in the EU? The key obstacle to reform

The challenges that Europe faces both from within and from outside require immediate, concerted counter-efforts. While efforts to advance the European economic architecture are desirable and useful, can Europe realistically attempt to integrate further on the basis of such little trust?

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: February 9, 2018
Read article More on this topic

Blog Post

Can roaming be saved after Brexit?

The referendum where UK voters chose to exit the European Union has many unanticipated consequences. One that is gaining visibility in the UK just now is the impact of Brexit on mobile roaming arrangements. How might the UK maintain roaming arrangements with the EU in the event of a hard Brexit?

By: J. Scott Marcus and Robert G. Clarke Topic: Innovation & Competition Policy Date: September 21, 2017
Read article

External Publication

Economic Implications of Further Harmonisation of Electronic Communications Regulation in the EU

One of the ways in which the European Commission has sought over the years to strengthen the European single market is by means of increased harmonisation of the regulation of electronic communications. To the extent that the European Union functions as a confederation of somewhat autonomous member states, however, there are both practical and political limits to the degree of harmonisation that is realistically desirable or achievable.

By: J. Scott Marcus and Christian Wernick Topic: Innovation & Competition Policy Date: August 11, 2017
Read article More on this topic More by this author

Opinion

The EU and the US: a relationship in motion

Europe’s post-crisis recovery has been disappointing in comparison with the USA. But lower rates of inequality are staving off populism and bolstering support for globalisation. With the USA an increasingly unpredictable partner, the EU must address internal imbalances and build alliances to defend the multilateral order.

By: Maria Demertzis Topic: Global Economics & Governance Date: July 28, 2017
Read article More on this topic More by this author

Blog Post

Brexit and the future of the Irish border

The future of the Irish land border has been thrown into uncertainty by Brexit. The UK's confirmation that it will leave the EU's single market and customs union implies that customs checks will be needed. However, there is little desire for hard controls from any of the parties involved. This is especially true for Theresa May's potential partner, the DUP. Creative solutions are needed to reach a solution.

By: Filippo Biondi Topic: European Macroeconomics & Governance Date: June 19, 2017
Load more posts