Europaudvalget 2016
KOM (2016) 0590
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EUROPEAN
COMMISSION
Brussels, 3.10.2016
SWD(2016) 303 final/2
PART 3/3
CORRIGENDUM
Annule et remplace le SWD(2016) 303 final.
Suppression des liens vers des documents externes.
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the document
Proposals for
a Directive of the European Parliament and of the Council establishing the European
Electronic Communications Code (Recast) and
a Regulation of the European Parliament and of the Council establishing the Body of
European Regulators for Electronic Communications
{COM(2016) 590 final}
{COM(2016) 591 final}
{SWD(2016) 304 final}
EN
EN
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6.6 ANNEX 6 - Data and problem evidence
6.6.1 Introduction
Europe's Digital Progress Report
provides an overview of the progress made by MS in
digitalisation. It also details the policy responses by MS to address the specific challenges that
face them.
The Commission adopted the DSM Strategy for Europe
411
in May 2015, which identified that
Europe has the potential to lead in the global digital economy, but that fragmentation and
barriers that do not exist in the single market are holding back the EU. It estimated that bringing
down these barriers could contribute an additional EUR 415 billion to European GDP. The
digital economy could expand markets and provide better services at better prices, offer more
choice and create employment. The DSM could create opportunities for new start-ups and
provide an environment for businesses to grow and benefit from a market of over 500 million
consumers.
The Commission therefore announced a series of measures to be taken at EU level to:
improve access for consumers and businesses to online goods and services across
Europe;
create the right conditions for digital networks and services to flourish; and
maximise the growth potential of the European digital economy.
The delivery rhythm of the announced measures has been brisk.
Already on 6 May 2015, the Commission launched a competition sector inquiry into eCommerce
relating to the online trade of goods and the online provision of services. More than 1300
companies responded before the end of 2015. A first set of very preliminary results has been
published on 18 March 2016, showing that geo-blocking is widespread in the EU. This is partly
due to unilateral decisions by companies not to sell abroad but also contractual barriers set up by
companies preventing consumers from shopping online across EU borders.
On 9 December 2015, the Commission presented a proposal for Directive on contracts for the
supply of digital content
412
as well as a proposal for a Directive on certain aspects concerning
contracts for the online and other distance sales of goods
413
. The aim of these proposals is to
remove barriers due to contract law differences. In addition, for the supply of digital content,
once adopted, the Directive should set out clear and specific rights for consumers. Indeed, there
is currently a clear gap in EU legislation in the area of defective digital content, as most MS do
not have any legislation in place to protect consumers in the case of defective digital content.
On the same day, the Commission proposed a Regulation on the cross-border portability of
online content services in the internal market
414
to allow people to travel with their online
content. In other words, this Regulation should ensure that Europeans who have purchased films,
series, sports broadcasts, games or e-books online can access them when they travel within the
EU.
At the same time, the Commission published an action plan to modernise EU copyright rules,
415
which should make EU copyright rules fit for the digital age. This ‘political preview’ will be
translated into legislative proposals and policy initiatives that take into account responses to
several public consultations.
411
412
COM(2015) 192.
COM(2015) 634.
413
COM(2015) 635.
414
COM(2015) 627.
415
COM(2015) 626.
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A set of measures to support and link up national initiatives for the digitisation of industry and
related services across all sectors and to boost investment through strategic partnerships and
networks was adopted by the Commission on 19 April 2016.
416
This package also contains
concrete measures to speed up the standard setting process for ICT and an updated e-government
action plan to modernise digital public services.
In addition to action at the European level, the DSM strategy recognised that such action needs
to be complemented by actions taken at MS level, since a major part of policies which are
essential for the development of the digital economy are formulated a national level. Moreover,
MS are at very different stages in the development of the digital economy; some, for example,
the Nordic countries, are among the most advanced in the world, while others still have a lot of
catching up to do. Therefore, both policy priorities and the impact of the DSM will differ
significantly from Member State to Member State.
This report combines the quantitative evidence from the
Digital Economy and Society index
(DESI)
with country-specific policy insights. It keeps track of the progress made in digitalisation
in the MS and provides important feedback for policy-making at EU level. To enable a better
comparison between MS, this report also develops a cross-country analysis for the main
dimensions of DESI. This report will feed into the analysis of MS’ economic and social
challenges and the monitoring of national reform efforts carried out under the European
Semester.
The report is structured in thematic chapters that examine one issue across all MS. The first
section starts with connectivity, followed by human capital, before moving on to internet usage,
the digitisation of industry and digital public service and finally R&D in ICT. This is followed
by country chapters, each of which looks in the same order at the same issues, except for R&D,
which is not covered at the level of MS.
6.6.2
The state of play on connectivity and the telecom sector
The Connectivity dimension of DESI looks at both the demand and the supply side of fixed and
mobile broadband. Under fixed broadband it assesses the availability as well as the take-up of
basic and high-speed NGA broadband and also considers the affordability of retail offers. On
mobile broadband, the availability of radio spectrum and the take-up of mobile broadband are
included.
On the fixed side, Luxembourg, the Netherlands and the UK are the strongest, and Poland,
Romania, Slovakia and Bulgaria the weakest. NGA subscriptions are particularly advanced in
Belgium, Romania, the Netherlands and Lithuania. As for mobile broadband, The Nordic
countries (Finland, Sweden and Denmark) lead along with Estonia, while lowest figures were
registered by Hungary, Greece and Portugal.
416
COM (2016) 176, (COM(2016) 178, COM(2016) 179, COM(2016) 180.
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Table 33 - EU average of Connectivity Indicators in DESI 2016
DESI - Connectivity
Fixed broadband coverage (% of homes)
Fixed broadband take-up (% of homes)
Mobile broadband take-up (subs per 100 people)
Spectrum (% of spectrum harmonised)
NGA coverage (% of homes)
Subscriptions to fast broadband (% of subscriptions)
Fixed broadband price (as a % of income)
97%
72%
75
69%
71%
30%
1.3%
Figure 37 - Digital Economy and Society Index (DESI), Connectivity, 2016
Total telecom services revenues have declined by 10 % in Europe since 2012. EU telecom
CAPEX has slightly increased in the same period.
Telecom operators in Europe generated less revenue than US operators. Revenues went down
from EUR 237 bn in 2012 to EUR 213 bn in 2016 (forecasted) in Europe. At the same time, the
US also reduced its figures from EUR 252 bn to EUR 240 bn, surpassing Europe despite its
smaller population. There have been large increases in emerging markets, especially in China,
where there is still relatively low take-up of telecom services
417
.
Figure 38 - Total telecommunication services revenues per region, billion EUR, 2012-2016
417
Note: this analysis is based on detailed figures from 26 MS, which covered about 98 % of the total EU market
(total telecom carrier services).
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Source:
2015 EITO in collaboration with IDC
CAPEX figures remained stable over the last four years even though NGA coverage increased
from 54 % to 71 %. Mobile CAPEX spending represented 60 % of total spending.
Figure 39 - Share of fixed and mobile CAPEX in Europe, 2015
Mobile voice and fixed voice revenues have decreased by over 25 % since 2012. Mobile
data grew by 10 %, and will represent over a quarter of total telecom revenues at EU level
in 2016.
The revenues of the telecommunications sector went down by 10 % between 2012 and 2016
(forecasted figure).
Telecommunications revenues (carrier services) by segment showed, how voice services (both
fixed and mobile) lost importance. Fixed voice decreased by 17.2 %, while mobile by 30.8 %.
Fixed and mobile voice services made up 57 % of total telecom revenues in 2012, but will only
represent 47 % in 2016.
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Table 34 - Revenue growth rates, 2012-2016
Revenue growth rates 2012-2016
Telecom carrier services
Business data services
Fixed voice telephony
Internet access and services
Mobile data services
Mobile voice telephony
-10.0 %
-0.8 %
-17.2 %
13.1 %
9.9 %
-30.8 %
By contrast, the growth in mobile data services (9.9 % between 2012 and 2016) is remarkable.
Mobile data will represent over one quarter of total market revenue (26 %) in 2016. The growth
in mobile data services could not, however, compensate for the major decline in voice. Revenue
from fixed internet access went up by 13.1 % since 2012, whereas business data services
decreased by almost 1 % between 2012 and the forecasted figure for 2016, representing solely
7 % of total telecom revenue.
Figure 40 - Total telecom carrier services revenues by segment, 2012-2016
Source: 2015
EITO
in collaboration with IDC
Coverage of next generation access (NGA) technologies continued to increase and reached
71 %. NGA deployments still focus mainly on urban areas, while only 28 % of rural homes
are covered.
For the purpose of this report, next generation access includes VDSL, Cable Docsis 3.0 and
FTTP. By mid-2015, Cable Docsis 3.0 had the largest NGA coverage at 44 %, followed by
VDSL (41 %) and FTTP (21 %). Most of the upgrades in European cable networks had taken
place by 2011, while VDSL coverage doubled in the last four years. There was remarkable
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progress also in FTTP growing from 10 % in 2011 to 21 % in 2015, but FTTP coverage is still
low.
NGA networks are still very much limited to urban areas: only 28 % of rural homes are covered,
mainly by VDSL.
Figure 41 - NGA broadband coverage in the EU,
2010-2015
Figure 42 - Next generation access (FTTP, VDSL and Docsis 3.0 cable) coverage, June 2015
Coverage of Fibre to the Premises (FTTP) grew from 10 % in 2011 to 21 % in 2015, while
it remains a primarily urban technology. Lithuania, Latvia, Portugal and Estonia are the
leaders in FTTP in Europe.
FTTP is catching up in Europe, as coverage for homes more than doubled since 2011. However,
the FTTP footprint is still significantly lower than that of cable Docsis 3.0 and VDSL. In
Estonia, Portugal, Latvia and Lithuania more than two thirds of homes can already subscribe to
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FTTP services, while in Greece, the UK, Ireland, Germany, Austria and Poland only less than
10 % can do so. FTTP services are available mainly in urban areas with the exception of
Lithuania, Latvia, Estonia, Denmark and Luxembourg, where more than one in three rural homes
can also have access to it.
Figure 43 - Fibre to the premises (FTTP) coverage in the EU, 2011-2015
Figure 44 - Fibre to the premises (FTTP) coverage, June 2015
4G mobile broadband availability reached 86%, up from 27% three years ago. 4G has
been commercially launched in all MS.
In 2015, deployments of 4G (LTE) continued: coverage went up from 79% of homes to 86% in
six months. Nevertheless, 4G coverage is still substantially below that of 3G (HSPA). As of
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October 2015, 80% of Mobile Network Operators in the EU offered 4G services on LTE
networks.
LTE is most widely developed in the Netherlands, Sweden and Denmark, while commercial 4G
services were launched only last year in Bulgaria.
LTE deployments have focused so far mainly in urban areas, as only 36% of rural homes are
covered. However, in sixteen MS, LTE is already available also in the majority of rural homes,
with very high rates in Denmark, Sweden, Slovenia, Luxembourg and the Netherlands.
Figure 45 - Mobile broadband coverage in the EU, 2011-2015
Figure 46 - 4G (LTE) coverage, June 2015
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An estimated 8 % of European homes subscribe to ultrafast broadband (at least 100Mbps),
up from 0.3 % five years ago. Romania, Sweden and Latvia are the most advanced in
ultrafast broadband adoption.
The Digital Agenda for Europe set the objective that at least 50 % of homes should subscribe to
ultrafast broadband by 2020. From June 2015, 49 % of homes are covered by networks capable
of providing 100Mbps. As service offerings are emerging, take-up is growing sharply. The
penetration is the highest in Romania, Sweden and Latvia. These three MS have a high coverage
of FTTP. In Greece, Italy and Croatia take-up is low mainly due to the lack of superfast
infrastructure, while in Cyprus and Malta, where the infrastructure is available for many homes,
still mainly lower speed offers are purchased.
Figure 47 - Percentage of households with a fast broadband (at least 30Mbps) subscription at EU
level, 2010-2015
Figure 48 - Percentage of households with an ultrafast broadband (at least 100Mbps)
subscription, July 2015
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FTTH and FTTB together represent 9 % of EU broadband subscriptions up from 7 % a year ago.
In these technologies, Europe is still very much lagging behind South Korea and Japan.
Figure 49- Share of fibre connections in total fixed broadband, July 2015
Fast and ultrafast broadband subscriptions grew by 36 % in 12 months. In Belgium,
Latvia and Romania, the majority of subscriptions are at least 30 Mbps. Ultrafast (at least
100 Mbps) is most widespread in Belgium and Romania.
Despite the growth in fast and ultrafast subscriptions, they are still rare in the EU. In January
2015, only slightly more than one in four subscriptions were at least 30 Mbps and only 9 % were
at least 100Mbps.
In Belgium, Romania, Malta, Latvia, Portugal, Lithuania, Ireland, the Netherlands and Sweden,
more than 50 % are already at least 30Mbps, while the same ratio is less than 10 % in Italy,
Greece, Cyprus and Croatia. In ultrafast (at least 100 Mbps), Sweden, Latvia and Romania are
the most advanced with more than 40 % of subscriptions.
Figure 50 - Fixed broadband subscriptions by headline speed at EU level, 2008-2015
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Figure 51 - Fixed broadband subscriptions by headline speed, July 2015
There are 75 active mobile broadband SIM cards per 100 people in the EU, up from 34
four years ago. The growth was linear over the last three years with over 40 million new
subscriptions added every year.
Mobile broadband represents a fast growing segment of the broadband market. More than 60%
of all active mobile SIM cards use mobile broadband.
In the Nordic countries and Estonia, there are already more than 100 subscriptions per 100
people, while in Hungary, Greece, Portugal and Slovenia the take-up rate is still below 50%.
Most of the mobile broadband subscriptions are used on smartphones rather than in tablets or
notebooks.
Figure 52 - Mobile broadband penetration at EU level, January 2009 - July 2015
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Figure 53 - Mobile broadband penetration at EU level, January 2009 - July 2015
Mobile broadband traffic: Tablets are expected to be the touchstone for mobile data traffic
in 2020, exceeding smartphones and laptops in average usage. Mobile data traffic in 2020 is
expected to be 6-fold higher than in 2015.
Mobile data traffic in Western Europe is expected to grow by 6-fold from 2015 until 2020,
which represents a higher growth compared to the US (x6), South-Korea (x5) and Japan (x4).
Indeed, mobile data traffic will grow 2 times faster than fixed IP traffic from 2015 to 2020.
The average smartphone user in Western Europe will generate 4.6 Gb of mobile data traffic per
month in 2020, up by 353% from 2015. Laptop users will generate 4.4 Gb and tablets user more
than 6GB.
Tablet devices in Europe will overtake mobile-connected laptops and smartphones in total data
traffic. Currently, in Western Europe, tablets represent 33% of total mobile traffic. In 2020, their
share will be 42%, while in South-Korea and Japan tablets will weigh less than 40% of total
mobile traffic.
As for the US, tablets will represent 44% of total mobile traffic by 2020, with 9Gb per month per
user, as opposed to 6Gb in the EU.
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Figure 54 - Mobile data traffic per type of device and region, Megabytes per month, 2015 - 2020
Machine-to-Machine communications: In Western Europe, M2M modules currently
generate 3% of total mobile data traffic. By 2020, this figure will go up to 11.6%, while
M2M modules will represent more than half of the total connected mobile devices in
Western Europe.
Machine-to-Machine communications on mobile networks will continue to increase rapidly both
in terms of traffic and the number of devices. M2M currently represents 19% of all connected
mobile devices; this ratio is forecasted to go up to 51% by 2020 in Western Europe. M2M traffic
will also expand, but will still take a relatively low share of total traffic on mobile networks
(12%).
The US and Japan will show similar figures, while in South Korea both traffic and number of
M2M devices will be significantly higher proportionally.
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Figure 55 - Percentage of M2M modules of device connections by region, 2015 - 2020
Figure 56 - M2M traffic as a percentage of total mobile data traffic by region, 2015 - 2020
Broadband take-up tends to be lower in MS where the cost of broadband access accounts
for a higher share of income, but the correlation is not strong. The lowest income quartile
of the EU population has a significantly lower take-up rate.
Considering overall take-up, European average is 72 % of homes with Luxembourg, the
Netherlands at the highest positions and Italy, Bulgaria and Poland lagging behind.
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Statistics show that income plays an important role in subscription rates. The lowest income
quartile has only 51 % take-up of fixed broadband as opposed to 89 % in the highest income
quartile.
The lag in the lowest income quartile when compared with the national average is evident in
Bulgaria, Romania, Hungary, Slovenia, Lithuania, Czech Republic, Croatia, Spain and Slovakia.
Figure 57 - Fixed broadband household penetration by income quartiles at EU level, 2011-2015
Figure 58 - Household fixed broadband penetration and share of broadband access cost
(standalone 12-30Mbps download) in disposable income, 2015
418
Source: Commission services based on Eurostat and Van Dijk
418
Data not available for Luxembourg and Malta.
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Half of all EU households subscribed to bundled communications services in 2015. 80 % of
bundles include internet access. Fixed telephony + internet is the most popular type of
bundle.
50 % of all EU households purchase bundled communications services, up from 38 % six years
ago. The most popular bundle is fixed telephony + internet followed by ‘triple play’: fixed
telephony + internet + TV. Internet access (either fixed or mobile) is present in 80 % of all
service bundles, fixed telephony in 64 %, TV in 54 % and mobile telephony in 46 %.
Figure 59 - Percentage of households subscribing to bundled services at EU level, 2009-2015
Figure 60 - Popularity of different services in bundles at EU level, 2015
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Figure 61 - Popularity of different bundles (% homes with subscriptions) at EU level, 2015
Prices of mobile voice+data plans vary greatly across Europe. In comparison with the US,
the EU is cheaper for lower usage baskets, and more expensive for high-end packages.
Looking at the usage basket of 300 voice calls and 1GB data usage on handset, minimum prices
range between €13 and €73 with an EU average of €31.
The cheapest countries are Estonia, Lithuania, Denmark and the UK with minimum prices below
€15. At the same time, prices are very high (>€60) in Hungary, Malta and Greece.
The EU on average has much lower prices than the US for the 0.1GB+30 calls and the
0.5GB+100 calls baskets, however, on the 2GB+900 calls basket, the US is by close to 30%
cheaper than the EU
419
.
Figure 62 - Mobile broadband prices (EUR PPP) - handset use in the EU and the US, 2015
419
Source: SMART 2014/0049 - Mobile Broadband prices (February 2015) https://ec.europa.eu/digital-single-
market/en/news/mobile-broadband-prices-february-2015. This study was carried out for the European Commission
by Van Dijk.
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Figure 63 - Mobile broadband prices (EUR PPP) - handset use, 1GB + 300 calls, 2015
Prices of mobile broadband plans for laptops also show large differences across Europe. In
comparison with the US, the EU is cheaper for all usage baskets.
Looking at 5GB data-only plans for laptops, minimum prices range between €10 and €46. The
EU average (€19) is below the price of fixed standalone offers of 12-30Mbps.
The cheapest countries are Austria, Italy, Finland, Denmark and Poland with prices below €12.
At the same time, prices are very high (>€30) in Cyprus, Spain, Czech Republic and Croatia.
The EU on average has much lower prices than the US for all the laptop baskets
420
.
Figure 64 - Mobile broadband prices (EUR PPP) - laptop use in the EU and the US, 2015
420
Source: SMART 2014/0049 - Mobile Broadband prices (February 2015) https://ec.europa.eu/digital-single-
market/en/news/mobile-broadband-prices-february-2015. This study was carried out for the European Commission
by Van Dijk.
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Figure 65 - Mobile broadband prices (EUR PPP) - laptop use, 5GB, 2015
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6.6.3
Technical annex on technologies and medium
In the context of constantly increasing IP traffic, resources such as numbering or spectrum become more and more scarce. In spite of industrial development of more
sophisticated and optimised solutions of spectrum usage for wireless data transmissions or of other transport media like copper or fibre, the laws of physics as
currently understood are showing a clear unused capacity potential for certain technologies. Just comparing the fundamental properties of physical media available
for future technologies which could appear over the air, copper or fibre, electrical signal speed is just two thirds of the speed of light. Fibre has an efficiency range
of dozen of kilometres while copper G.fast is effective only over 250 m or so. More significantly, fibre theoretical capacity of frequency bandwidth is 50 000 GHz
against 0.2 GHz for twisted copper.
Concerning broadband technologies we are observing on the one hand a tendency of boosting equipment around a copper pair or wireless path in order to use higher
and higher spectrum in the fixed line or over the air over shorter and shorter distances; and on the other hand, evolution of optical devices in order to consume more
and more of the unused already available spectrum of the fibre while keeping or improving the efficiency range.
As suggested by the SMART 2015/0005 support study, the continuous reliance on the existing copper-based infrastructure may hinder the development and take-up
of certain applications if the most demanding scenario in terms of bandwidth needs materialises. The new concept of VHC takes into consideration a number of
parameters in terms of quality of transmission (speeds, latency, jitter, etc.), that will define performance in a broader sense than understood today (with a current
focus almost exclusively on download speeds).
Table 35 - Table of mediums and technologies
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Medium
Technologies
Down/Upstream
Rate
(1)
Efficiency
range
(1)
Typical
latency
(5)
Shared
medium
for
lastmile?
Frequency
bandwidth
(6)
Infrastructure architecture
Suitability
Future of the technology
Wi re d
ADSL, ADSL2,
ADSL2+
VDSL, VDSL2,
Ve ctori ng
copper
G.Fa s t
500/500 Mbps
250 m
15-40
ms
no
0,212 GHz
· coaxial cable in streets and buildings;
fibre at the feeder segments
· network extensions to provide
backward channel functionality
· use of existing cable television
infrastructure
· fast to install
· high transmission rates
· Further implementation of new
standards (DOCSIS 3.1) will allow
to provide higher bandwidth to
end-users
24/1 Mbps
5 km
15-40
ms
15-40
ms
no
0,0022
GHz
100 /40 Mbps
1 km
no
0,017 GHz
internet access by transmitting digital
data over the wires of a local telephone
network copper line terminates at
telephone exchange (ADSL) or street
cabinet (VDSL)
· Vectoring: Elimination of cross talks for
higher bandwidths
· G.Fast: Frequency increa se up to 212
MHz to achieve higher bandwidth
· use of existing telephone
infrastructure
· fast to install
· small efficiency range due to the
line resistance of copper connection
lines
· further speed and range
improvements by enhancing and
combining new DSL-based
technologies (phantom mode,
bonding, vectoring)
· bridge technology towards
complete fibre optic cable
infrastructure
CATV
200/100 Mbps
(4)
2-100
(2)
km
15-40
ms
ye s
1 GHz
Opti ca l
p2p
fiber
p2mp
Wi re less
LTE(Adva nced)
100/30
(1000/30)
Mbps
(3)
42,2 / 5,76 Mbps
3-6 km
5-10
ms
30-70
ms
ye s
0.1 GHz
· mobile devices send and receive radio
signals with any number of cell site base
stations fitted with microwave antennas
· sites connected to a cabled
communication network and switching
system
· highly suitable for coverage of
remote areas (esp. 800 MHz)
· quickly and easily implementable
· shared medium
· limited frequencies
· commercial deployment of new
standards with additional features
(5G) and provision of more
frequency spectrum blocks (490 -
700 MHz)
· meets future needs of mobility
and bandwidth accessing NGA-
Services
· 30 Mbps by 2020 based on next
generation of high-throughput
satellites
1/1 Gbps (a nd
more )
10-60 km
0.3 ms
(5 µs
pe r
km)
no
50000 GHz
ye s
· signal transmission via fibre
· distribution of signals by electrically
powered network equipment or
unpowered optical splitters
· highest bandwidth capacities
· high efficiency range
· high investment costs
· bandwidth depends on the
transformation of the optical into
electronic signals at the curb (FTTC),
building (FTTB) or home (FTTH)
· next generation technology to
meet future bandwidth demands
HSPA
3 km
ye s
0.005 GHz
air
Sa te llite
20/6 Mbps
Hi gh
500-
700 ms
100 -
1000
ms
50 ms
ye s
10 GHz
Wi -Fi
300/300 Mbps
300 m
ye s
0.005-
0.160
GHz(7)
0.01 GHz
· highly suitable for coverage of
remote areas
· quickly and easily implementable
· run time latency
· asymmetrically
· inexpensive and proven
· quickly and easily implementable
· small efficiency range
· shared medium
· increased use of hotspots at
central places
· gets continually replaced by Wi-
Fi and LTE
Wi MAX
4/4 Mbps
60 km
ye s
Le ge nd:
1 Te chnical standard max.
2 De pends on a mplification
3 De pends on the fre quency spectrum used
4 EuroDOCSI S
5 Us ual practical va lues depending on distance
6 di fference between the upper a nd l ower usable fre quencies for signals transmission
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6.7
ANNEX 7 - Impact on competitiveness and innovation
6.7.1 Impact on competitiveness
The results of the CGE modelling also provide some indications as regards the implications of
changes to the framework on labour productivity – one measure of EU competitiveness. In the
cumulative scenario case, where preferred policy options are implemented in all areas, real labour
productivity will exceed the baseline by an average of 1% for the period 2020-2025. This is
equivalent to an average of 0.3 percentage points higher growth rate of productivity in the simulation
scenario as compared to the baseline.
Figure 66 - Real labour productivity (preferred options vs status quo)
Source:
Eurostat, own calculations
Viewed in international perspective, historically over the past quarter century labour productivity
growth in EU has been lagging by an average of 0.4 percentage points as compared to the US and by
2.4 percentage points as compared to Korea (due its lower base). One can realistically expect
productivity growth acceleration in the US and Korea in the forthcoming years as well. Despite this,
the implementation of the considered policy changes should make a significant contribution towards
boosting EU productivity, and potentially closing the gap.
Figure 67 - Trends in labour productivity – international comparisons
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Source:
World Bank, World Development Indicators database
6.7.2
Potential for disruptive change through innovation
The assumption underlying the CGE model is that clearer regulation of communication services and
better connectivity will allow all sectors of the economy to operate more efficiently and realise higher
total factor productivity rates.
In addition, the implementation of the preferred policy options might give a significant boost to
innovation. Such innovation effects are particularly relevant in view of the fact that the review of the
electronic communications framework could support the development and use of the ‘Internet of
Things’ (IoT)
421
and digitalization of industry inter alia by fostering:
- More regulatory certainty for all players throughout the IoT value chain contributing to a better
investment climate;
- Levelling barriers for scaling up in Europe (by reducing regulatory heterogeneity) to the benefit of
start-ups entering as new players shaping the IoT value chain.
- Improving connectivity for SIM based M2M services;
- End-users confidence about security, privacy and confidentiality
422
.
- Faster adoption of 5G; and
- A more ubiquitous roll-out of fibre networks to homes and lamp posts as to provide a backbone with
the stability and low latency that is required by many IoT applications.
In turn, IoT implies an increased role for communication services in (and increased dependency on
connectivity by) various industries, including automotive, agriculture, health, transport, etc. As such,
policies which unlock the full potential of IoT and the digitization of industry could trigger a so-called
“disruptive growth path”.
423
It is not possible to estimate ex ante the impact of such structural economic changes on the basis of
CGE modelling. Therefore, the CGE estimates should be treated as a lower bound. Assessing the
impact of disruptive structure changes would require a case study approach examining how precisely
production processes would change as a consequence of a progressing IoT. Such analysis has been
done by McKinsey (2015) “The internet of things: mapping the value beyond the hype” which
analyses a number of IoT use cases
424
involving sectors that are key for EU competitiveness.
- IoT will particularly increase
productivity and innovation
in sectors that are considered
essential for Europe’s
global competitiveness
(such as automotive
425
and electrical
421
BEREC (2016) and McKinsey (2015) identify a number of key enablers that contribute to unlocking the full potential of
the IoT. Key enablers are optimal fixed and mobile connectivity (which is realised through policy measures with regards to
access, spectrum and numbering), regulatory security for new players in the IoT value chain (which is realised by clarifying
the scope of the RF) as well as end-users confidence about security, privacy and confidentiality.
422
The reason, as explained by BEREC and McKinsey, is that new categories of risks are introduced by the Internet of
Things. McKinsey argues that more devices means more opportunities for potential breaches and BEREC argues that “[d]ue
to limited resources in terms of energy and computing power, […] IoT devices may be vulnerable to cyber-attacks”.
Furthermore, McKinsey argues that the impact of a data breach is much larger in the context of the IoT. “when
IoT is used to
control physical assets, whether water treatment plants or automobiles, the consequences associated with a breach in
security extend beyond the unauthorized release of information—they could potentially cause physical harm”.
BEREC
concludes that
“If users do not trust that their data is being handled appropriately there is a risk that they might restrict or
completely opt out of its use and sharing, which could impede the successful development of IoT.”
423
See: “Information Technologies and Labour Market Disruptions - A Cross-Atlantic Dialogue” background document by the
“interdisciplinary, cross-sector roundtable organised by the European Commission (DG Enterprise and Industry and DG
Communication Networks, Content and Technology) in cooperation with The Conference Board and Cornell University ILR
School” 3/11/2014, p. 11
424
Outside, Home, Human, Cities, Factories, Worksites, Offices, Retail, environments, and Vehicles,
425
BEREC BoR(16)39 as well as McKinsey (2015) identify automotive as key sector that will adopt IoT applications. At the
same time, it considered a strategic sector of the EU economy
http://ec.europa.eu/growth/sectors/automotive/index_en.htm
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engineering
426
). Realising the full potential of the IoT in Europe contributes to
maintaining/strengthening that position. Not realising the full potential of the IoT in Europe
may lead to other parts of the world overtaking that position.
- IoT will also increase
productivity and innovation
in as well as in agriculture
427
which is an
essential sector for the
regional competitiveness
of Europe’s peripheral areas
428
.
- Furthermore, IoT contributes to
cost savings
in a wide variety of other sectors such as E-health,
smart metering/grids, smart homes and cities, etc.
McKinsey estimates for the global economy that by 2025, the full potential of IoT amounts to
approximately 3.9 to 11.1 trillion dollars per year (including consumer surplus). In terms of % of
global GDP this amounts to 3.3% to 9.4% according to our own calculations.
429
If Europe could
realise a similar gain by fostering key IoT enablers, this would amount to an additional GDP of 0.56
and 1.59 trillion euros in the year 2025.
430
The contributions to European competitiveness that could be made from the proposed changes to the
EU regulatory framework are summarised in the following table.
426
Electrical engineering is a sector in which the EU is the global leader and which will benefit greatly from the ongoing
growth in mobile devices see:
http://ec.europa.eu/growth/sectors/electrical-engineering/index_en.htm
427
BEREC BoR(16)39 as well as McKinsey (2015) identify agriculture as key sector that will adopt IoT applications.
428
Thissen, van ort, and Diodato (2013)
429
On the basis of data and forecasts provided by the Conference board, global GDP may grow from 88 trillion dollars in
2015 to 117 trillion dollars in 2025, not accounting for a disruptive boost like the IoT. As such, the IoT may create up to
3.3%
to
9.4%
additional
income
at
global
level
by
2025.
See
https://www.conference-
board.org/data/economydatabase/index.cfm?id=27762
and
https://www.conference-
board.org/data/globaloutlook/index.cfm?id=27451
430
Assuming the EU economy has grown to 16.58 trillion euros by 2025 (based on forecasts by the Conference board).
0.33% of 16.58 trillion euros = 0.56 trillion euros. 9.4% of of 16.58 trillion euros = 1.59 trillion euros
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Table 36 - Overview of competitiveness impacts
Access
High
bandwidth
connectivity supports the
digitalisation of services,
reducing cost and time to
market.
Standardising
wholesale products used
for business should also
reduce costs and increase
efficiency within cross-
border organisations
Access policies are likely
to
boost
infrastructure
deployment
in
Europe,
closing
the
investment
gap with other economies.
Increased bandwidth is
likely
over
time
to
support increased use of
digital services and the
attractiveness of the EU
as
a
platform
for
technological and service
development.
The deployment of fibre
to lampposts and homes
supports 5G development,
and new applications. A
connected economy may
also
drive
disruptive
change
in
business
processes
Spectrum
The prevalence of general
authorisations will make
access to spectrum more
affordable
and
lower
administrative
/
regulatory costs. This is
of particular benefit to
smaller companies with
more limited resources
Device
manufacturers
will
benefit
from
EU
single
market,
offering
significant
scaling
opportunities,
and
producing devices that are
able
to
operate
in
“European” bands.
Services
The
reduction
of
administrative
burden
and
of
regulatory
heterogeneity
realises
cost savings for telecom
operators.
Cost
competitiveness
International
competitiveness
Less
regulatory
heterogeneity contributes
to the realisation of a
digital
single
market
which facilitates a faster
scale-up
of
European
start-ups in the global
digital economy.
Innovation
competitiveness
The prevalence of general
authorisation will open up
spectrum
access
to
innovative services, faster
roll-out of 4G/5G will
foster
development
of
new services based in
Europe.
More clarity and equality
throughout
the
value
chain with regards to
regulation
reduces
regulatory risk for new
(small medium sized and
large)
players. This
increases
their
willingness to invest and
innovate
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A key challenge however in realizing the benefits we have identified from innovations including
those stemming from IoT is the capability of European businesses to leverage innovation. For
example, comparing EU
431
innovation capacity and results against peer economies, according to
the Global Innovation Index for 2015,
432
the EU seems to be lagging behind in terms of many
aspects of innovation,
433
although some countries within Europe including Finland, Sweden,
Luxembourg, Denmark and Germany are reported to be relatively strong in making use of
innovations specifically in ICT.
Source:
Global innovation index, own calculations
If benefits are to be fully realized, this highlights the need for levelling up within Europe, not
only in terms of supply-side policies for electronic communications including the regulatory
environment, but also – importantly – on initiatives to support the absorption of new
technologies within businesses of all sizes.
431
EU figures are derived aggregating the member states scores, weighting them with the respective country
population.
432
The Global Innovation Index is an annual ranking of countries by their capacity for, and success in, innovation. It is
published by INSEAD and the World Intellectual Property Organization, in partnership with other organisations and
institutions. It is based on both subjective and objective data derived from several sources, including the International
Telecommunication Union, the World Bank and the World Economic Forum.
433
There are clear differences for the business sophistication pillar of the index, which includes knowledge workers
and R&D activities performed in the business sector, links between the business sector and the academia and means
of knowledge absorption. Another aspect where EU is performing relatively worse concerns indicators for
‘knowledge and technology’ including knowledge creation, diffusion and impact.
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6.8
ANNEX 8 – Options diagrams
6.8.1
Access options
Do nothing
Streamline market analysis
Streamline market analysis
Move to dispute resolution
Option 1
Option 2
Maintain current situation / flexibility
Focus regulation for NGA
Limit regulation/remedies
Standardise business wholesale products
Option 3
Option 4
6.8.2
Spectrum options
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6.8.3
USO options
Option 1
Option 2
Option 3
Option 4
Do nothing
excluding public payphones and accessory services
excluding public payphones and accessory services
excluding PATS
Basic broadband affordability
Basic broadband availability and affordability
6.8.4
Services options
Costs
Green shaded:
moderate enforcement, compliance and adjustment costs
Orange shaded:
costs in terms of less privacy protection
Red shaded:
high regulatory enforcement and compliance costs + increased regulatory
risks
Blue shaded:
costs of reduction in national flexibility
(size of which depends on heterogeneity of preferences and degree of harmonisation of
horizontal rules)
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6.8.5
Governance
Do nothing
Option 1
Enhanced advisory role
strenghtened competencies
Harmonisation minimum set NRAs
competencies and alignmented with BEREC
tasks, Enhanced BEREC advisory role
New governance: Chairperson, new single
Board, Executive Manager
Option 2
Extended NRA competencies
(consumer protection,
numbering, authorisation,
geographical surveys ) aligned
with BEREC advisory tasks
Improved RSPG process for
opinions & reports
Exchange of best practices on
spectrum assignments
Advisory and normative powers
Harmonisation minimum set NRAsS
competencies (including spectrum)
and alignmented with BEREC tasks
BEREC & RSPG advisory role and certain
normative powers for BEREC
New governance: Chairperson, new
single Board, Executive Manager
with binding suppervisory and
enforcement powers
Commission/BEREC Double lock for
coherence in market review
mechanisms (remedies)
BEREC new tasks including binding
powers (transnational markets,
cross-border disputes
BEREC peer review on notified
spectrum assignment &
recommendations
Option 3
Option 4
EU regulator
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6.9
ANNEX 9 - The connectivity strategy: a European Gigabit Society
This annex spells out the rationale behind the connectivity strategy for a European Gigabit
Society by 2025. The Communication accompanying the review of the telecoms framework will
introduce the policy context and the ambitions for Europe in the coming years. In this annex we
review the process followed and the evidence underpinning the need for a Gigabit society.
6.9.1
The public consultation on internet speeds and the new ambitions
Adequate connectivity is a prerequisite to achieve a genuine DSM. This is why the DSM
Strategy announced that the review of the Telecom Framework's focus would include
"incentivising
investment in high speed broadband networks".
This is also why President Juncker
and VP Katainen have made of telecommunciations one of the prioritiy areas for strategic
investment under the regulation setting up the European Fund for Strategic Investment. DG
CONNECT has then, over the last year, gathered evidence on Internet connectivity needs beyond
2020:
We have held bilateral meetings not just with the telecom operators but also with various user
sectors' representatives.
We have analysed connectivity facts and figures in available publications and forecasts.
We have carried out and analysed a full public consultation which focused on speed and
quality of internet services.
Overall, the results of these various actions converge: the use of Internet services and
applications will substantially increase for both fixed and mobile connectivity and there is a need
to prepare now for higher speed (upload and download) and other features of quality of service
(latency, resilience, etc.) beyond 2020. The findings of these various steps illustrate the need to:
1. Show greater ambition in terms of both average and maximal speed and other quality
parameters beyond 2020, considering expected future developments and the time horizon for
investment.
2. Ensure that policy, regulatory and financing instruments support an investment-friendly
environment in line with such ambition.
These conclusions echo the call for a definition of Europe's connectivity ambition beyond 2020
from the participants - representatives of the industry, users and local and national public
authorities - in the broadband roundtables that Commissioner Oettinger chaired in early 2015.
These stakeholders called for defining long-term connectivity ambitions and for better rules and
instruments to further deploy broadband infrastructure.
On the need to show greater and longer-term ambition and in line with the mandate given to
Commissioner Oettinger by President Juncker to "set clear long-term strategic goals to offer
legal certainty to the sector and create the right regulatory environment to foster investment and
innovative businesses",
Commissioner Oettinger announced in March his ambition of
connectivity for a European gigabit society by 2025,
to be based on 3 pillars:
Gigabit connectivity for socio-economic drivers, starting with schools, hospitals,
libraries, public administration and business centres.
Future-proof ubiquitous connectivity to support all forms of mobility.
Improved connectivity in rural areas.
While the DAE targets should remain valid up to 2020, the expected uses' evolution and
technological developments as well as the time horizon for investment (investment cycles
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needed for such broadband infrastructure projects run over 5-10 years) call for setting up now
longer term objectives for 2025. A study is currently being conducted by the Commission
Services to assess the feasibility of the three pillars announced by Commissioner Oettinger and
come up with a preliminary estimate of the cost entailed.
434
6.9.2
Connectivity and its importance
As mentioned in the main report and in the support studies, there are numerous studies showing
that improved Broadband access is beneficial for the society. The positive impact ranges from
purely economic GDP growth and unemployment decrease, through battling digital divide and
improvement in innovativeness for business and increased employees skills to entertainment
possibilities and wellbeing generated by e-health. EGovernment solutions decrease the costs of
the local administration and the citizens are more willing to participate in community life (e.g.
voting participation).
Czernich et al (2011)
435
examined the wider effects of broadband on GDP per capita across the
OECD countries, finding that a 10-percentage point increase in broadband penetration raises
national annual per capita growth by 0.9-1.5 percentage points. EIB and IMIT
436
study proves
that higher Broadband speed has positive impact on GDP and it is greater in countries with lower
income than countries with higher income. Katz et al. (2010)
437
claims that Germany achieving
both the broadband penetration and speed targets will create more than 960,000 additional jobs
and output worth more than 170 billion euro. Rohman and Bohlin
438
(2012) show that increasing
the Broadband speed in the OECD countries stimulates GDP growth. The impacts depend on the
broadband speed and the existing economic growth in particular country.
Studies conducted by De Stefano et al. (2014)
439
, Kandilov et al. (2011)
440
, Kim and Orazem
(2012)
441
, Whitacre et al. (2014a)
442
show that Broadband can increase the number of businesses
– either because it increases firm entry, or because it helps with firms’ survival. Akerman et al.
(2015)
443
, Dettling (2013)
444
, Kolko (2012)
445
, Whitacre et al (2014b)
446
show that Broadband
can positively impact on local employment. Employment effects can vary across different types
of areas, industries, and workers, with urban areas, service industries and skilled workers
possibly benefiting more than rural areas, manufacturing industries and unskilled workers.
434
435
See SMART 2015/0068
Czernich N., Falck O., Kretschmer T., Woessmann L. (2011), Broadbnad Infrastructure and Economic Growth,
The Economic Journal 121 (552) May 12, pp, 505-532
436
http://institute.eib.org/wp-content/uploads/2014/04/EIB_broadband-speed_120914.pdf
437
Katz, R. L., Vaterlaus, S., Zenhäusern, P. & Suter, S. (2010). The Impact of Broadband on Jobs and the German
Economy.
Intereconomics,
45 (1), 26-34
438
Rohman, I. and E. Bohlin (2012), Does broadband speed really matter as a driver of economic growth?
Investigating OECD countries. International Journal of Management and Network Economics, 2012, vol.2, issue 4,
pages 336-356
439
De Stefano, T., Kneller, R., Timmis, J., (2014), The (Fuzzy) Digital Divide: The Effect of Broadband Internet Use
on UK Firm Performance. University of Nottingham Discussion Papers in Economics. Discussion Paper 14/06.
440
Kandilov, AMG, Kandilov, IT, Liu, X, Renkow, M., (2011), The Impact of Broadband on U.S. Agriculture: An
Evaluation of the USDA Broadband Loan Program. Selected paper Prepared for Presentation at the Agricultural and
Applied Economics Association’s 2011 AAEA & NAREA Joint Annual Meeting. Pittsburgh, Pennsylvania, July 24-
26
441
Kim, Y., Orazem, P., (2012), Broadband Internet and Firm Entry: Evidence from Rural Iowa. Iowa State
University Working Paper No. 12026
442
Whitacre, B., Gallardo, R., Strover, S., (2014a), Broadband's Contribution to Economic Growth in Rural Areas:
Moving Towards a Causal Relationship. Telecommunications Policy 38, 1011-1023.
443 Akerman, A., Gaarder, I., Mogstad, M., (2015), The Skill Complementarity of Broadband Internet. Quarterly
Journal of Economics.
444
Dettling, L.J., (2013), Broadband in the Labor Market: The Impact of Residential High Speed Internet on Married
Women’s Labor Force Participation. Finance and Economics Discussion Series Divisions of Research & Statistics and
Monetary Affairs Federal Reserve Board, Washington, D.C.
445
Kolko, J., (2012), Broadband and Local Growth. Journal of Urban Economics 71, 100–113.
446
Whitacre, B., Gallardo, R., Strover, S., (2014b), Does Rural Broadband Impact Jobs and Income? Evidence from
Spatial and First-Differenced Regressions. The Annals of Regional Science 53, 649-670.
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Forzati and Mattsson (2012)
447
show that increasing in the ratio of the population that lives
within 353 metres of a fibre-connected premise contributes positively to job employment from
0%-0.2% after two and a half years. Atkinson et al (2009)
448
proved that investment in
broadband networks for USD 10 billion in one year generated about 498 thousand jobs in the
USA.
Table 37 -Potential socio-economic impacts of broadband deployment in Rural, Remote and
Sparsely populated areas
Domain
Impacted
aspect
Quality of life
Examples of benefits in RRS areas by stakeholders
([B] business, [C] citizens)
Participation in social life reducing geographical distances
(including politics, leisure activities, etc.) [C].
Interaction among citizens allowing for the participation of
a larger set of stakeholders (including elderly people,
minorities, people living in remote areas, etc.) [C].
Reduction of crime due to the deterrent of remote
surveillance (e.g. safer small villages) [C]. Control of
strategic assets/infrastructures located in areas not easily
accessible (e.g. increasing security and response capacities
to man-made damages or natural disasters) [B].
Increase of productivity [B]. Increased contacts with
research and innovation actors (i.e. universities and
enterprises) allowing connections and technology transfer
processes at distance [B].
Increase of competitiveness on the job market with skills
alignment with those of the citizens of urban areas [C].
Creation of ICT professional competences as a side effect
of deployment and management of broadband
infrastructures [C]. Improvement in the ICT take-up
(eServices, eCommerce, eGovernment) [C] [B].
Increase of education delivered in remote mode facilitating
access to knowledge also by those having difficulties in
accessing transport networks (from disabled people to
people living in areas poorly covered by public transport
services)[C]. |
Community
building
Social inclusion
Crime
and Quality of life
public safety
Education
skills
and Competiveness
and innovation
Employment
Technological
skills
Social inclusion
447
Forzati and Mattsson (2012), The economic impact of broadband speed: Comparing between higher and lower
income countries
448
Atkinson, R.T., Castro D., Ezell S.J. (2009), "The digital Road to Recovery: A Stimulus Plan to Create Jobs, Boost
Productivity and Revitalize America", The Information Technology and Innovation Foundation (ITIF)
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Economy
Employment
Selection and employment of workers at distance, accessing
competences not available locally or located in areas not
attractive for business [B]. Opportunity for workers to
contribute remotely to specific ICT-based jobs [C].
Creation of new ICT-based businesses [B].
Increase of the Total Factor Productivity of the areas [B].
Increased competitiveness of local firms in other sectors
than ICT through the creation of new/innovative products
and services [B].
Face-to-face communications worldwide, saving travels
costs and time [B]. Access of remote technological services
to increase firms’ efficiency (i.e. cloud computing) while
avoiding local physical installation of ICT equipment [B].
Implementation/adoption of logistic solutions addressed to
increase firms’ efficiency (i.e. monitoring of stocks) while
avoiding traditional transport and logistics [B].
Growth
Competiveness
and innovation
Incremental cost
Direct access to global markets [B] and potential gaining of
saving
a market share through eCommerce solutions [B].
Incremental
revenues
Environment
Incremental cost Use of smart grids with energy efficiency benefits [B] [C].
Less physical travels, implying reduced CO2 emission and
saving
use of fuels and time [B] [C]. Adoption of remote control
systems to prevent and mitigate natural disasters [C].
Quality of life
Equality
and Employment
Job opportunities for disabled people or people not served
well-being
by public transport means [C]. Education opportunities for
disabled people or people not served by public transport
Technological
means [C]. Connection opportunities with families/relatives
skills
displaced in different areas [C]. Connection opportunities
through smartphones and tablets [B] [C]. Connection
Quality of life
opportunities for disabled people or people not served by
Social inclusion public transport means [C]. Opportunities to access
information and data worldwide [B] [C]. Opportunities to
Incremental cost save money from traditional telecommunications means
(i.e. fixed lines) [B] [C]. Opportunities to access
saving
eCommerce and eGovernment services [B] [C].
Finance
and Wealth
Valorisation of the value of an area reflected in increased
wealth
prices for housing/business location [B] [C]. Opportunities
Incremental cost to access financial services for disabled people, people not
served by public transport means, and remotely located
saving
businesses [B] [C].
Health care
Incremental cost Reduction of costs for health consultations (for less critical
pathologies) [C]. Digitalisation and automation of
saving
administrative procedures within public and private health
systems [B] [C]. Monitoring of basic health conditions
Quality of life
through mobile apps [C]. Monitoring of patients at distance
without requiring hospitalisation (for less critical
pathologies) [C].
Source: Linking the Digital Agenda to rural and sparsely populated areas to boost their growth
potential – Committee of the Region Report (2016)
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SMART 2015/0005 demonstrates the impact of speed (and therefore quality) of networks. It
estimates that an annual increase of broadband speeds of 21% (associated with a scenario
whereby projected ADSL connections were all replaced with FTTC/VDSL connections by
2025), would result in cumulative growth in GDP of 1.5% by 2025. A 28% annual increase in
speed (as would be associated with a replacement by all broadband connections with fibre)
would result in cumulative growth in GDP by 2025 of 5.1%.
According to Vodafone and Arthur D. Little the number of fields which could benefit from the
high-speed connectivity is substantial:
Better Healthcare:
Fibre networks will be crucial for Digital Health such as Remote patient
monitoring, Remote care & rehabilitation, Professional operative consultations and Research
(e.g. Next Generation Genome Sequencing). Patient services are being improved, healthcare
is delivered in a more efficient way, more patients can be reached and benefit from
specialists’ attention and the cost of healthcare will ultimately be reduced. This sector still
relies on antiquated infrastructure and many ‘pre-Digital’ working practices today.
Better Education:
New educational tools and applications are being enabled by fibre networks
such as immersive virtual reality training for professionals and remote interactive learning.
Fibre networks will support increased digitalization within the classroom (e.g. to download
content on tablets or laptops). This has allowed education to become more personalized,
tailored to the need of each individual by student, increasing buy-in and motivation.
Moreover, a larger network of students can be reached, teaching tasks distributed and
education delivered in a more efficient way.
Increased Security:
Monitoring public or private environments, recognizing suspicious
activity and alerting security services can happen better and faster when fibre networks are
in place. More and higher quality images can be captured (subject to privacy safeguards) and
analysed whilst AI can recognize potentially dangerous situations and automatically trigger
emergency response.
Positive Social impact:
Fibre networks enable a range of new applications for entertainment,
collaboration and social inclusion. Social relationships between people can be maintained
regardless of distance, age or level of mobility, e.g. through high definition video streams or
ambient presence.
Positive impact on Environment:
Next Generation Smart Grid and Smart Mobility
applications can be enabled by fibre networks and will have a positive impact on Energy
consumption and CO2 emissions. Applications like Automated Energy Demand Response
reduce the production and consumption, enabling more efficient use of renewables. Smart
highways, Autonomous transportation and Smart traffic management tools – with core fibre
networks – will lead to more efficient Mobility.
Increased Employment:
New jobs are created to construct and set up the new fibre
infrastructure. But more importantly, new applications and business models enabled by fibre
networks appear and create new job opportunities, and the wider availability of such
connectivity nationwide also distributes economic benefits and promotes modern commerce
outside urban centres.
The benefits from the network and especially high-speed network are well documented but the
value of benefits varies with the speed and scope of adoption, and in turn speed and scope of
adoption depends on the quality of networks. This circularity renders decisions difficult, in
particular for public investment.
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6.9.3
Towards the Digital Single Market and new connectivity ambitions
The DSM Strategy stresses the importance of connectivity and ICT networks: they "provide
the
backbone for digital products and services which have the potential to support all aspects of our
lives, and drive Europe's economic recovery";
the DSM "must
be built on reliable, trustworthy,
high-speed, affordable networks".
Adequate connectivity is a prerequisite to achieve a genuine DSM. This is why the DSM
Strategy announced that the review of the Telecom Framework's focus would include
"incentivising
investment in high speed broadband networks".
This is also why President Juncker
and VP Katainen have made of digital networks one of the prioritiy areas for strategic
investment under the regulation setting up the European Fund for Strategic Investment.
The lag between policy, investment and its impact on the society implies that in order to ensure
connectivity beyond 2020 the decisions have already to be taken. Europe's future economic
success will stem from innovation and new business models that will make the most of digital
networks – not just telecom infrastructure, but also cloud computing, Big Data, connected cars,
the digitalisation of our industry, and so on. Hence, a supply driven approach would be in line
with ensuring access to these new paradigms, even if demand may not follow immediately.
Policy aiming at increasing European competitiveness and attractiveness for business will
improve EU wealth and contribute to the well-being of all the citizens, stimulating jobs creation
and decreasing unemployment.
6.9.4
Technological developments
Our review of global IP traffic, technological trends, user scenario forecasts and the
infrastructure needs for key policy initiatives further reinforces the view that networks require a
true generational shift in terms not only of download speed, but also in other quality aspects such
as upload speed, low latency, reduced jitter and uninterrupted access. The figure below illustrates
the technological development, which will require better networks.
Figure 68 – Key applications and technological developments
Source: ADL
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As mentioned in annex 6, section3, in the context of constantly increasing IP traffic, resources
such as physical infrastructures, numbering or spectrum become more and more scarce.
Furthermore, copper-based infrastructures tend to have a much higher number of nodes and
equipment as well as require a higher amount of electricity. This implies higher maintenance
costs and longer down periods which represent obstacles to the efficient and reliable running of
these critical infrastructures. The figure below illustrates the differences between technologies.
Figure 69 – Network features and speeds
Source: European Commission
Additionally, despite the higher initial expenditure in terms of CAPEX, the maintenance and
operational costs OPEX are lower for fibre based technologies. The graph below is an example
of a business case from OAN project Southern Primorska. The higher initial costs are offset after
less than 3 years of operations assuming take-up of 50%.
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Figure 70 – Cost scenarios for Southern Primorska region
Source; European Commission elaboration on data from project Southern Primorska
Hence, the physical characteristics of certain media make them inherently better than other
media for communication tasks. Extended reliance on the existing copper-based infrastructure is
already today showing inefficiencies in terms of quality of transmission (speeds, latency, range,
etc.), capacity, maintenance costs, energy and suitability, inflexibility to easily accommodate
Software Defined Networks and the service innovation that this brings with them.
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6.9.5
Some future developments
The cloud technology, also referred to as XaaS being X as a service, where X might mean
Infrastructure, Software, Security, etc. becomes more and more popular. Investment in IT is
usually costly and might generate additional costs in order to satisfy peak demands. Companies,
which use cloud solutions only pay for capacity actually employed and do not need huge upfront
investment (CAPEX). Below there are 2 graph illustrating the benefits from the cloud solutions –
the left one represents a case, where a company invest in IT step by step and the right one the
company, which benefits from the cloud.
Figure 71 – benefits from adopting a cloud solution
Source:medium.com
In order to benefit from the cloud the economic actors have to be connected – outsourcing IT
capability requires excellent connectivity (both download and upload). Therefore for the
connectivity is extremely important if Europe is supposed to get on the cutting edge of
innovation by creating appropriate environment for the companies to optimize their costs.
According to Cisco IP worldwide traffic will be growing very dynamically as the number of
users and devices is fuelled by Internet of Things development.
Global IP traffic
Annual run rate
Traffic per capita
2014
718.2 Exabytes
8 GB
2019
2.0 Zettabytes
22 GB
Globally, average IP traffic will reach 511 Tbps in 2019, and busy hour traffic will reach 1.7
Pbps. In 2019, the gigabyte equivalent of all movies ever made will cross Global IP networks
every 2 minutes. Good connectivity will be key in order to ensure the wellbeing of the citizens.
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Figure 72 – Cisco VNI forecasts
Penetration of Internet users, especially the business one will increase in the next 5 years and the
trend will most likely continue till 2025.
Figure 73 - Internet of Things Units Installed Base by Category (Millions of Units)
Source: Gartner (November 2015)
New applications requiring low latency and VHC internet access are emerging and will create
the demand for better connectivity. Figure 38 illustrates that a number of applications will need
latency around 1ms and bandwidth of 1Gbps by 2025. Of course, one has to consider that many
of these application will be run in parallel, so that the bandwidth needed by households is
cumulative.
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Figure 74 – Latency and speed needed by applications and services
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6.10
ANNEX 10 – Problem drivers
The present annex provides a more detailed description of the drivers included in section 1.3 and
of the evidence supporting them.
6.10.1 The lack of incentives to deploy networks in the absence of infrastructure competition or
in rural areas
The rules governing the sector fell short of providing sufficient incentives and opportunities for
the market-funded roll-out of NGA and especially VHC fixed and mobile networks. Moreover
the deployment of wireless infrastructure was hampered by insufficient availability of a key
resource i.e. spectrum.
The need for upgrades to legacy networks described under section 1.2.1 raises questions of
whether there are sufficient incentives to invest in the upgrade, and also which competitive
model should be applied, as the unbundling of the copper local loop from the central office may
become relatively less important because of the performance improvements on the basis of other
technologies.
449
The transition from copper-based networks towards fibre-based networks is gradually happening
worldwide. In Europe, fibre is being deployed by a variety of operators in the access network to
overlay or replace legacy copper lines or even parts of HFC co-axial networks. One of the main
challenges for regulators today is to incentivise investment and support sustainable competitive
models for newly constructed networks, at the same time guaranteeing the attained level of
access to legacy networks until those become redundant. MS have followed different strategies
with varying outcomes,
450
and new broadband gaps have emerged in terms of coverage and take-
up of NGA and VHC networks between countries in Europe, between Europe and international
competitors
451
and between urban and rural households, which projections suggest may persist.
Deployment of VHC networks can be comparatively more expensive in near-term Capex than
incremental upgrades of legacy copper infrastructures and demand for - VHC connectivity is
very closely related to experience, hence requiring a supply-led ("build it and they will come")
approach. Traditional network operators managing depreciated legacy infrastructures do not
necessarily see the benefit of rolling out VHC broadband networks under these conditions, which
in turn renders perceived business cases uncertain, especially in challenge areas that in any case
can only support one network, such as rural areas.
Certain elements of the current regulatory framework, in the light of the most recent market
developments could be improved to
foster deployment of VHC networks,
such as:
(i) Incumbent operators fear that they will be most likely price regulated, potentially on cost
oriented basis if and where they deploy VHC networks, lowering their return on investment.
(ii) Insufficient regulatory predictability regarding access obligations on NGA networks (in
particular pricing); due to short market review cycles, lack of sufficient focus on retail markets
and the difficulty of enforcing consistency on the basis of non-binding recommendations,
impacting network roll-out. Conversely for regulated operators, obligations to share on a non-
449
Local Loop Unbundling has been the main tool facilitating competitive stimulus. LLU volumes are already starting
to decline in countries such as Germany, with the migration to next generation fibre networks, and several countries
such as the Netherlands and Sweden have focused on fibre access..
450
See SMART 2015/0002 for a detailed analysis of regulatory strategies and outcomes
451
Countries such as South Korea and Japan which placed significant emphasis early on FTTH are now clearly ahead
of most (although not all) European countries as regards fast broadband as shown in section 1 above
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discriminatory basis any new assets may take away some of the incentives, especially for the
riskiest investments.
(iii) The lack of incentives for incumbents to co-invest; experience has shown that this is
relatively unlikely to happen in local markets, unless a credible threat of roll-out by competitors
is present or where the incumbent has responded to a policy push.
(iv) Likewise in areas where no NGA infrastructure is present the emergence of new local
operators may be discouraged by the commercial threat posed by existing operators that have
(non NGA) infrastructure in place.
(v) Lack of sufficient measures to support NGA deployment by alternative investors. By
focusing regulatory model on SMP finding, the system perpetuates a model built at a time where
only one network was deployed. It fails to take account of other operators and investment
models, which could benefit from greater support.
The implementation of basic competition safeguards which could help climb the ladder of
investment (e.g., access to civil engineering of SMP operators) can be made difficult if access to
civil engineering as a remedy is made ineffective by lack of information (mapping) or unclear or
uncertain conditions
452
.
Further, while access regulation is a necessary condition for newcomers to enter the market, gain
scale and ultimately replicate the network infrastructure, on the other hand regulated access at
low prices has lower risks than full network build-out and thus may result in lower incentives for
alternative operators to invest or co-invest.
Ubiquitous connectivity also requires efficient investment in the roll-out of very high quality
networks fit for 5G technology, expected to drive business in the years to come. The architecture
of 5G networks will be much denser than previous wireless networks (i.e. 3G and 4G) and thus a
key challenge will be to adapt the licensing model accordingly, including by promoting license-
exempt spectrum or adaptations to the model of exclusive licensing. It has to be noted that in
addition to spectrum needs the 5G deployment needs also substantial fixed assets at its disposal.
Poor auction design or renewals conditions and uncoordinated releases as well as timeframe
between allocation and assignment of spectrum have severely hindered the level and the quality
of the roll-out of 4G networks and this cannot be repeated. Rapid access to spectrum under
appropriate conditions is key for early 5G network deployment.
6.10.2
Inefficient allocation mechanism for public funding
Investment needs remain considerable: as mentioned in annex 14, more than EUR 92 billion
were needed in 2014 to bring our digital infrastructures up to the DAE 2020 broadband targets
standard and more might be needed beyond that date to ensure that Europe's infrastructure
remains competitive.
Where the market cannot deliver on its own, public funding can contribute to the wide
deployment of VHC broadband networks. In particular the European Structural and Investment
Funds (ESIF) the Connecting Europe Facility and the European Fund for Strategic Investment
can help plugging the gap. These financing tools provide grants, financial instruments (equity,
debt, guarantees) and can be cumulated to contribute funding a given project. While grants are
452
However, in France and Spain, as well as in Portugal, duct access was ultimately pursued as the main remedy for
NGA under the SMP regime. Duct access SMP conditions were set in 2009 in France and Spain and complemented
with symmetric obligations for in-building wiring and in the French case, access to fibre terminating segments outside
areas in which the NRA considered that infrastructure competition could develop. The positive impacts of this policy
aredescribed in chapter 5.
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mostly suited to plug gaps in market failure areas, financial instruments can reduce the risk
profile in areas where a business case is present but remain underserved. However, one must be
take into account that public support is a scarce resource and that it comes with significant
constraints of legal, industrial and administrative nature; as an example OPEX is not included in
grant funding, so the running costs fall on the network operator in any case.
However, the experience from the last programming period shows the trend that calls for tenders
won by incumbents have typically resulted in copper enhancing solutions, while public support
for VHC solutions has been more scarce.
The size of the tenders was also a problem, as it is very difficult for a new entrant to bid for large
regions, while they might have a chance in smaller areas. Finally, the lack of a homogeneous
network, infrastructure,
investment and quality of service mapping
by NRAs generates very
different outcomes in terms of granularity of assessment and sometimes underestimates the
amount of infrastructure present on the ground, diverting grants to area where a business case is
possible. Also, the way the call for tenders are designed often ends up favouring the incumbent
operator (size of the call, choice of direct support to operators instead of PPPs). The Commission
is committed to make the most of the public funding leverage effect with a view to promote and
unlock both public and private investment across Europe. This is all the more important as the
public resources assigned to broadband infrastructure are limited, (EUR 6.4 billion for 2014-
2020 are devoted to broadband by Structural Funds) as explained in more details in Annex 14
(section 1.11.1)
The Commission and the MS should strive to work together to ensure a maximization of
available resources for the financing of the broadband deployment including developing an
appropriate funding mix between grants and financial instruments.
6.10.3 Fragmented regulated and commercial offers for businesses across the EU
Geographic market integration, leading to larger demand, more competition (allocative
efficiency), lower costs (technical efficiency) and better product and services offers for
customers (qualitative efficiency), is impeded by artificial barriers to the expansion of markets
beyond borders. In the EU, the effects of various types of artificial barriers can be felt with
regard to possibilities of access seekers to avail for consistently regulated access inputs, in
particular with a view to serving business customers on cross-border basis, and with regard to
non-harmonised end-user protection requirements.
Inconsistency of regulatory intervention in electronic communications markets, which acts as a
barrier to market integration, is largely driven by three factors. First, national regulatory
authorities have under the current regulatory framework not the appropriate incentives to opt for
a DSM-compatible solution when choosing the appropriate regulatory remedy to a competition
problem identified in a market. Indeed, NRAs exercise their discretion resulting in divergent
approaches, for instance, in the regulation of fibre networks, symmetric regulation, pricing
methodologies etc..
Although the current framework allows for flexibility in applying its general principles to
national circumstances, this does not mean that all regulatory solutions can achieve the
objectives of the framework or that they can all achieve them in the best way. Secondly, the
technological complexity of networks, and in particular their local access parts, multiply this
(inconsistency) problem by rendering the design of the technical details and requirements of
comparable regulated access products more difficult. For example an international company
purchasing communication services in different jurisdictions would not be able to receive a
homogeneous offer on crucial elements such as activation or repair time. Thirdly, the current
system does not allow identifying transnational demand nor as a consequence require NRAs to
adopt remedies accordingly. This would enable the provision of connectivity for business users.
Fourthly, the consistency check procedure (so called "Article 7 procedure") as well as the
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currently available "harmonisation procedures" (under Art.19 of the Framework Directive)
would often not tackle the problem effectively, as such measures take too long to be
implemented, leave too much room to national regulatory authorities to circumvent the outcome
of the procedures and, thus, unnecessarily increase the lack of regulatory predictability.
Lack of consistency in regulatory responses to similar problems
453
does not just affect cross-
border operators, which have to adapt to different regulatory regimes and thus face greater
internal market barriers. It also results in different levels of effectiveness of national regulatory
regimes in fostering the best possible connectivity at affordable prices for end users. For
example the implementation of VULA reference offers in different MS has resulted not only in
different design outcomes, but also in different levels of take-up of this type of access products,
which may be due to the attractiveness to access seekers in terms of quality. In other words,
regulatory choices such as those regarding access obligations and the pricing of legacy networks
have an impact on the investment decisions of operators. In this way, end users pay the
consequences of inconsistent and potentially sub-optimal regulatory decisions, affecting retail
markets.
6.10.4 Minimum harmonisation, differentiated rules
Over the past years, it has become apparent that the lack of consistency of telecoms regulation is
– to a degree at least – the result of the institutional set-up and the way the various institutional
players (i.e. mainly NRAs, BEREC and the EC) interact and can influence the regulatory
outcome.
Whilst the EU Regulatory Framework had been designed with flexibility in mind in order to
allow NRAs to take account of national circumstances, many differences in the national
regulatory approaches cannot be sufficiently explained with varying national circumstances. This
reasoning led to, for example, the Commission's recommendations in relation to costing
methodologies ( termination rates and costing and non- discrimination recommendations). The
inconsistency witnessed is exacerbated by the fact that the procedural and institutional set-up
currently in place appears to be ill equipped to ensure a more consistent approach in similar
circumstances.
For example, in the area of spectrum, while harmonization of technical conditions for spectrum
use contribute to a great extent to the creation of economies of scale for device and network
equipment manufacturers, the subsequent uncoordinated releases of spectrum to operators
prevent these economies to be realized in full as network deployment only happens on a patchy
manner, thereby increasing manufacturer´s development costs and the time to bring equipment to
market. As investments decisions are increasingly made at global level, this phenomenon tends
to discourage technology and equipment development in Europe to the advantage of other faster
regions which will attract the investments.
Moreover, given that radio waves travel across national borders, the type of use of a frequency
band in one MS has an impact on the type of use possible in neighbouring countries. In practice,
if a MS uses a band for a specific type of application such as 5G before its neighbours who
continue to emit with different technical parameters, interference problems could occur across
borders
454
– for example in bands below 1 GHz (i.e. 700MHz band). This problem would hence
be particularly relevant in smaller MS or in MS where a large proportion of the population lives
within reach of signal transmissions from neighbouring countries. In addition, the very fact that
453
In about 11% of all draft decisions subject to Art.7 notification the Commission has indicated that it may create a
barrier to a single market or is contrary to EU law, or even if no formal decision has been issued by the Commission,
the notifying NRA has withdrawn its notification.
454
Spectrum allocation and cross-sectoral interference issues fall out of the scope of this review. In particular, the
work on managing interference between GSM (mobile) and GSM-R (mobile communications for railways) is
addressed in serveral bodies ( CEPT and/or ERA) as well as at a national level. Some MS have introduced financing
schemes to encourage the installation of filters and new radio modules in the railway cabin radios.
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there is only limited coordination of key determinants of market shaping inputs such as spectrum
assignments across MS leads to more fragmented markets than necessary.
The current minimum harmonisation approach has also produced different outcomes and led to
fragmentation in terms of consumer protection. In the field of contracts, for instance, this may be
seen as a positive element, since NRAs can go beyond the minimum provisions of the Universal
Service Directive where required. While the level of consumer protection - as measured by
completeness of contracts, ease of comparing offers and extent of switching - is generally
relatively high, the underlying measures are quite diverse. The diversity of national approaches
creates a barrier to entry for pan-European operators active in multiple MS. The problem may be
aggravated as MS may advance further and start developing their own measures in response to
the previously identified problems.
6.10.5 Differentiated rules leading to uncertainty on spectrum assignment
Spectrum rules do not support optimal spectrum availability and deployment of mobile networks
in Europe (regulatory failure).
The timely availability of spectrum to the single market, is negatively influenced by
(i) the time gap between spectrum allocation (harmonised use and technical conditions) and
actual assignment to operators, (ii) the uncoordinated timing of assignment of same bands
throughout MS and (iii) the varying conditions which govern spectrum renewal.
The current regulatory framework has no mechanism in place to facilitate a more consistent
approach let alone to enforce it and most attempts to coordinate the assignment of spectrum has
been made on a piecemeal, limited and insufficiently efficient approach with the need to adopt a
specific legislative measure each time a deadline has to be set for the assignment of a part of the
spectrum (the 2012 Radio Spectrum Policy Programme for 800 MHz 4G, the 1998 UMTS
decision for 3G, the pending proposal for a EP and Council Decision on 700 MHz). Moreover,
spectrum policy is often guided by national policy objectives which often do not take sufficient
account of common EU policy objectives such as the promotion of high quality communications
networks and the single market.
The figures below show for three major operators the timing and duration of licenses awarded.
The diagram clearly indicates that, even where licenses were awarded in neighbouring countries,
these awards took place in different years and they cover different durations.
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Figure 75 - Example of differences in timing and duration of licenses for major EU operators
Source: Wik Consult
Furthermore, the existing spectrum governance structures focus on the harmonisation of
technical parameters but may not allow for sufficient consistency of the timing of effective use
of spectrum once allocated. Moreover, spectrum is assigned with varying conditions reflecting
different (national) balances of the primary objectives underpinning the regulatory framework.
This leads to disparate conditions where a national border bisects otherwise similar areas. The
absence of consistent EU-wide objectives and criteria for spectrum assignment, as well as for
changes to the conditions applicable to individual rights of use, at national level creates barriers
to entry, hinders competition and reduces predictability for investors across Europe.
6.10.6
Technological and market changes
There have been significant changes in the telecommunications market since the last review that
have affected the way in which end users communicate. The increasing coverage of wired and
wireless broadband networks, coupled with the availability and affordability of consumer
devices, have made consumers and businesses to rapidly adopt new communications services
that rely on data and internet access services instead of traditional telephone services. The
market has seen how in very few years new players have managed to compete with traditional
telecom operators by offering a new set of communications applications over the internet.
Although there are still significant variations across Member States, overall European
consumers have been very quick in adopting these new communications services. At the end of
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2015, a significant number of citizens used instant messaging services, a relatively new service,
several times per day compared to the users of e-mails or phone calls over a landline phone
(30% vs. 27%). On average, 50% of Europeans use instant messaging services regularly, with
36% using them daily.
Figure 76 – Use of Instant Messaging in EU member States
Projections on future take-up of instant messaging simply confirm current trends. The volume of
IP messaging, which was still negligible in 2010, exceeded the SMS volume only three years
later and it is expected to further increase its predominant share of overall messaging traffic in
the future. In 2014 alone instant messaging services on mobile phones would have carried more
than twice the volume (50 billion versus 21 billion per day) of messages sent via a short
messaging service (SMS).
With regards to revenues, it is estimated that between 2008 and 2014 fixed and mobile revenues
declined in the EU by 19%. In both markets there has been a drop in traffic-related revenues.
Taking into account also factors that are largely independent of the rise of OTT, such as revenue
decrease due to regulatory intervention (by NRAs or by the EC, such as a decline in termination
and roaming rates) or due to the global economic downturn, the study SMART 2013/0019
concludes that the rise of OTTs had no impact on fixed revenues, but did negatively impact
mobile revenues.
Figure 77 - Mobile and Fixed revenues in the EU (million Euros)
As regards to the provision of wireless connectivity, the upcoming 5G technology revolution
requires a fit for purpose spectrum management chain including allocation and assignment, since
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the way airwaves are regulated depends partly on the technologies used and services offered.
Future users of dense 5G networks will need greater flexibility on both, access and use of
spectrum but today, in the current framework, there are insufficient incentives for holders of
rights to use spectrum efficiently in terms of technology and capacity.
There is consensus on the need to develop spectrum sharing to enable the 5G revolution. Today
there is much focus in the use of individual often exclusive licenses (which are justified for some
uses, e.g. mobile, to avoid interferences) but no sufficient incentives for secondary market for
spectrum. In addition, it becomes clear that commercial operators are also using license exempt
spectrum, notably for distributing Wi-Fi based connectivity from fixed infrastructures.
Barriers
to spectrum entry
need to be lowered to stimulate innovation and new services.
6.10.7 Increasing adoption of bundles
In response to network convergence and increased competition, telecom operators have started to
bundle different services like TV and Voice telephony to the internet access service. Moreover,
given the convergence of fixed and mobile services, also mobile services (voice and data) are
increasingly added to the bundle.
A bundle refers to a package of several different services sold together as a single plan: landline
calling, Internet access, mobile services, pay-tv. In 2014 take up of broadband bundled products
per total population was 46%, five points higher than the previous year, with an ever increasing
number of triple and quadruple play products.
The growing take-up of bundled services can be seen in the figure below. Double play bundles
are still most common, but triple and quadruple play bundles are gaining significance.
Figure 78 – Adoption of bundles in the EU, 2010-2014
At the end of 2015, 87% of households in the Netherlands and 78% in Malta had purchased
bundles services, as had at least half of all households in 19 other Member States. Italy, the
Czech Republic and in Lithuania were at the other end of the scale with 31%, 32% and 34% of
households respectively. Since 2009 there has been an increase in the number of households
subscribing to bundled products in all Member States, as shown in figure 68.
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Figure 79 – Adoption of bundles per MS, 2009-2015
6.10.8 Suboptimal design of market review cycles and Inconsistent remedies under current
rules (art.7)
This problem driver consists of insufficient legal certainty and regulatory predictability
regarding access obligations on NGA networks due to short market review cycles, lack of
sufficient focus on retail markets and the difficulty of enforcing consistency on the basis of non-
binding recommendations, impacting network roll-out.
Provisions therefore need adjustments with a view to reducing the regulatory burden and make
regulation more clear and certain. The current process of frequent market reviews and ex ante
regulation has been reported in certain MS to cause little regulatory predictability and legal
certainty, on top of being rather cumbersome. This is related on the one hand to the variety of
(unranked) goals and remedies available to NGAs, but also to the relatively short regulatory
cycles (every three years, significantly shorter than investment cycle), in particular when
considered together with the associated appeals and court procedures. While regulation needs to
move along with a fast changing sector, operators often stress the need for regulatory
predictability.
It is also worth noting that the short cycle of market reviews, the lack of predictability and the
litigation that may follow have a discouraging effect on institutional investors such as
infrastructure funds, private equity and pension funds that may be willing to invest capital in the
sector's network operators, especially on a long-term horizon. On the other hand, investors
attracted by short-term gains and price arbitrage may be more attracted by a more volatile
environment. The effects of this "adverse selection" problem may hamper infrastructure
deployment which has is definition a long-term asset class, especially for operators which are
smaller and more exposed to instability.
Whilst market fragmentation is not solely to blame on the regulatory set-up in the EU, it has
become apparent over the past years, that the lack of consistency of telecoms regulation is – to a
degree at least – the result of the institutional set-up and the way the various institutional players
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(i.e. mainly the NRAs, BEREC and the Commission) interact and can influence the regulatory
outcome
455
.
Whilst the EU Regulatory Framework had been designed with flexibility in mind in order to
allow NRAs to take account of national circumstances, the Commission has repeatedly pointed
out that many differences in the national regulatory approaches cannot be sufficiently explained
with varying national circumstances. The inconsistency witnessed is exacerbated by the fact that
the procedural and institutional set-up currently in place appears to be ill equipped to ensure a
more consistent approach in similar circumstances
456
.
In particular increased consistency in market regulation and management of scarce resources
would contribute greatly to a true Single Market. With regard to both areas, of course, there may
be various sub-themes
457
, which would benefit more broadly from an institutional set-up that was
geared more thoroughly towards ensuring consistency. Where the problem of inconsistency and
fragmentation arises is exactly where the Commission does not have veto powers (and relies on
the non-binding recommendations), i.e. on the remedy side.
First, concerning market regulation, one area, in relation to which a more consistent approach is
particularly important, is the choice and design of access remedies. Unfortunately, it is especially
in this area where there is the most notable divergence across the EU. Whilst competition still
predominantly takes place at the national level, EU-wide consistency in designing access
remedies is increasingly considered important.. In addition to access remedies, fragmentation of
other regulatory conditions (e.g. authorisation conditions) may also represent an obstacle to
market entry and cross-border provision of services
458
.
6.10.9 Obsolete and redundant rules
A number of regulatory inefficiencies can be identified in the current regulatory setting, which
are generating unnecessary compliance costs and discouraging investment. Given the
technological and market changes described above, certain provisions of the framework might
no longer be relevant or might have become superfluous.
This is the case for example for part of the Universal Service rules. The evolution of consumers'
behaviour, the wide coverage and availability of mobile networks and services, and the provision
by the market of comprehensive directories and directory enquiry services, which also
experience strong competition from other (notably online) information sources, have eliminated
or at least reduced the need for including certain universal service obligations, such as the phone
directories and public pay telephones. These changes will require an adaptation of the Universal
Service regime to remove outdated services. Moreover, with already nearly 100% standard fixed
broadband coverage in the EU, universal service obligations regarding the availability of
455
See, for example, the
EP study
on "How
to Build a Ubiquitous EU Digital Society",
p. 100 where it is stated that
"[…] the fact that Heads of NRAs are considered primarily to be motivated by a desire for self-determination, has led
to some criticisms that BEREC delivers verdicts based on a 'lowest common denominator', or prioritises flexibility
over consistency in the Single Market."
456
In particular, with regards to imposing remedies, the balance between achieving harmonisation in a flexible
framework appears to have been tilted in favour of flexibility neglecting legitimate needs for consistency. For
example, whilst remedies are imposed on operators by NRAs at the national level, the Commission and BEREC
almost exclusively input through non-binding instruments in order to attempt to achieve EU-wide regulatory
consistency on this level. In the past, this "soft law" approach has led to significant differences in some areas, clearly
proving to be an obstacle for the development of a Single Market.
457
For example, issues surrounding the independence and funding of NRAs, the constitutional set-up of BEREC, the
design of the EU consolidation process under Article 7, the Commission's powers to adopt harmonisation measures
under Article 19, standardisation, rights of way, numbering, spectrum management, naming and addressing to name
but a few.
458
The negative impact a fragmentation of conditions has on the provision of connectivity services has been widely
reported by the
BEREC consultation on the cross-border obstacles to business services,
and in
the EP study on the
assessment of the EU Regulatory Framework
(p. 42 and 107).
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functional internet access and telephone service are likely to become redundant in many MS in
the future.
Further provisions might have become superfluous due to legislative developments in other
regulation areas. Some of the sector-specific consumer protection rules (e.g. Article 20 and 34
Universal Service Directive) are examples of provisions that need to be reviewed in those
respects to avoid that overlapping rules contribute to the unnecessary administrative burden.
Overlaps in legal frameworks on consumer protection are just one of the issues to be addressed
in this review. Sector-specific rules aimed at providing a particular level of protection to users of
ECS in areas such as data protection, privacy and security, freedom of choice and prevention of
lock-in effects, transparency, quality and affordability and access to emergency numbers. These
rules only apply to providers of ECS.
While in some case these rules applicable to consumers can be complementary, there are may be
instances where overlaps between the different set of rules can occur
459
. For example the
information requirements in the Consumer Rights Directive overlap with certain general
provisions of Article 20 Universal Service Directive, while Article 34 Universal Service
Directive on out-of-court dispute resolution is covered by the Directive on alternative dispute
resolution for consumer disputes.
A specific situation may fall within the scope of two Directives or within the scope of specific
provisions of these directives and create a circular cross reference. One example may be the
priority provisions in Article 1(4) USD "The
provisions of this Directive concerning end-users’
rights shall apply without prejudice to Community rules on consumer protection, in particular
Directive-s 93/13/EEC and 97/7/EC, and national rules in conformity with Community law"
and
Recital 11 of the CRD: “this
Directive should be without prejudice to Union provisions relating
to specific sectors, such as […] electronic communications”.
Another example is Art. 3 of ADR Directive, which states that "if
any provision of this Directive
conflicts with a provision laid down in another Union legal act and relating to out-of-court
redress procedures initiated by a consumer against a trader, the provision of this Directive shall
prevail”.
This overlap results in a complex legal framework, with different consequences: the risk that it
is not fully respected; penalties could be contradictory within MS; differences in implementation
may also be due to an inconsistency among terminology; and these problems are compounded to
the prejudice of the internal market when rules are based on minimum harmonisation.
459
See for a detailed analysis the SMART 2015/005
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6.11
ANNEX 11 - 5G spectrum requirements for connected car (use case)
In the study on 'Identification and quantification of key socio-economic data to support strategic
planning for the introduction of 5G' SMART 2014/0008 spectrum estimates within each sub-
range are calculated by multiplying the number of devices by their respective occupancy of the
spectrum in bps according to the scenario and multiplied by the assumed spectral efficiency of
the technology used for each device type.
The different approaches of 100 per cent sharing (fully shared) versus 0 per cent sharing
(exclusive licensing) have a very high impact on the total demand to support either type of
operation. In a fully shared (100 per cent sharing) environment, the spectrum needed is equal to
the total use case driven demand estimate. In an exclusive licencing environment however, the
spectrum needed is equal to the total use case driven demand estimate multiplied by the number
of operators in the environment. This approach is taken to understand the minimum and
maximum spectrum requirement figures.
In the connected car example illustrated below is based on two very high data rate use types
within the transport and automotive verticals, once the theoretical total (user driven) demand
estimates is calculated, the spectrum needs are analysed based on the five different spectrum
sharing scenarios. In doing so, this use case is intended to drive the spectrum requirements to an
extreme level to understand the impact on spectrum in a very challenging environment.
The table below shows how the total quantity of spectrum varies depending on the different
sharing scenarios that may emerge by 2025.
Table 38 - Total spectrum requirements relative to percentage of spectrum sharing scenarios
based on theoretical model
Spectrum sharing scenario
Scenario 1: 0% sharing
Scenario 2: 20% sharing
Scenario 3: 50% sharing
Scenario 4: 75% sharing
Scenario 5: 100% sharing
Total spectrum needed (GHz)
56.1
47.7
35.1
24.5
14.0
The figure shows the total spectrum requirements for each scenario split by the quantity of
dedicated and shared spectrum in each case.
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Figure 80 - Total spectrum requirements for motorway use case
All -exclusive case requires the largest quantity of spectrum (56.1 GHz) because each individual
of the four-service provider (x4) requires approximately the same amount of spectrum estimated
for the given scenario. The all (100 per cent) shared case has the lowest spectrum requirement
with a total of 14.0 GHz of spectrum. If by 2025 full sharing is not possible then a mix of
dedicated and MNO sharing with the 5G use cases (connected car, eHealth, transport and
utilities) helps to minimise the total quantity of required spectrum compared to the all dedicated
case.
The option of sharing spectrum becomes a benefit to service providers as the proportion of
shared spectrum increases. Total required spectrum reduces however, for each frequency range
where there is a limit to the quantity of available spectrum in each range. Therefore, this result
shows that some sharing will be necessary in Sub-1 GHz band because MNOs will likely only
have access to no more than 75 per cent of the spectrum in this sub-range by 2025 and therefore
sharing with other operators and new MVNOs will be required to serve the users in this transport
scenario below 1 GHz.
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6.12
ANNEX 12 – Comparison of impacts by stakeholders
In this annex, we present the summary tables of impacts on different groups of stakeholders in;
they were compiled under the supporting study to this IA on the basis of the public consultation,
the interviews with stakeholders and workshops organised by the EC. As mentioned in section
4.8 we pay specific attention to positive and negative impacts, direct and indirect on specific
categories of stakeholders, including SMEs, as required by the SME test under the better
regulation principles and public administrations. Although the impacts on stakeholders are
addressed for all the options considered under each policy area, a wider attention is paid to the
preferred option for each policy area. A more complete and narrative version is provided in
SMART 2015/0005, chapters 1 to 5.
6.12.1 Access regulation
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Table 39 - Summary stakeholder impacts – access options
Option 2: Continuity and Option 3: Fibre-ready
simplification
Mixed – some may be well-served As option 1
Substantial benefits arising from
Consumers
but existing gaps may remain
higher broadband quality of
service
due
to
increased
deployment and competition in
very high speed broadband. Some
market consolidation also possible,
which may have positive as well as
negative impacts on innovation
and price
Mixed – some may be well-served As option 1
Substantial benefits arising from
SMEs
but existing gaps may remain
higher broadband quality of
service
due
to
increased
deployment and competition in
very high speed broadband.
Benefits from greater fibre
Larger
and
Negative – fragmentation would As option 1
availability (also reaching smaller
multi-national
continue to impact cross-border
connectivity
sites, homeworkers) and consistent
businesses
wholesale specifications, if SMP
approach maintained for business
access
Negative – existing regulatory Some benefits compared with Mixed. Some benefits – potential
Incumbents
burden and constraints would status quo – more certainty, lifting of sectoral regulation, but
remain
higher burden of proof for also tighter regulation of ducts,
intervention, but may also pressure to invest
facilitate functional separation
Mixed – continuation of access Some benefits compared with Benefits for larger scale players
Entrants
regulation positive, but no status quo – more certainty, able to invest and co-invest.
emphasis on supporting more greater potential for functional Negative for smaller entrants
sustainable competition. Therefore, separation, but also higher relying on wholesale access
practical application varies by burden of proof for intervention
Option 1: Status quo
Option 4: Reduction in scope of
regulation
Negative – significant reductions in
competition could be expected
impacting pricing and service
quality, although some further
investment might be made
Negative – significant reductions in
competition could be expected
impacting pricing and service
quality, although some further
investment might be made
Highly negative – significant
reductions in competition and
further cross-border fragmentation
Highly positive – significant
reduction in regulatory burden and
constraints and lessening of
competition
Highly negative – may undermine
business viability
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Alternative
fibre investors
Cable
operators
country. Entrants vulnerable to
technological
and
regulatory
change.
Neutral for existing players, but no
additional support for further
investment
Stability considered highly positive,
although continued wholesale price
regulation
could
undermine
revenues
– may reduce regulation
Positive – greater access to civil
infrastructure, support for rural
investments
Benefits compared with status Mixed - Some benefits from
quo – more stability, higher potential lifting of wholesale price
burden of proof for intervention regulation, but also greater
infrastructure competition and
pressure to invest
As option 1
Positive – greater bandwidth
availability, but risk in some
markets of consolidation impacting
competitive safeguards
As option 1
Neutral if not reliant on incumbent
SLU/duct
access.
Otherwise
negative
Positive – reduced competition
Content and
Mixed – existing bandwidth gaps
would remain, but competition
application
would continue to support take-up
providers
and protect vs discriminatory
conduct
Neutral to negative – no specific Neutral to negative – no specific
Equipment
manufacturers
stimulus for investment by industry stimulus for investment by
industry
Mostly positive – retain existing Positive – NRAs would benefit
NRAs
flexibility. But several NRAs have from continued flexibility, but
raised concern over burden of 3 with reduced market analysis
yearly review requirement + some administrative requirements and
NRAs raise concerns over increased
potential
to
independence and resourcing)
implement
functional
separation. Under this option
their resources and remit would
also be strengthened
Neutral
Positive – remit would be
BEREC
expanded
and
NRAs‘
competences would be aligned
with BEREC‘s
Negative – likely to impede take-
up of higher speed offers, and
concentrate the market, raising risk
of discriminatory conduct
Mixed – depending on business Mixed – depending on business
model/customer-base
model/customer-base
Mixed – NRAs would have more
prescriptive requirements. Those
not already pursuing mapping
analysis and the operationalization
of duct access may require
additional resources to do so in the
short term – although the admin
burden may reduce longer term
This option would entail the
strengthening
of
BEREC
Governance as well as additional
responsibilities.
Although
BEREC’s
competence
and
influence would be expanded,
NRAs would have less direct
Negative – NRAs would lose an
important tool for the promotion of
competition, while potentially
facing an increased burden in
dispute resolution
Highly negative. BEREC would
lose a significant portion of its
current remit (concerning market
analysis).
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control over its Governance.
6.12.2 Spectrum
Table 40 - Summary stakeholder impacts – spectrum options
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Option 1: Status quo
End-users (consumers and
Negative – late and
uncoordinated deployment
business)
of 5G and lack of action on
recent 700 MHz auctions
means
businesses
are
unable to develop new
services (e.g. in transport,
automotive,
healthcare,
utilities
etc.)
and
consumers
(including
businesses) don‘t benefit
from innovative services
Negative – the impacts
SMEs
would not differ from those
for other end-users
Option 2: voluntary
Mixed – while this option
could be in place fast, there
is a high risk that voluntary
measures would not be
taken-up by many MS,
leaving the same results as
under option 1
Option 3: binding
Positive – this option
delivers
a
coordinated
approach
to
spectrum
assignment and usage across
the EU including for 5G
(though it may come too late
to influence 700 MHz
assignments)
Option 4: spectrum agency
Mixed – while this option
sets up a governance
structure to address the
problem, the complexity of
negotiating this set-up means
it will come too late to
influence 700 MHz auctions
and
will
delay
5G
deployment
Mixed – the impacts would Positive - the impacts would
not differ from those for not differ from those of other
other end-users
end-users.
Swift
implementation of 5G would
create
opportunities
for
innovation
and
entrepreneurship
which
would benefit SMEs in
particular.
General authorisations could
provide greater opportunities
for SMEs to gain access to
spectrum which is now only
accessible to large companies
with the financial power to
purchase exclusive rights
(e.g. MNOs, etc.)
Mixed – while this option Positive – this option
could be in place fast, there delivers
a
coordinated
is a high risk that voluntary approach
to
spectrum
measures would not be assignment and usage across
Mixed - the impacts would
not differ from those of other
end-users.
Swift
implementation of 5G would
create
opportunities
for
innovation
and
entrepreneurship
which
would benefit SMEs in
particular
MNOs
Negative – this option risks
repeating the 4G scenario
where
Europe
lagged
behind other regions for
Mixed – while this option
sets up a governance
structure to address the
problem, the complexity of
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insufficient taken-up by many MS, the EU including for 5G
leaving the same results as (though it may come too late
under option 1
to influence 700 MHz
assignments)
Other spectrum users (e.g.
Nil – this option would Nil - This option would Uncertain - This option
not
differ provides a greater level of
broadcasters, PMSE, etc.)
continue the current set-up likely
which
engenders significantly from option 1 regulatory certainty and
significant local variability,
consistency
across
MS,
continued
erosion
of
impacts on other spectrum
spectrum for some users
users would depend on
and uncertainty about
specific decisions taken by
future spectrum availability
but
the
peer
review
mechanism could ensure that
local needs of different
spectrum users continue to
be fully taken into account.
Equipment manufacturers
Negative – this option Negative – this option risks Positive – this option
repeats the 4G scenario repeating the 4G scenario provides greater regulatory
(late & uncoordinated for 5G and therefore fails certainty and consistency to
assignments) for 5G and to provide legal certainty manufacturers proving them
therefore fails to provide and it fails to capitalise on with incentives to invest now
legal certainty and it fails the size of the Single in order to serve the Single
to capitalise on the size of Market
Market
the Single Market
5G
with
investment
negotiating might delay 5G
deployment
Uncertain - This option
provides the greatest level of
regulatory
certainty
–
impacts on other spectrum
users would depend on
specific decisions taken by
the spectrum agency. There
would be less scope for
adaptation to local needs
under this option.
Positive – this option
provides greater regulatory
certainty and consistency to
manufacturers
providing
them with incentives to
invest now in order to serve
the Single Market
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6.12.3 USO options
Table 41 - Summary of impacts on stakeholders – universal service options
Option 1: Status quo
(baseline)
Risk of social exclusion and
of the deepening digital
divide, support of redundant
services
0
Option
3:
Broadband
affordability
Risk of social exclusion and Connection of disadvantaged
of the deepening digital households, reduction of the
divide
risk of social exclusion,
access to advanced services
0
Support of self-employment
and micro-organisation
0
0
Option 2: Light adjustment
Option
4:
Broadband
availability
As option 3, especially for
rural and remote areas
Consumers
SMEs
As option 3
0
As option 3; potentially
increase or entrenchment of
the market power
Larger and multi-national
0
businesses
0
Incumbents
Entrants
Alleviating the financial Alleviating the financial and
burden by narrowing the administrative burden by
USO scope
narrowing the scope and
modernising the funding
Legal uncertainty with regard As option 1
More legal certainty with
to financing
regard to financing
Alternative fibre investors
0
0
Cable operators
Mobile/ wireless providers
0
0
0
0
As
option3;
potentially
increase or entrenchment of
incumbent’s market power;
distortion of price levels;
more difficult market entry
Alleviating the financial and As option 3; distortion of
administrative burden
competition and price levels;
crowding out investments
As above
As above
Alleviating the financial and As option 3
administrative burden; more
equitable
cost-benefit
relation in the case affordable
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mobile broadband
Content and
providers
NRAs
application
0
0
Improved
channels
for As option 3
advanced
communications
services and greater audience
Less flexibility in the Flexibility with regard to the As option 3
adjustment of the USO to national USO; no choice with
national circumstances
regard to financing
0
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6.12.4 Services options
Table 42 - Summary stakeholder impacts – services options.
Option 1: Status quo
A) Security and privacy issues remain.
Option 2:
A) 0
Option 3:
A) More issues
Option 4:
A) Fewer issues
Option 5:
A) Fewer issues
Consumers
B) Looming risk to lock-in with multi- B) Lower risk
play bundles
B) Unclear (iii)
B) Lower risk
B) Lower risk
C) As OTT usage increases, there is an
effective reduction of access to C) 0
emergency numbers
D) 0
D) Unequal regulatory treatment vis-à-vis
OTTs remains.
C) -
D) ++
C) +
D) +
C) +
D) ++
Telco’s
E) Compliance costs
E) go down
E) down less than in E) go down less E) same as 4 (i)
option 2 (i)
than in option 3 (i)
F) duplication of costs when operating in
multiple countries
F) down (ii)
OTTs
G) no compliance cost except some legal
G) 0
cases as to the scope of the RF
F) market entry i.s.o. F) same as 2
regulatory barriers (iv)
F) same as 2
G) new compliance G1) New compliance costs
G) reduced
costs
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G2) regulatory risk (vii)
G3)
innovations(vii)
impede
I) More clarity but more I) clarity about
IoT Start-ups
I) Low confidence in future planning and
I) 0
I) clarity about scope
investments due to unclear scope of RF
market risks (v)
scope
and SMEs
L) Enforcement costs
K) 0 (i)
K) go up (vi)
K) 0 (i)
K) go up (vii)
NRAs
(i)
Reduction in compliance costs due to cancelling redundant rules are significant. Reduction of enforcement costs by NRAs are zero. From option 2 to
3 the number of obligations for ECS reduce, but new obligations for ECN arise. From 2 to 4 and 5, the reduction in obligations for ECS remain the
same, but the number of obligations for ECN go up. Additional measures that impact on TTs do not impact on Telco’s
(ii)
Streamlining reduces the dimensions for regulatory heterogeneity. While lack of clarity about the scope of the RF may lead to evolution of
interpretations by MS and create new heterogeneity of rules, this would not affect Telco’s but rather TTs and IoTs.
(iii)
Measures to reduce lock-in with multi-play service providers may be offset by relaxing obligations for interconnection and subsequent concentration
of the market.
(iv)
Relaxing obligations to interconnect may allow for the creation of market entry barriers as National Markets concentrate.
(v)
IoT start-ups will have less uncertainty about rights and obligations and experience less duplication of costs when operating in multiple countries,
however, Option 3 may introduce competition issues for number-based m2m service providers vis-à-vis large telco’s.
(vi)
Risk of more need for ex-post interventions in which NRAs may need to support CAs
(vii)
Interconnection on the basis of “reasonable limitations of technical feasibility as well as cost limitations” gives rise to enforcement/implementation
costs, uncertainty and risks for innovation
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6.12.5 Must carry and EPG obligations
Table 43 ---Summary stakeholder impacts – Must carry and EPG obligations
Option 1: Status quo
Consumers
Option 2: Phase out obligations
Option 3: Extend must carry obligations to
OTT providers
Neutral compared to option 1: No impact on
PSBs (neither small or large) or on the variety of
content offered to (i.e. choice for) end-uses. The
abundance of online content could make it more
difficult for some smaller PSBs to build a
significant audience
Neutral. No change in the possibilities to make
content available compared to status quo as OTT
providers already include PSB content.
Positive, viewers continue to have Negative, in some cases viewers
access to PSB services via traditional may lose access to PSB services
TV networks
via traditional TV networks
before OTT substitution is viable
Larger and multi-national
Neutral – market entry might Positive - market entry could
commercial
content
continue to focus on the OTT area include traditional TV networks
which has less regulatory constraints to the extent that transmission
providers
capacity
becomes
available
subsequent to discontinuation of
must carry obligations
appropriate
PSBs, including at regional
Positive, existing privileges would Negative,
remain in place
transmission on traditional TV
and local level
networks would have to be
negotiated
under
market
conditions.
Neutral/positive – existing regulatory Strongly positive - existing
ECNs
burdens and constraints would regulatory
burdens
and
remain, but with a perspective that constraints would disappear by
they will be removed gradually over 2020-2025
time subsequent to national reviews
of obligations.
OTT
service
providers
Neutral – existing obligations do not Neutral – existing obligations do
not relate to OTTs
which are not themselves
relate to OTTs
content providers
Negative as concepts for proportionate and
appropriate intervention in the OTT area do not
currently exist. Positive effects are possible in
the long terms, if such intervention can finally be
successfully conceived.
Neutral – no change of existing burdens and
constraints
Negative as concepts for proportionate and
appropriate intervention in the OTT area do not
currently exist.
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6.12.6 Numbering options
Table 44 - Summary stakeholder impacts – Numbers.
Option 1: Status quo
A) Higher prices for Iot services
B) Higher prices for Iot services
Option 2:
A) same as option 1
B) same as option 1
Option 3:
A) Lower prices
D) Lower prices
Consumers
C) Potential barriers for cross border use C) same as option 1
of applications
IoT users (Industry 4.0)
D) same as option 1
D) Potential barrier for full integration into
the IoT
E) Less risk
F) Less barriers
E) Potential lock-in with connectivity E) same as option 1
providers, leading to high prices and lower
quality
E) Less risk
IoT service providers
F) potential bottlenecks in delivering F) same as option 1
(including SMEs)
reliable always and everywhere connected
services (domestic and cross border)
F) Less bottlenecks
G) Less room for innovations of IoT
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services
G) same as option 1
G) More room for innovations
H) High prices and profits
H) same as option 1
H) lower prices, less profits
Telco’s
I) growing administrative costs related to I) same as option 1
extra-territorial use of numbers
I) Lower administrative costs
NRAs
J) growing administrative costs related to
facilitating the extra-territorial use of J) same as option 1
numbers
J) Lower administrative costs
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6.12.7 Governance
Table 45 - Costs of institutional options per stakeholder
Baseline (option Preferred options access and spectrum (option 3) and services (option 4)
1)
Bodies
Status
(option 1)
→
→
→
quo Enhanced
(option 2)
role Advisory role + some EU
regulator
with
normative powers (option 3)
implementation/enforce
ment powers (option 4)
↑ (EU technical guidelines)
↑ Spectrum peer review
↑ Spectrum peer review
↑
(Additional
advisory
requirements + compliance
with Common approach)
↑↑
(effective
resourcing,
additional
advisory
contribution
to
BEREC,
mapping) ↓↓ Fewer market
analyses,
standardised
specifications
↑ Increased contribution to
RSPG
↑↑
(Enhanced
technical
guidance role + compliance
with Common approach
↑↑
(effective
resourcing,
additional
contribution to
BEREC, mapping) ↓↓ Fewer
market analyses, standardised
specifications
↑↑↑ (substantial additional
resourcing required)
↑ (additional contribution
to BEREC) ↓↓ Fewer
market analyses, some
enforcement powers to EU
advisory
Commission
BEREC Agency
NRAs
Spectrum
authorities
→
↑ Increased contribution to ↑ Increased contribution to
RSPG
RSPG
↓ Greater EU guidance
↓ ↓ Some enforcement
powers to EU
A more analytical estimation of the costs is presented in SMART 2015/0005.
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Table 46 – Summary of governance costs by option
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Option 1
Option 2
Option 3
Option 4
Synergy + some
normative and
supervision powers
Assumptions4
€ 7.921.600
As option 3
Body
Commission
BEREC Agency
Status quo
Assumptions
€ 7.328.400
60FTE @€118,640pa
(blended rate) +
€210,000 missions
€ 4.061.000
28FTE €137,714pa (=
blended rate of
€107,714 + additional
est €30,000 pp
overheads to reflect
small scale) + €205,000
missions
€ 107.309.530
41FTE per NRA, blended
cost for FTE €66,768pa,
40% mark-up for
overheads
Enhanced
advisory role
Assumptions2
€ 7.921.600
Status quo + 5FTE to reflect
additional implementation
duties
€ 5.713.571
40FTE as opposed to 28FTE,
assumptions as before
Synergy + some
normative powers Assumptions3
€ 7.921.600
Status quo + 5FTE for
spectrum article 7 process
€ 8.467.857
60FTE as opposed to 28FTE,
assumptions as before
€ 31.000.000
EBA cost
NRAs (excl spectrum)
€ 103.103.146
Status quo + 5*10FTE for
under-resourced NRAs + 10FTE
for extra BEREC contribution.
Cost savings on extended
market review periods (est
15%). Cost increase associated
with mapping assumed
balanced by cost reductions
through standardisation +
reduced regulatory burden
€ 104.037.898
As option 2, but with
additional contribution to
BEREC.
€ 90.951.370
As option 3 but with
reduction of 5FTE per
NRA due to greater EU
level rule-making and
supervision
(of which BEREC
contribution excl
spectrum)
RSPG support/office
€ 4.580.285
49FTE based on BEREC
estimate
€ 5.515.037
status quo +10FTE reflecting
four additional guidance
requirements per year
€ 556.600
Status quo
€ 6.449.789
Status quo + 20FTE reflecting
additional contributions to
draft Implementing guidelines
€ 556.600
Status quo
€ 6.449.789
As option 3
€ 556.600
Based on 2.5 Cion FTE +
€260,000 expenses
€ 83.753.779
32FTE per SMA blended
cost €66,768pa, 40%
mark-up
SMA
€ 83.886.802
Status quo + increased RSPG
contribution (see below)
€ 81.269.496
Option 2 with saving of 1 FTE
per SMA due to more
standardised auction format
€ 0
Spectrum activities
incorporated within
BEREC
€ 73.417.579
As option 3 but with
further reduction of 3FTE
per SMA due to greater
EU level rule-making and
supervision (SMA in NRA)
(of which contribution
to RSPG)
€ 266.045
Based on 14 WG mtgs
per year, 10 participants
and 5 days prep
€ 203.009.309
€ 399.067
Status quo +50% to reflect
increased advisory
requirements
€ 201.181.719
€ 399.067
As option 2
€ 399.067
As option 2
€ 202.253.451
€ 203.290.549
Total costs with
synergies (best case)
Total costs (EU co-
ordination)
Co-ordination as %
total cost
Total costs (no
synergies)
Total costs (average)
€ 16.792.330
8%
€ 203.009.309
€ 203.009.309
€ 20.105.875
10%
€ 210.996.615
€ 206.089.167
€ 23.794.913
12%
€ 214.685.652
€ 208.469.552
€ 45.770.456
23%
€ 234.043.890
€ 218.667.219
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6.13
ANNEX 13 - Report from the Expert Group meeting
On 30 May 2016, WIK-Consult GmbH, Ecorys Brussels N.V. and VVA Europe organised a
high-level academic expert panel to support the Commission in the preparation of the Impact
Assessment for the Review of the electronic communications framework.
The purpose of the expert panel was to provide feedback on the provisional conclusions reached
by the consultants concerning the impact of planned changes to the e-communications
framework.
Prior to the meeting, the experts were provided with a programme for discussion,
slide presentation and draft ‘overview’ of the consultant’s research findings.
This Annex presents details on participating experts, the agenda of the day with points for
discussion, and the report as reviewed by the members of the expert group.
PARTICIPATING EXPERTS:
The members of the academic panel were selected in consultation with the Commission by virtue
of their in-depth experience in issues relevant to the electronic communications sector,
innovation and governance.
Joan Calzada
is Associate Professor at the Department of Political Economy, Universitat de
Barcelona, with expertise in theoretical and empirical industrial organization. His main research
interests are the economic regulation of network industries, especially telecommunications,
transportation, and water.
Brett Frischmann
is Professor and co-Director of the Intellectual Property and Information Law
program at Cardozo Law School in New York City. His expertise lies in intellectual property and
Internet law, and in particular the relationships between infrastructural resources, property rights,
commons, and spillovers. Professor Frischmann is a prolific author, whose articles have
appeared in numerous leading academic journals. He has published important books, including
the award winning ‘Infrastructure: The Social Value of Shared Resources’ ( xford University
Press, 2012).
Frederic Jenny
is Professor of Economics at ESSEC Business School in Paris and a Chairman
of the OECD Competition Committee. He has written extensively about trade, competition and
economic development and his research areas concern the relationship between structure and
performance in European countries and antitrust legislation in Europe.
Eli Noam
is Professor of Economics and Finance at the Columbia Business School. His research
focuses on strategy, management, and policy issues in telecommunications, computing, and
electronic mass media. Noam has written numerous articles and books on subjects such as
communications, information, public choice, public finance, and general regulation.
Dr
Brigitte Preissl
is Head of Knowledge Transfer in Economics at the German National
Library of Economics in Hamburg. She has an extensive research record in the regulation of
telecommunication markets, the economics of service innovation and national research systems.
Luc Soete
is Professor of International Economic Relations at the School of Business and
Economics, Maastricht University. His research covers a broad multi-disciplinary field which
focuses on the nature, origin and determinants of innovation. Soete’s publications include topics
on governance and institutions, ICT-enabled innovation as well as societal transformation.
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Reza Tadayoni
is Associate Professor at the Faculty of Engineering and Science, Aalborg
University. His research field is media convergence. He has been contributed to a number of
consultancy reports and studies for the Danish telecom and broadcast administration, EU and the
World Bank. He has been actively involved in European COST networks, including COST A20
on `The impact of the Internet on the mass media in Europe' and COST A16 on `ICT and
transnational communities'.
Professor
William Webb
is a Director at Webb Search Consulting and an expert on wireless
technology and regulatory matters. As a former director of Ofcom, he performed a research
across all areas of fcom’s regulatory remit and led major reviews conducted by fcom
including the Spectrum Framework Review, the development of Spectrum Usage Rights and
most recently cognitive or white space policy.
The expert panel was introduced by Anthony Whelan, Director for Electronic Communications
at the EC, DG Connect, and Chaired by Dr Iris Henseler-Unger, Managing Director of WIK.
Each subject was briefly introduced by a member of the study team on the basis of the circulated
slides. Pertinent questions were raised by the Chair, and the remainder of the session was
devoted to comments from experts.
AGENDA: EXPERT PANEL
IMPACT ASSESSMENT FOR THE REVIEW OF THE FRAMEWORK FOR
ELECTRONIC COMMUNICATIONS
30 May 2016
Berlaymont, Room 07/062, Rondpoint Schumann, Brussels
The EC is currently undertaking a review of the legislative framework applying to electronic
communications. The impact of the review could be significant. Electronic communications is a
strategic sector which directly constitutes €168.62bln of European value added and 1.06 million
jobs (around 1.3% GDP and 0.47% of total employment in 2012), with a labour productivity per
person of more than 144 thousand euros (the highest rate within the ICT sector)1. The sector
supports a wide range of other high-tech manufacturing and digital services (the ICT sector
constitutes 4% GDP and 2.76% of EU jobs, with a labour productivity rate 44.45% higher than
total labour productivity) as well as the economy as a whole.
The review comes at a crucial time for the digital economy. Consumer and business demand for
bandwidth continues to expand, driven by the growth of connected devices, digital content
services and cloud computing, as well as connected ‚things‘, we are mid-way through an
important cycle of investment in fixed infrastructure with the prospect of 5G to come, and
business models in the telecom sector are changing to adapt to a con-verged, data-driven
environment.
These developments highlight a new
ambition for ubiquitous and Very High Capacity
connectivity.
At the same time, they have revealed shortcomings in the framework, highlighting
the need for the Framework to be adapted to meet market and technological change in order to
protect
consumer interests and enable competition to flourish across the single market.
Finally the review provides an opportunity to
achieve efficiencies
and see whether the complex
processes and institutional framework in place today can be streamlined to reduce costs and
bureaucracy.
In order to ensure that the changes to the framework are fit-for-purpose, in according the Better
Regulation Guidelines, the Commission is conducting an Impact Assessment to gauge the
economic, social and environmental effects of different options and assess how effective and
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efficient they would be in achieving the objectives we have identified above. The Commission
has engaged WIK-Consult, Ecorys and VVA Europe to support them in this exercise.
The
purpose of the expert panel is to provide feedback on the provisional conclusions reached
by the consultants concerning the impact of planned changes to the e-communications
framework.
Details of the programme are shown overleaf.
Programme
Participants
Experts:
Prof. Joan Calzada, Dr. Frédéric Jenny, Prof. Brigitte Preissl Prof. Luc
Soete Prof. Reza Tadayoni Prof. William Webb, Prof. Brett Frischmann,
Prof. Eli Noam
Anthony Whelan, Reinald Krueger, Vesa Terava
Dr Iris Henseler-Unger, Ilsa Godlovitch (WIK), Nicolai van Gorp
(Ecorys), Pierre Hausemer (VVA), Iglika Vassileva (Ecorys), Tseveen
Gantumur (WIK)
Commission
Consultants
Format
Roundtable.
The session is introduced by Anthony Whelan, Director for
Electronic Communications at the EC, DG Connect, and Chaired by Dr
Iris Henseler-Unger, Managing Director of WIK. Each subject is briefly
introduced by a member of the study team on the basis of the circulated
slides. Pertinent questions are raised by the Chair, and the remainder of
the session is devoted to comments from experts.
Minutes
will be taken of the panel proceedings and circulated following
the workshop for comment and approval. The approved workshop
minutes will be annexed to the final report under preparation by WIK,
Ecorys and VVA.
Record
09.30-10.00
10.00-10.30
Morning Coffee
Introduction and problem definition
Anthony Whelan EC
The context for the review
Identifying the core problems:
Gaps in high speed broadband deployment
Delays in LTE roll-out, perspective for 5G
The impact of market and technological developments
Redundant regulation
What should we seek to achieve?
10.30-12.40
Achieving ubiquitous high speed connectivity
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Introduction by study team, debate
Approaches to access regulation to foster high speed broadband in
urban and rural areas
Approaches to spectrum policy to accelerate deployment
12.40-13.40
13.40-14.40
Lunch
Protecting consumers and promoting competition and innovation in
the single market
Introduction by study team, debate
Approaches to services policy
Need to adapt the concept of ‘electronic communications
services’?
Relevance of the use of public resources (e.g. numbering
resources) for sector-specific rights and obligations?
Which rules should apply to which communications
services?
The role of universal service in securing access to connectivity
14.40-15.00
Break
15.00-16.00
Implications for institutional governance, jobs and growth
Introduction by study team, debate
Implications for institutional balance, role of NRAs, EC, BEREC
and RSPG
How will achieving the objectives impact jobs and growth?
16.00-16.20
Concluding remarks and next steps
Anthony Whelan, EC
Draft report
The report included below needs approval by the expert group, which will be granted by the end
of June 2016.
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Access
The connectivity
imperative is not an
immediate short term
problem (except in
rural areas)…
The experts agreed concerning the need to foster better infrastructure in rural areas,
where a potential digital divide still looms. There was some discussion over what
the review of the framework should aim towards as regards objectives for
connectivity overall and whether or not there should be an emphasis on very high
speeds potentially delivered via fibre connections. One view was expressed that
FTTH may not be necessary to fulfil many of today’s domestic needs; even when
considering multiscreen 4K TV content, copper is also able to realise sufficient
speeds. Moreover, the maximum capacity of In-house Wi-Fi may act as a
bottleneck, limiting the effectiveness of Very High speed Connectivity (VHC)
unless this additional performance barrier is addressed. It follows that, from a short
term perspective, the added value of VHC may not be so high in the eyes of
consumers and this gives rise to uncertainty as to whether they would be willing to
pay more for it. The impact of different technological solutions on cost and price
should also be analysed.
It was agreed that this short term perspective should be taken into consideration.
However, some experts noted that the Framework should have a more forward
looking perspective. Market demand for VHC may not be there today, but you still
might want to have infrastructures in place so that the market can evolve. In this
sense, one could say there are market failures related to connectivity in the form of
externalities and spill overs (innovations) that are not incorporated in the current
willingness to pay by consumers. As such, VHC is a legitimate objective in a
forward looking perspective but probably it will not be feasible to roll out FTTH re
all the way up to the homes across the entire Union by 2025; e.g. in some areas it
may already suffice to roll out fibre to the lamppost (in order to operationalise 5G).
However, when considering Europe's global competitiveness vis-à-vis other parts
of the world, we may want to set even higher targets as it may not be enough to
‘catch up’ but rather to aim to ‘leapfrog’.
The experts noted the need to be clear about what were the market failures involved
in the new context and highlighted that there may also be other market failures
involved than market power, such as innovation externalities, resulting in social
demand for infrastructure not being reflected in current private demand. It follows
that regulatory tools to promote competition may not be sufficient and that public
investments (eg by municipalities or via state aid) may be needed to complement
regulatory tools. Other solutions discussed included as initiatives for aggregating
local demand (as in Sweden) and/or to enable the cost of the (network) connection
to be defrayed over a longer period than the current contract duration (24 month)
while maintaining the current rules for contract duration for service contractst
The experts indicated that the impact assessment should clearly specify where
infrastructure competition alone does not work to stimulate connectivity and
choice, and where accordingly additional solutions are needed. One important
market failure is the presence of sunk costs giving rise to economies of scale and
market power. Regions differ in the scalability of investments and this problem
may be more pressing in white areas than in black areas. However, black areas may
experience other sources of market failure. Mapping is therefore important to
clearly describe the size of these problems: what is the magnitude of white areas?
What are the potential problems in black areas? What are options to improve
existing infrastructure? What is the interaction between electronic communication
framework and state aid framework in these different settings?
With respect to the proposal to standardize of wholesale products for business
communications, one of the experts questioned whether product innovation may be
…but it is a problem in
a forward looking
perspective and the
Framework should be
forward looking and
supportive of
innovation.
Solutions might not
always be regulatory
and may have to
involve public support
Mapping is
considered an
important initiative.
the role of sunk costs
in different areas
can be considered a
market failure
The trade-off
between
harmonization/stan
dardisation and
regulatory/commerc
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negatively impacted as a result of harmonization of specifications. However, it was
noted that the wholesale products such as bitstream were often the result of
regulatory intervention from the NRA to mandate access, and therefore such
products may be less likely to be subject to commercial innovation.
On the other hand, one of the experts noted that market failures may result from
a lack of harmonization. An analogy was made that once national networks have
formed (e.g. in the banking sector) which largely serve national demand, none of
them will spontaneously embrace pan-EU network solutions that serve
transnational demand but that may have some short-term costs. This
argumentation would call for more harmonization and the consideration of
options which are more radical such as moving to EU regulators.
Spectrum
Agreement on the
preferred option
There was broad agreement among the experts that the spectrum analysis indeed
shows that the preferred option would constitute a significant improvement over
the status quo.
Several comments were made for the research team to consider in the final
report. First of all, the experts agreed that the successful, fast and joint
deployment of 5G is the key opportunity to be seized and the key challenge for
spectrum policy to tackle. While it is not yet clear precisely what 5G actually
entails, the experts suggested that an attempt should be made in the report to
define what is meant by 5G and to identify its key components (i.e. securing
pioneer 5G bands) that will generate the impacts that are described in the impact
assessment. Not all aspects of 5G technology will materialize at the same time:
some aspects such as e.g. mmWave technology are currently still very much
“research projects” that are likely to generate impact only in the longer term. At
the same time, other aspects, such as enhanced mobile broadband are likely to
be available much earlier.
Second, the experts agreed with the research team that the analysis should
clearly highlight how scale (and the speed of scaling up) is becoming an ever
more important imperative for economic operators, especially in network
industries. The experts pointed out that a true digital single market across the
EU, for which spectrum is an important input, is a key element to facilitate such
scaling up in Europe, experts mentioned 862-870MHz that is particularly
suitable for IoT applications. It is such scale economies that lead investors (e.g.
device manufacturers) to consider Europe as a significant player on the global
stage, in comparison with other large markets such as the US or China. For
instance, device manufacturers need to consider which spectrum bands their
technology should be able to operate in. For Europe to ensure that it drives such
decisions, it needs to present itself as a single market that is as economically
attractive as other major markets.
Third, the panel discussed the difference between market structuring and public
policy elements of spectrum assignments which should be acknowledged in the
report. Market structuring elements include e.g. license duration, spectrum caps
and other such elements. Public policy aspects refer to issues such as coverage
obligations. It was noted that EU level intervention is likely to be most valuable
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Need a definition of
5G
Facilitating scaling
up is one of the key
impacts to consider
Distinguish between
market structuring
and policy aspects of
assignments
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in the coordination of market structuring aspects, and in higher level framing of
overall policy objectives.
Option 3 should be a
stepping stone to a
future more
ambitious move
toward a more
consistent
management of
spectrum and
possibly an EU
regulator
Lastly, it was generally acknowledged that the preferred option would make a
significant difference in terms of coordinating spectrum assignments in Europe.
For the experts, the more far reaching Option 4 (an EU regulator) which is likely
to lead to the biggest economic gains, is at the same time possibly less agile and
efficient in adapting to local constraints and likely to meet opposition from
Member States . A suggestion was made that the impact assessment should be
used to show the cost of such opposition by Member States (i.e. the difference in
impact between Option 4 and Option 3). There was consensus that Option 3
could eventually be seen as a stepping stone to a future gradual move towards a
sustainable and more consistent management of spectrum in the EU, and
possibly to the creation of an EU regulator.
Services
Is numbering a
practical
distinguishing
feature?
It was noted that the description of the preferred option should more clearly specify
that the reference to "numbers" means E.164 numbers and no other numbering
resources such as IPV6 addresses. Furthermore, it may need to be further analysed
whether making use of numbering resources is a relevant distinguishing feature for
applying sectorial obligations to services and whether this distinction is practically
applicable, although they did not elaborate on this point.
Some experts noted that the analysis on regulatory heterogeneity and on the
impacts from harmonisation focuses on the gains of harmonisation but not so much
on the possible costs for consumers. They agreed that regulatory heterogeneity with
regards to consumer protection leads to duplication costs, but questioned whether
there are benefits to regulatory heterogeneity if consumer preferences differ. At the
same time they agreed that certainty will be needed for the development of the
M2M market. They agreed on the need to be transparent about the pros and cons of
harmonisation.
Questions were raised as to what exactly the option with regards to bundles
entailed. There were some doubts about the effectiveness and practicality of
offering consumers the ability to buy services separately. The issue is rather about
the need to be clear on which rules apply to what services when a bundle contains
services that fall within the scope of the regulatory framework and services that do
not. Once this is solved one should look at how services should be provided and
what protections are needed. Consequently there is a need for some reasoning as to
how sector specific rules apply to the bundle.
Some experts recognised that bundling may create transparency problems as
consumers may find it more difficult to compare bundles to stand-alone products.
They noted that it is not always clear what is in the fine print and, in the end, a
consumer may have chosen a product in which he/she is actually not better off and
it is not clear what the costs of getting out of the bundle are. Another potential
concern, due to the popularity of bundles among end-users, was that some operators
may be hindered in replicating bundles because they do not have access to relevant
wholesale products (e.g. in Spain some operators have trouble getting wholesale
access to mobile). However, other experts stressed that bundles may have positive
attributes, not least to promote competition, and are no longer considered negative
for consumers. Consumers also gain from bundles in the form of reduced
transaction cost and a reduction of occasions at which a choice has to be made
(consumers don’t like to make choices). Thus there is a need to go case by case
Regulatory
heterogeneity is not
a bad thing per se
What exactly do the
measures with
regards to bundles
entail?
While consumers
may clearly benefit
from bundling, there
are also risks
involved
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rather than taking a single approach on this area and improve transparency through
comparison tools.
.
The RF may not be
the right framework
for dealing with
privacy and security
issues
One expert noted that the basis for extending privacy and security obligations to a
wider set of communication services is not strong if it is only based on the
observation that one third of respondents to a survey find it an issue (referring to a
survey held in the context of SMART 2013/0019). Another expert recognised that
privacy and security issues are important in relation to communication services
(notably IoT services), but argued that the problem also applies to other types of
OTTs and not just to OTTs providing communications services. He suggested that
in the future IPv6 addresses will replace E.164 numbers and that privacy and
security issues should be dealt with under horizontal rules.
Universal service
Flexibility of
regulation at the
national level
While acknowledging the benefits of allowing Member States flexibility, experts
were interested to understand how a universal service (US) obligation for basic
broadband would be defined if included, e.g. who determines what is the minimum
bandwidth that should be guaranteed. They also inquired about the appropriateness
of including mobile connection in the options in this day and age where mobile
technologies are becoming much more important. It was explained that there is
minimum harmonisation at the EU level so that Member states have options to
define their understanding of US pursuant to the national circumstances (e.g. with
regards to a minimum required bandwidth) and that mobile technologies are
currently included as a technology that can potentially be used to realise broadband
services at a fixed location. However, nomadic services as such are not currently
included as a US.
Experts noted that the problem analysis could make a clearer distinction between
affordability and availability. While the preferred option aims at
affordability
(e.g.
ensuring affordable prices for all end users, in particular for the most vulnerable), it
was argued that
availability
is the real issue to be considered by the RF in general,
including possibly by US. Affordability can be realized through social income
related policies or subsidies. It was explained that under the preferred option
broadband availability would be further promoted through other instruments (such
as regulation, state aid or spectrum policy).
The analysis refers to “uncertainty” resulting from the fact that Member States have
their own approach to assessing costs and unfair burden. It was questioned whether
this causes “uncertainty”, or just “complexity”? It was explained that differences
between Member States in the calculation of net cost and the notion of unfair
burden makes it not always clear to operators entering the market what will be the
net cost of US provision, whether it will be considered an unfair burden and
whether they get any compensation, which may result in an uncertain market entry.
Underline the
distinction between
the measures for
affordability and
availability of
broadband
Differences between
Member States may
create complexity, but
not necessarily create
uncertainty
Governance
Centralisation is
important for scaling
up and spillovers to
be generated
Administrative costs
related to a particular
set-up might not be
easily reduced
On the topic of governance, the expert panel reaffirmed some of the policy
specific elements discussed on access, spectrum and services. There was
agreement that localised governance may prevent cross-border markets
from emerging. If this is the case, then it significantly strengthens the case
for co-ordination at EU level
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Second, the experts pointed out that in estimating the costs of governance
reform, it should be borne in mind that institutional costs are sticky and that
any savings from reform (e.g. administrative costs) might take a long time
to materialize. One expert observed that institutions often end up
maintaining the problem they were created to solve.
Subsidiarity needs to
be considered in light
of the benefits of
greater coordination
Third, one panel member challenged the team to consider subsidiarity in a
different light (finding the most appropriate geographic level of
intervention rather than one that necessarily places responsibility at the
most local level). He posited that, in the context of a digital single market,
there is a need to justify why a centralized, coordinated model of
governance for electronic communications is not the right way forward.
The European Research Cooperation (ERC) is an example where
centralisation of the allocation of research grants has resulted in a much
more efficient allocation of national research funds across EU researchers
and also a more effective search for talent, since there are strong arguments
for a larger scale when trying to identify high level expertise. It is a prime
example of how the subsidiarity arguments (scale economies and spill-
overs) are at play and where centralisation leads to more efficient
outcomes. A similar centralized model of governance could be beneficial in
the case of e.g. spectrum.
Finally, one panel member suggested that it is important to understand how
the governance model facilitates (rather than acts as a block to) innovation.
How can innovation (technological or regulatory) be introduced under a
new institutional set-up, what are the key steps for new ideas to be
introduced, for their merits to be considered, for them to be decided and
then implemented and how open is this process. For example one of the
benefits the preferred spectrum option is that it is open to this idea
discovery process but puts in fewer blocking factors than other options.
Macroeconomic modelling
The existing CGE analysis is a welcomed and well developed addition given the
necessity to estimate future impact scenarios in a strongly quantitative way. But
there are some limitations derived from the deterministic inclination of these
models that should be noted.
The model is based on current productivity parameters, while structural changes
might be expected as a result of the implementation of the preferred policy options
together with a variety of factors. It should be noted that, ideally, the impacts
should be analysed from a dynamic perspective, estimating the impact of changes
in productivity as a result of both infrastructural and socio-economic factors,
including organizational changes. This would require, among other things, that the
analysis does not focus only on the horizontal comparison of industries, but also on
the specifics of the production process throughout value chains and at the firm
level. It is really important to understand how processes of production will change
if policy strategies are to be rightly implemented.
The analysis should account for the fact that it takes time to adopt changes,
implement them and, finally, for them to have impact on the production process.
Moreover, the analysis should recognize limits in the absorptive capacity of firms.
Not all firms are instantly ready to jump to another production function. This has
nothing to do with regulation, but with the potential to harvest the benefits of
digitalization by industries. Such potential follows from the strategies that different
The institutional set
up needs to be open
to innovation
The analysis reflects
existing production
functions but not
disruptive changes of
production processes
Impacts may
materialize with a lag
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industries and organizations might adopt e.g. regarding cloud computing. The
consultants confirmed that such lags have been accounted for in the model.
CGE modelling is
limited in assessing
the impact on
comparative
advantages vis-à-vis
the ROW
The CGE model seems to assume that the European economy is operating
independently of what happens in the rest of the world. While the current policy
options take the broadband situation in the most innovative economies as a
benchmark, we have to go beyond that and have a vision to be more innovative
than others. For example, the model suggests that exports growth will exceed that
of imports. If you want to keep comparative advantage or achieve it, then you have
to go beyond the benchmark of access policy, spectrum policy and service policy. It
was recognized that this is a general but accepted shortcoming of CGE modelling.
It would be interesting to see a disaggregated model at regional level, similar to the
RHOMOLO model for example. Such models allow for analysing what would
happen on the ground in different industrial hubs around Europe. It is recognised
that such models are indeed very interesting but also require an extensive amount of
resources and development time when done properly.
Finally, the experts note that the Regulatory Framework alone would not be enough
to realise the preferred outcomes in terms of competitiveness of the EU economy.
Infrastructure policies should be complemented with innovation policies and policy
of digital services (in broader sense than just communication services). All these
different policy fields should go together.
Regional models:
potentially very
promising but not
achievable under the
current IA
Materializing of
impacts depends on
complementary
policies in the area of
innovation and digital
services
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1664252_0081.png
6.14
ANNEX 14 – The state of play and the EU dimension of connectivity
This annex integrates the problem definition section by describing in more detail (i) the obstacles
to unconstrained connectivity identified in section 1.2.1., (ii) the EU dimension of the problem
and (iii) including more elements of the baseline, to complement the ones included in section
1.5.
6.14.1
Costing the gap and the financial endowment of current initiatives
Some studies have tried to estimate the NGA broadband gap in Europe and to provide estimates
about the cost to fill it. The best known of these studies is probably the one performed by the
European Investment Bank in 2011. The study considers four scenarios for broadband
deployment in Europe. The most
ambitious scenario foresees FTTH/B
roll-out throughout
Europe and the gap was estimated at €221 billion
460
. The same scenario of 100% FTTH/B
coverage was analysed by Analysis Mason in a study for DG CONNECT in 2012
461
. The amount
foreseen is similar (€250 billion, for deployment of FTTP-only, across Europe). The amount is
reduced to €154 billion in case of high duct re-use. Analysis Mason also estimated the costs
associated to a 100% FTTC deployment which are in the area of €50 billion. In case of high duct
re-use, the cost would go down to €31 billion.
An internal estimate on the basis of the Analysis Mason study was also carried out by DG
CONNECT in 2014 according to which Europe needed an additional EUR 34 billion in
investment to reach the target of 100% coverage at 30 Mbps, and an additional EUR 92 billion to
credibly enable reaching the 50% take-up target at 100 Mbps
462
. These figures are already taking
account of the amount that the private sector could be expected to invest
463
. and would leave part
of the network unfit to serve a Gigabit society if substantial copper-based parts of the networks
were to be durably maintained thereafter.
The
financial resources available
at the European level are certainly not sufficient to meet the
challenge presented above. The allocation of
European Structural and Investment Funds
for
high speed broadband networks experienced a sharp increase from EUR 2.7 billion in 2007-2013
to around EUR 6.4 billion for 2014-2020 (about EUR 5 billion ERDF and an estimated EUR 1.4
billion EAFRD)
464
. However, most of this investment is expected to be made in the form of
grants rather than financial instruments so the leverage effect on public (national and/or regional
co-funding) and private co-funding will not reach more than EUR 9-10 billion – falling far short
from the needs to reach the EU targets for broadband coverage and take-up.
The
Connecting Europe Facility
(CEF) in the digital area is endowed with a limited budget of
EUR 1 billion for the period 2014-2020 after the severe cuts it suffered in the Multiannual
Financial Framework (MFF) negotiations from a proposed EUR 9.2 billion. EUR 150 million are
allocated to broadband infrastructure, based on the provision of financial instruments via the
460
461
http://www.eib.europa.eu/attachments/efs/eibpapers/eibpapers_2011_v16_n02_en.pdf
Analysis Mason, The socio-economic impact of bandwidth (2013).
462
Based on a 75% coverage assumption.
463
According to the Digital Agenda Scoreboard, telecom (including fixed, integrated and mobile-only) CAPEX in
Europe was € 43 bn in 2013. CAPEX figures remained relatively stable over the 2011-2014 years despite the fact that
in the same period NGA coverage increased from 29% to 68%. In 2014, Mobile CAPEX spending represented 59%
of total spending. However, this CAPEX is not only directed at modernising the network so that it is difficult to say
how much private operators will invest in increasing coverage in the coming years.
464
An estimate as the Commission cannot differentiate between allocations foreseen in EAFRD for ICT and
Broadband as this type of information is not requested by the regulation. However, additional information is requested
and will be provided in the context of monitoring activities (in particular, monitoring will be done for ''N° of
operations", "Population benefiting from new or improved IT infrastructure" differentiating here between
"Broadband" and "Other than broadband").
385
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European Investment Bank (EIB). The broadband part of CEF is expected to mobilise around
EUR 1 billion
465
.
Finally, the European Fund for Strategic Investment (EFSI) does not have sectorial earmarking
hence it is difficult to anticipate how much budget will be allocated to broadband infrastrcuture.
6.14.2 International comparisons
Affordable Gigabit connectivity has already been available as a consumer service in Japan,
466
Singapore and Korea for some years, while in 2014 Korea’s SK Telecom announced trials of
10Gbit/s.
467
In Korea, the National Broadband Plan (Ultra Broadband Convergence Network
468
),
already launched a 1 Gbps target in 2010.
Gigabit connectivity is also available to households and small businesses in US cities served by
Google Fibre,
469
and recent reports suggest that AT&T is responding to the competitive
challenge with more widespread urban Gigabit deployments of its own.
470
However, it is
certainly not the case that all European countries are falling behind in a Gigabit society. As
shown in the analysis carried out in SMART 2015/0002, Sweden or Estonia already today
compare well with Japan on a range of NGA metrics (although Swedish fixed rural coverage
remains relatively limited).
Figure 81 - % of FTTB connections on total subscriptions (OECD)
Percentage of fibre connections in total broadband subscriptions, June 2015
Japan
Korea
Sweden
Estonia
Norway
Slovak Republic
Iceland
Portugal
Slovenia
Denmark
Turkey
Spain
Hungary
Czech Republic
Switzerland
Netherlands
Luxembourg
United States
Mexico
New Zealand
Australia
Canada
Italy
Poland
Chile
France
Finland
Austria
Germany
Ireland
Belgium
Greece
OECD
Latvia
Colombia
0%
10%
20%
30%
40%
50%
60%
70%
80%
465
Under the pilot phase of the Europe 2020 Project Bond Initiative, the EIB and the Commission closed in July 2014
the first deal on a broadband project bond (in France – Axione is the beneficiary). The leverage factor foreseen for the
broadband part of CEF is around 7x, so it is expected to mobilise around EUR 1 billion. This leverage was exceeded
by the Axione deal which had a leverage factor of 14x.
466
KDDI launches GBit/s service 2008 http://www.japantoday.com/category/technology/view/kddi-to-launch-1gbps-
fiber-optic-service-in-oct
467
SK Telecom showcases 10Gbit/s service http://www.businesskorea.co.kr/english/news/ict/6789-100x-faster-
internet-sk-broadband-offer-10-gbps-internet
468
See:
http://www.unescap.org/sites/default/files/4.1%20Korean%20Broadband%20Policies%20and%20Recommendations.p
df
469
https://fiber.google.com/cities/kansascity/plans/
470
See for example http://www.latinpost.com/articles/101338/20151210/google-fiber-vs-att-gigapower-likely-to-win-
gigabit-race-thanks-to-google.htm
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Several other EU countries, including Portugal, Spain, France, Romania and other MS, which
benefit from an expanding FTTH/B footprint, albeit at different pace of deployment, may
become Europe’s leading countries for VHC connectivity in the years to come
471
. However,
large European countries which have so far been experiencing limited or incremental NGA
deployment may lag behind European and global leaders on VHC broadband. illustrates the
state of transition from copper to fibre, which is much more advanced in other large economies
than in several large EU countries
472
. Although the picture does not take into account the effect
of cable subscriptions, it gives an idea of the different pace of this transition. Furthermore, rural
NGA coverage has been increasing slowly in several countries such as Germany, France, Italy,
Austria and Finland, raising the risk of a growing urban/rural digital divide as can be seen in .
Figure 82 – Next generation access (FTTP, VDSL and Docsis 3.0 cable) coverage, June 2015
Source:
IHS and VVA
- Digital Scoreboard – Connectivity section
473
Challenges to the regulatory framework
474
The evaluation has confirmed that the access-related provisions of the EU Framework have
delivered in most Member States competition and market entry at least in standard broadband
and other copper-based telecom services, resulting in greater choice and value for consumers, as
also confirmed by the consultation
475
. The market shares of incumbents have fallen steadily on
average across the EU reaching 41% of total subscriptions by July 2015 and average prices for
broadband services in the EU have been historically low in comparison with international
benchmarks such as the US or Canada for low data consumptions patterns.
476
Access of all citizens and businesses to high-quality networks at affordable price has become a
prerequisite for Europe to reap the full benefits of the emerging digital economy. The existing
framework was not primarily designed for, and could have not foreseen, the scale of the need to
ensure the widespread availability of modern infrastructure (in rural as well as urban areas), to
471
472
See
SMART 2015/0005 and SMART 2015/0002
Fibre subscriptions data includes FTTH, FTTP and FTTB and excludes FTTC. Some countries may have fibre but
have not reported figures so they are not included in the chart.
473
Source: :
https://ec.europa.eu/digital-single-market/en/download-scoreboard-reports
474
For further discussion regarding the contribution of the regulatory framework to network investment and service
take up, please refer to the Evaluation of the regulatory framework for electronic communications SWD, in particular
to the sections concerning the effectiveness of access regulation and spectrum regulation.
475
86% of respondents to the Commission’s consultation felt that the EU framework (and the access-related
provisions specifically) have contributed either moderately or significantly to achieving the objective of competition.
Consultation Q4b, Q19a
476
Source:
Mobile Broadband prices (February 2015) https://ec.europa.eu/digital-single-market/en/news/mobile-
broadband-prices-february-2015. This study was carried out for the European Commission by Van Dijk.
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enable access to emerging applications and services - and to ensure that competition is fostered
in an environment of technological change.
6.14.3 Towards a connectivity objective
The need for
Very High Capacity networks
stems by the analysis of the likely connectivity
needs over the next ten years based on the current trends and comparing them with performance
enhancements required from telecoms networks to meet these needs. While expressing an
ambition for the future – especially in the fast changing and transformative digital sector –
cannot be fully evidence based, the trends described below, as well as findings of the public
consultation on "needs
for Internet speed and quality beyond 2020",
strongly support the
conclusion that Europe needs unconstrained VHC connectivity for all. This growth will be
underpinned by technological evolution (a comprehensive overview of the means and
technological choices available for network deployment and their implication in terms of
performance can be found in Annex 6.3., SMART 2015/0005 and SMART 2015/0002).
The evaluation clearly shows how regulatory choices under the framework can affect the
connectivity outcome (section 7.2.3.). Moreover, work conducted for the Commission
477
in
support of the evaluation and review of the framework illustrates the impact that national
regulatory choices can have on the deployment and upgrade of higher performance networks.
The study presents how Spain, France and Portugal's NRAs have focused on stimulating entrants
to ‘climb
the ladder’
to FTTH through a focus on duct access and in-building wiring in the
absence of downstream remedies as well as by promoting co-investment models. These countries
have seen developments in FTTH
infrastructure competition,
but these are largely limited to
very dense areas. Market structures in these countries have tended to consolidate towards fewer
fixed mobile integrated players. FTTH coverage has grown strongly in
Spain and Portugal, but
more hesitantly until recently in France.
The feasibility of this model has depended on the
characteristics of the existing networks, including the availability of ducts.
The main reason for both persistent capacity and coverage constraints, in particular outside urban
areas, lies in the huge investments required to roll out very-high-capacity networks. While the 30
Mbps target for 2020 is likely to be largely reached on the basis of current trends, the uncertainty
of adoption dynamics remains a key constraint to investment in VHC connectivity.
Despite progress in roll-out of NGA (> 30 Mbps), in the EU significantly fewer households,
49%, have access to networks of at least 100 Mbps, in contrast with Japan and South Korea
where according to latest data, 73% and 69% of total broadband connections are fibre. In
addition, connectivity in Europe is still overwhelmingly asymmetric, while upload speeds are
increasingly important for services, such as cloud computing.
As of July 2015, 70% of European households have basic broadband subscriptions; only 30% of
the households are subscribed to NGA above 30Mbps. The trend however, shows that Europeans
are rapidly replacing their basic broadband connections with NGA: in 2013 the only 15% of
European subscribed to NGA above 30Mbps, while 85% of subscriptions was to a basic
broadband connections
478
. Figure 13 showed how dramatically the take-up rate of connection
above 100 Mbps is progressing in countries where fibre networks are widely available. Take-up
projections of NGA in a 5-10 year timeframe vary, and show significant differences across
countries and technologies. For example, taking into account evolving coverage and propensity
to take-up NGA, IDATE preliminarily projects that nearly half of households across the EU will
take NGA technologies (FTTC, FTTH/B or Docsis 3.0 and successors) by 2020, and nearly two
477
Regulatory, in particular access, regimes for network investment models in Europe (SMART
2015/0002)
478
Source; Digital Scoreboard: https://ec.europa.eu/digital-single-market/en/connectivity
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thirds by 2025. However, there are significant differences between countries as shown in the
figure below.
Figure 83 - Projections for NGA (>30Mbps) take-up 2015-2025
Source: IDATE
As today not all NGA networks can deliver 100 Mbps, the picture above implies that without
appropriate investment incentives,
Europe is likely to miss the target of having 50% take-up
of 100 Mbps services by 2020.
As reported in the evaluation on
stakeholders' views
(section 7.1.1.) some Member States, the
European Telecommunications Network Operators' Association (ETNO) and the large majority
of the incumbents go as far as suggesting, via the public consultation conducted in light of the
review, that investment should be made an explicit objective, next to competition, given the
significant network rollout and upgrade needs in the coming years. This would imply amending
the framework; among others access regulation, to favour dynamic efficiency gains over static
ones. In areas where infrastructure competition is not viable, competition would be "for the
market" rather than "in the market". Many other stakeholders including alternative operators and
consumer associations stress, on the other hand that competition would not survive outside the
regulatory framework and that the latter should not favour investment at the expense of
competition (and thereby also at the expense of the consumer outcomes that go along with
competition).
However, the findings of the access study and the forecast summarised in section 1.5 seem to
show the legitimacy of the connectivity objective in the medium run.
6.14.4 What is the EU dimension of the problem?
The state of play and the European dimension of the connectivity problem There is a particularly
strong rationale for EU action in the context of the challenges of the DSM. Digital services
(including calls, messaging and entertainment) are increasingly offered on a pan-European or
even global basis. In turn, digital services for consumers and businesses rely on ubiquitous
connectivity, in some cases requiring VHC and/or reliability. Connectivity is a vital enabler for
the DSM
479
and warrants an EU-wide response, even if network deployments are mainly local in
479
See EC Digital Single Market
content/EN/TXT/?uri=celex%3A52015DC0192
Communication
May
2015
http://eur-lex.europa.eu/legal-
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nature. The figure
480
below gives an idea of the spillovers that are determined by communication
infrastructures on the wider European economy.
Figure 84 – GDP contributions from the Digital economy
Digital Single Digitalisation of
industry
market
+110bln pa
+€415bln
4% GDP
• Digital
economy
• Information
Communications
Technology (ICT)
• Communications
Infrastructure
1.3% GDP
The limited connectivity available in Europe already today negatively affects EU citizens',
businesses' and public authorities' capacity to produce, share and benefit from innovative digital
products and services. Moreover, the competitiveness of the wider economy, not least of
multinational companies based in the EU, is affected as high speed, high quality
communications services and networks have an economic effect across all business sectors in
Europe. As mentioned in section 1.2.1, it is important to take into account that
albeit networks
are local in nature,
(and will probably get even more local in the future with the proliferation of
small fibre operators such as in Sweden) the problem of
suboptimal investment is a European
problem,
as even local networks are financed from international and cross-border capital
markets. So despite the local nature of the networks, connectivity and investment have a clear
internal market dimension and the review should strive to induce policies which are more
favourable to investment without jeopardising the existing objectives.
According to the macroeconomic model elaborated for this study (see Section 4.1.1 and Annex
5), if all the preferred options are pursued as a result of the review
of the electronic communications framework, we expect expanded market-driven
investment and consumption and a cumulative effect on growth of 1.45% and on
employment of 0.18% in 2025, assuming that the reforms are implemented by 2020.
In general, digital technologies and ICT have been in the last twenty years an enabler for the
emergence and the expansion of new business models such as the sharing economy, crowd-
sourcing of ideas and solutions for large companies, mutualisation of software (SaaS), including
in the cloud. Experience from the
harmonisation of approaches
to previous generation
technologies and solutions, notably from the GSM Directive,
481
LLU Regulation,
482
and the
Leased Line Directive
483
suggests that clear and co-ordinated action at EU level to implement
best practice in relation to connectivity can provide an important stimulus for deployment and
take-up, raising the performance of the EU as a whole, compared with action that could be taken
by MS individually. This is illustrated by Figure 49, which shows how broadband take-up in
Europe expanded in the years following the adoption of the LLU Regulation in 2000, which
applied best practice methods for broadband promotion (until then applied only in a few
countries such as Germany) more widely across the EU.
480
481
Source: SMART 2015/0005,.
Council Directive 87/372/EEC
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31987L0372:en:HTML
482
Regulation EC 2887/2000 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32000R2887
483
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31992L0044
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Figure 85 - Broadband trends in Europe following the LLU Regulation (2000)
Source: WIK based on Cocom data (except 2002 – OECD) and extrapolations
The 2002 Framework generally enhanced the flexibility of market regulation to deal with
different economic circumstances in the MS (via market definition and SMP identification), and
the 2009 review enhanced technological and service neutrality in spectrum bands (in contrast to
the approach of the GSM directive).
This has allowed for a much more flexible and sophisticated approach to regulation, which can
take economically-based decisions on a case-by-case basis. Nevertheless there is still is a clear
need for a degree of EU-level steering to define bottlenecks and ultimately to meet common
needs . This is recognised in the current framework through a level of flexibility which allows
coping with new technological and market circumstances.
Several of the issues raised by the stakeholders and in the implementation experience involve
cross-border challenges, such as numbering needs and roaming issues in relation to IoT,
spectrum coordination and consumer protection, or businesses' need for seamless connectivity
across multiple sites and countries. For example, the lack of European cross border coordination
on the timing of allocation and assignment creates cross border interference problems and
prevents services developing across the whole EU territory.
The heterogeneity in the implementation at national level of consumer protection as a result of
different national legislation brought about by the current minimum harmonisation approach has
impacted the effectiveness and efficiency of the rules and reflects the need for a coherent
approach at EU level. Consistency in consumer protection standards across borders would avert
further fragmentation along national lines and facilitate compliance for multi-territorial
operations. Further harmonisation of end-user rights in the EU, coupled with deregulation where
warranted, should thus result in a modernised set of consumer protections rules, providing higher
confidence among end-users and making it easier for providers of communications services to
comply with legislation and reducing unnecessary compliance costs.
6.14.5 Baseline analysis: how would the problem evolve without intervention
This section complements and deepens the analysis of the baseline presented in section 1.5
As mentioned therein, the existing framework has delivered more competition, better prices and
choice for consumers, and spurred operators to invest in upgrading their networks at least in
some areas. Today virtually all EU citizens have access to basic broadband networks (97% fixed
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broadband connections according to the DESI index 2016
484
) and increasing numbers of citizens
and businesses have access to networks (Next Generation Access – NGA- connectivity)
allowing at least 30 Mbps download speed (70.9% NGA general coverage
485
in EU according to
DESI 2016 – see section 1.4.1 for more data). Only some countries, such as Malta, Lithuania,
Belgium and the Netherlands, already enjoy nearly comprehensive coverage of NGA networks,
in most of those cases probably mainly thanks to the competitive impulse provided by legacy
cable networks, which could be upgraded at relatively low cost
486
. NGA coverage in countries
which lack extensive cable has been slow to develop in many cases (Italy or Greece being
emblematic). Moreover, a large part of the NGA coverage beyond the cable footprint in many
countries (UK or Germany, for instance) has been achieved through only partial upgrades of the
legacy copper loop (FTTC), rather than full upgrades (FTTH/B). As investigated in study
SMART 2015/0002, the former approach may not be sufficient to cope with the data
consumptions under the most ambitious scenario forecast.
A key development since the framework was originally conceived is that legacy telephone and
cable (coaxial) networks, including the copper ‘local loops’, are in the process of being upgraded
with fibre and other solutions which improve broadband performance.
In terms of demand,
these enhancements are needed to enable customers to enjoy better quality
in online services including online video and cloud applications, as well as enabling multi-screen
viewing, which is becoming increasingly prevalent in European households with the
proliferation of devices as illustrated in figure 11 above.
Figure 86 - Europe IP Traffic and Service Adoption Drivers
Source: Cisco VNI Global IP Traffic forecast 2014-2019 – Europe includes Western Europe +
CEE, excluding Russia
According to CISCO, Global IP traffic will increase threefold over the next 5 years. Overall, IP
traffic will grow at a compound annual growth rate (CAGR) of 21 percent from 2013 to 2018
487
.
The widespread adoption of cloud services, the number of connected devices (IoT), the booming
M2M industry, contribute to further increase the traffic load on communications networks. In
484
The Digital Economy and Society Index (DESI) is a composite index developed by the European Commission (DG
CNECT) to assess the development of EU countries towards a digital economy and society. It aggregates a set of
relevant indicators structured around 5 dimensions: Connectivity, Human Capital, Use of Internet, Integration of
Digital Technology and Digital Public Services. For more information about the DESI please refer to
http://ec.europa.eu/digital-agenda/en/digital-agenda-scoreboard
485
NGA broadband coverage/availability (as a % of households) with Next Generation Access including the following
technologies: FTTH, FTTB, Cable Docsis 3.0, VDSL and other superfast broadband (at least 30 Mbps download)
486
Several studies highlight the role played by cable in stimulating NGA deployments including SMART 2015/0002,
WIK-Consult (2015) for fcom ‘Competition and Investment: analysing the drivers of superfast broadband’, and the
EP (2013) study ‘Entertainment X.0 to boost broadband deployment’
487
Source: CISCO VNI index, see:
http://www.cisco.com/c/en/us/solutions/service-provider/visual-networking-index-vni/index.html
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particular, as businesses and consumers exchange their data with the cloud, this will also lead to
a
modified demand pattern for upload traffic.
Hence, while most of the traffic will still be in
download, demand for upload will increase, as well as the need for lower latency for applications
such as cloud computing and e-health, parameters included in the VHC concept.
The trends explained above increase the demand for capacity and certain quality characteristic of
connectivity networks. There is an emerging consensus among industry players and investors
that in the medium and long run connectivity providers, both fixed and mobile, will have to rely
on (nearly) ubiquitous fibre infrastructures coming very close to users' premises, to support their
business, especially considering the expected requirements of 5G.
Gigabit connectivity
is also foreseen in projections by Deloitte
488
as a requirement to meet the
aggregate demand from
dozens of connected devices in a home.
This is becoming the norm in
European households where several users consumer bandwidth from several devices at once.
Deloitte further notes that “demand
for connectivity has evolved symbiotically: as faster speeds
have become available, the range of applications supported has increased and the viable
number of devices per person has steadily risen.”
In terms of supply
of NGA in commercially viable areas, forecasts from IDATE based on
market intelligence (see figure below) suggest that upgrades to NGA and VHC networks will
continue, but at a relatively gradual pace.
Figure 87 - Projected take-up of NGA by technology (to 2025)
Source: IDATE, SMART 2015/0002
IDATE projections suggest that by 2020 (see figure above), even under very optimistic
assumptions (assuming FTTC/vDSL delivers 100Mbit/s in practice), around 16 countries may
miss the DAE targets of 50% households taking up at least a 100 Mbps connection, and that
within the 16 affected countries the target will be missed by around 25m households. Under a
more conservative assumption, whereby only FTTH/B and cable are considered as reliably
offering more than 100Mbit/s, the gap in meeting the target would amount to around
27m
households.
In reality other advanced hybrid copper-based solutions may deliver the required
speed provided the local loop is sufficiently short. Countries with limited historic cable
competition such as Italy and Greece are included amongst those considered likely to miss the
488
Deloitte Technology, Media and Telecommunications Predictions 2016
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targets, while countries which have been characterised by strong FTTC, coverage could fail to
meet targets under the stricter assessment
489
.
This pace of development may be sufficient to meet the needs of some users, but is likely to limit
the potential for more demanding users including small business and home office users and may
not be sufficient to enable Europe to fully benefit from a connected economy and society. As
explained in more detail in the support study SMART 2015/0005, chapter 1, the demand for
data is booming and the scenarios considered are mostly rather conservative.
Concerning rural NGA deployment, existing regulatory practice and outcomes vary across the
EU as shown in case studies for SMART 2015/0002. If the current varying practices remain, the
current status of uneven rural deployment is likely to persist, resulting in patchy access in rural
communities to broadband capable of reaping the benefits from the social and economic
integration that digitisation may bring. This process is likely to have repercussions on public
finances, especially if accompanied by ageing population. Challenge areas could in theory be
addressed through public subsidies, but these are by no means sufficient. The costs of achieving
DAE targets also in rural areas are exposed above in section 1.11.1.
An estimate of the connectivity problem
in the future (2025 and beyond) can be inferred from
asking (1) whether there is likely to be a gap between bandwidth demand and NGA deployed;
(2) whether future demands can be met through incremental upgrades of existing copper and
coax (cable) networks or only through FTTH/B; and (3) the extent to which future mobile
technologies (5G) will be able to rely on fixed networks for backhaul and other data transmission
needs. The size of Europe’s bandwidth challenge can be seen most vividly by comparing where
we are today with what would be needed to benefit from all aspects of a connected society in
2025 as assessed in more detail in SMART 2015/0002 and SMART 2015/005
490
.
According to Samknows, average download speeds achieved in Europe in 2014 were
24Mbit/s.491 If investment in NGA technologies continues at its current levels, IDATE has
projected that average download speeds would reach around 200Mbit/s- by 2025,492 while
upload speeds would reach around 90Mbit/s. Based on trends in video and cloud usage under the
‘status quo’, IDATE has also estimated that bandwidth use in the EU may expand from 62GB
per line per month in 2025 to 298GB per line. 493 This may seem significant, and for households
used to experiencing restricted bandwidths,494 it may be appear enough.
As mentioned in section 1.5 there is evidence suggesting that in the telecom sector
demand
responds to supply,
495
and that restricted download and upload speeds may limit the types of
489
490
For additional deployment forecasts see , SMART 2015/0002.
In the context of the Expert Panel conducted under SMART 2015/005 – See Annex 13 for more detail, Prof. Brett
Frischmann observed that current demand expressed by end-users may fail to reflect the innovation potential in the
market, which could be unlocked through more performant infrastructure.
491
Page 115 Samknows for EC Oct 2014 Quality of Broadband Services in the EU
492
In the context of SMART 2015/0002 IDATE forecast likely uptake of NGA by technology to 2025 and based
speeds and speed growth per technology on the basis of Samknows data. According to Akamai speed measurements,
average speeds have been increasing by 16% per annum across a range of geographies. An alternative approach of
extending this projection would result in speeds of around 150Mbit/s in 2025.
493
SMART 2015/0002
494
Many Internet users are already experiencing challenges with the bandwidth they have available. Almost four in ten
respondents to the Eurobarometer survey of 2014 noted that they had experienced difficulties accessing online content
or applications as a result of insufficient speed of download capacities.
495
Data from the UK regulator Ofcom for example suggests that download bandwidth consumption for NGA (FTTC
and FTTP) networks was around two times higher than bandwidth consumption for non-NGA networks, with
significantly higher use of upload capacity. This evidence of higher usage being associated with the availability of
NGA is supported by the case study of Palaiseau in France, which has been the subject of a pilot trial for the switch-
off of Orange copper customers and migration to FTTH networks. In this case it was observed that the average
Internet traffic of range’s broadband customers as well as their consumption of video-on-demand was multiplied by
a factor of three. Importantly, this trial also resulted in fibre clients’ usage of upload bandwidth being increased 8
times, due to changes in Internet usage and an increased usage of cloud-based services.
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usage and applications that might otherwise emerge. In Sweden, following an early boost by the
central government, one out of every two municipalities is involved in fibre to the business and
fibre to the home deployments. This has led to very high take-up: as of July 2015, 68% of the
broadband connections in Sweden are NGA
496
, achieved predominantly through FTTH and
FTTB connections. Where FTTH is widespread, the availability of fibre makes extending fibre
to base stations far more feasible and efficient. This is well illustrated by the example of 4G in
Stockholm where the world’s first 4G deployment took place helped by the virtually 100% fibre
coverage.
497
If bandwidth needs are calculated on the basis of what might be required to run
certain applications, a case study of the German market providing a forecast for 2025 suggests
that an average user might require 150-500Mbit/s downstream with more than 100Mbit/s up,
while high-end users including those running small or home offices might require 1Gbit/s in
download and more than 600 Mbps in upload (see SMART 2015/0005). This bandwidth would
be used not only for multi-screen ultra HD video, but also for applications such as cloud and e-
health as well as for home working and small business needs.
Figure 88 - Model of market potential – Germany 2025
As shown in figure 14 data rates required by the most demanding users could reach 1 Gbit/s or
more on the downstream link by 2025, while a significant proportion of households and offices
could demand download speeds of 500-1000Mbit/s and 300-600Mbit/s upstream by 2025. This
scenario therefore sets the upper bounds for potential users (including business user) demands in
the medium term – though it is worth noting that even a less ambitious scenario will need the
fibre rollout to reach far deeper into most of the present networks.
On the subject of inconsistency in the implementation of the framework, there is evidence that
without further direction at EU level, this problem is likely to persist and may worsen, in part
because when new technologies and services emerge they lack the harmonisation that was
historically required through EU legislation, and may not achieve adequate levels of
harmonisation through voluntary standardisation alone. Concerns over the impact of
fragmentation on business users, in particular multi-national ones, provide an example of the
enduring nature of these problems and difficulties in using current tools to address them.
Concerns over fragmentation in the market for business communications were first raised in a
survey conducted by the predecessor to BEREC, the European Regulators Group (ERG) in
2009,
498
validated in a further survey published in 2013,
499
and have subsequently been
496
497
See annex 6.
Source: Vodafone’s call for the Gigabit Society, Dec. 2015
498
ERG report on the regulation of access products necessary to deliver business connectivity services ERG (09) 51
http://berec.europa.eu/doc/publications/2009/erg_09_51_business_services_paper_final.pdf
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1664252_0092.png
reaffirmed by business end-users in the context of studies for the EC in 2015
500
and 2016.
501
Yet
in an interview conducted in 2016 for SMART 2015/0002, INTUG observed that it still had
concerns over the ability of business issues to be effectively addressed under the existing
institutional set-up.
Concerning future generations of wholesale access products for residential customers and small
business, the experience of a new product designed as a partial replacement for LLU on NGA
networks, such as ‘VULA’ (Virtual Unbundled Local Access) or a WDM (Wavelength Division
Multiplexing) based access product provides a warning that without efforts to apply a European
‘standard’ (as was created with ‘local loop unbundling’ on copper networks) any future
technological upgrades in fixed access networks are likely to result in duplicate efforts to
develop new wholesale access solutions and divergent implementations at national level. As seen
with the past implementation of VULA, this may result in slow take-up of wholesale offers of
future generations of fixed access infrastructure and therefore – especially in the early phase -
reduced levels of choice for consumers in areas where competition cannot be delivered through
infrastructure-based competition alone. In turn, this may dampen take-up of new technologies in
the early deployment phase.
502
Lastly, in view of the fact that the preparation by NRAs of market analysis often coincides with
three year period between market reviews and results in delays of several years, the perpetuation
of the existing three year market review cycle, is likely to result in insufficient time for the
previous reviews to be confirmed and effectively implemented
503
and their effects to be known.
Additionally, the continued re-evaluation and re-calibration of regulation conflicts with the aim
of many regulators to provide longer-term certainty and potentially long-term remedies
504
in
order to provide more durable solutions that offer greater certainty to operators and investors.
Overall we can state that
a no change scenario would lead to a persisting digital divide for
citizens and SMEs,
sub-optimal economic development outcomes, sub-optimal allocation of
capital, lack of consumer trust in digital services, lower take up of innovation and loss of
competitiveness of EU industry. A review of studies on standard speed broadband suggests that
an increase of 10% in standard broadband penetration could contribute between 0.25% to 1.38%
to GDP growth.
505
There is also a small, but expanding body of literature highlighting how the
effects of faster broadband through fibre connectivity could boost growth further and offer a new
lease of life to rural communities
506
.
Promotion of the interests of end-users, including the provision of a safety-net through the
universal service obligations, is another principal objective of the regulatory framework, as it
499
500
WIK (2013) Business Communications, economic growth and the competitive challenge
SMART 2014/0023 Access and Interoperability standards for the promotion of the internal market for electronic
communications
501
SMART 2015/0002 access and investment
502
Evidence from standard broadband suggests that unbundling played a role in accelerating take-up in the early
deployment (but not later phase). It also had a positive impact on service quality. See unbundling the incumbent –
evidence
from
UK
broadband
Nardotto,
Valletti,
Verboven
(2015)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2505035.
SMART 2014/0024 also shows how NGA take-up could
have been accelerated if customers of entrants had been converted to NGA at the same rate as those of incumbents
503
This is especially true in the case of appealed decisions
504
Long-term discounts exceeding 3 years have been negotiated for wholesale FTTC/VDSL bitstream access in NL
and Germany. In France, one amongst a number of justifications provided by ARCEP in interview for SMART
2015/0002 for pursuing symmetric rather than asymmetric regulation to address fibre bottlenecks was the need to
provide a framework for longer term solutions (in this case on the basis of IRU)..
505
Among others: Crandall, R., Lehr, W., and Litan, R. (2007), The Effects of Broadband Deployment on Output and
Employment: A Cross-sectional Analysis of U.S. Data,
Issues in Economic Policy,
6; Czernich, N., Falck, O.,
Kretschmer T., and Woessman, L. (2011), Broadband infrastructure and economic growth,
Economic Journal,
121(552); Koutroumpis, P. (2009). The Economic Impact of Broadband on Growth: A Simultaneous Approach,
Telecommunications Policy,
33; Qiang, C. Z., and Rossotto, C. M. (2009), Economic Impacts of Broadband, In
Information and Communications for Development 2009: Extending Reach and Increasing Impact,
35–
50.Washington, DC: World Bank.
506
See for further studies SMART 005/2015
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ensures that consumers can participate in the digital society and fully reap the benefits of a
competitive market. Overall the framework has been successful in safeguarding consumer
protection, even when this is not fully translated in increased consumer satisfaction. Given the
increasing role of connectivity and electronic communications services in today's European
economy, it is important to continue protecting end users' interest.
Current rules on contracts content, duration and termination, transparency on tariffs, quality of
service and other conditions, potential minimum quality of service requirements, switching and
number portability have enabled consumers to take advantage of a competitive market.
Regarding switching, the number of porting transactions has increased, in particular in relation to
mobile numbers, with switching rates above other subscription-based industries, even if certain
practical implementation difficulties still affect consumers (e.g. loss of service during switching).
National rules have ensured transparency of information on services and prices by providers,
including in some cases the provision of online tools comparing prices and services; rules on
contract duration have been transposed so that the initial commitment period does not exceed 24
months, while also ensuring that providers offer users the possibility to subscribe to a contract
with a maximum duration of 12 months; some Member States have adopted detailed rules
regarding consumer protection safeguards in case of unilateral changes to contract conditions.
Despite the above, consumers still refer to issues related to transparency and quality of service,
in particular with regards to the internet access service. This problem is especially acute when
access to the internet service is bundled with other communications service, resulting in 24% of
consumers not finding easy to compare prices of bundles, while evidence shows that an
increasing number of consumers on most Member States opt for this service delivery mode.
The provisions on security and integrity of networks and services have contributed to
strengthening the European telecom infrastructure’s resilience and services availability across
the EU. Yet effectiveness of the provisions is not complete and this would be related to the fact
that security obligations cover only electronic communications providers.
As explained in the problem definition, only providers of traditional communication services
have to comply with sector specific rules safeguarding end-user's interests. Providers of
communications service over the internet (OTTs) are not subject to these sector-specific rights
and obligations, even when their services are used by the end-users to cover the same or similar
communications needs as the traditional electronic communications services.
Significant changes or further evolution of the problem are not foreseeable with regards to
services and end-user protection, absent further intervention at EU level. Uncertainty about the
scope of sector specific rights and obligations and gaps in consumer protection would persist,
which would in turn lead to a further fragmentation of the internal market and impede adoption
of new services.
Rules on universal service aim at providing a safety net ensuring that the most vulnerable in
society as well as those in more remote areas can receive basic services. They cover both
connectivity and service aspects, as well as the affordability of tariffs and accessibility for
disabled users. The provisions permit financing of any ‘net cost’ of universal service obligations
either through a levy on operators or through public funds, where such a net cost would
otherwise constitute an unfair burden to the designated Universal Service Obligation (USO)
operator.
In the absence of intervention at EU level, Member States would likely take increasingly
different approaches in universal service obligations by removing outdated services from the
scope. Consistency and coherence of the universal service regime across Member States would
reduce without a common approach towards the inclusion of broadband in the universal service
397
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1664252_0094.png
scope. The sectorial financing mechanism would continue being a possibility for financing. The
costs of financing the universal service obligation in the Member States would likely remain the
same, depending on possible national approaches. Looking towards future challenges which
could not be addressed in the absence of more consistent and effective intervention, the most
immediate and significant new technological development is the introduction of 5G (planned for
the early 2020s). Indeed, as an ongoing Commission study507 confirms, 5G is expected to
deliver 1 gigabit per second simultaneously to, for instance, many workers on the same floor. In
addition, it offers enhanced spectral efficiency, enhanced signalling efficiency and reduced
latency compared to 4G. 5G is also expected to be a key enabler for M2M communications and
the IoT.
The economic benefits of successful, fast and coordinated deployment of 5G across the EU are
very significant and they have been estimated at 146bn EUR per year and the creation of 2.39m
508
jobs
.
These estimates only consider the most immediate impacts of a delay including the
sectors that are most directly affected. It is likely that the full impacts of 5G would only
materialise at a later stage and that they would affect many more sectors of the economy. Later
deployment of 5G services would therefore also lead to delays in these ripple effects throughout
the wider economy.
A failure to achieve a single market in electronic communications can in itself impose
considerable costs. This is especially true for multi-national businesses, which require not only
the availability of connections in disperse locations, but also uniform conditions for
provisioning, repair and quality guarantees. In a 2013 study “Business communications,
economic growth and the competitive challenge”, WIK estimated that the creation of a single
market enabling the seamless provision of business communications services could lead to
efficiency gains and boost productivity providing economic benefits of up to €90bln per annum
over time.
509
Meanwhile, a 2011 study conducted for the EC – steps towards a truly Internal Market for e-
communications
510
– identified substantial benefits from greater ‘standardisation’ of solutions
within the EU, including: (i) Advantages for multinational corporations – making Europe a more
attractive location for headquarters, branch offices and production facilities; (ii) economies of
scale for manufacturers of telecoms systems, which could benefit from a lesser need for
customisation (iii) improvements in e-Health, e-Learning and business to business services. The
authors concluded that increased standardisation could provide annual gains of 0.3%-0.45%
GDP (€35bln-€55bln) and cautioned that failing to reach standardised solutions would affect
future pan-European roll-out as well as the development of premium over-the-top-services. The
study also examined the impact of harmonised ‘best practice’ in the promotion of competition in
telecoms, and concluded that a fully-harmonised European approach could provide gains of
0.22% and 0.44% of GDP (€27bln - 55bln) by delivering lower prices, higher quality and greater
investments.
507
SMART 2015/0003, Substantive issues for review: market entry, management of scarce resources, and general
end-user issues
508
SMART 2014/0008, Identification and quantification of key socio-economic data to support strategic planning for
the introduction of 5G in Europe
509
The gains are associated with a welfare gain from lower prices, efficiency gains from an improvement in ICT
processes and productivity gains through a reorganisation of business processes
510
Ecorys/TN /TU Delft (2011) ‘Steps towards a truly internal market for electronic communications’
https://ec.europa.eu/digital-agenda/en/news/steps-towards-truly-internal-market
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6.15
ANNEX 15 - Glossary and Bibliography
ADR: Alternative Dispute Resolution
ADSL: Asymmetric Digital Subscriber Line
ARPU: Average Revenue Per User
ARCEP: Autorité de régulation des communications électroniques et des postes
ASQ – Assured Service Quality
BCG: Boston Consulting Group
BEREC: Body of European Regulators
BEUC: Bureau Européen des Unions de Consommateurs (The European Consumer
Organisation)
CAGR: Compound Annual Growth Rate
CAP: Content and Applications Provider
CAPEX: Capital expenditure
CEPT: European Conference of Post and Telecom Administrations
COCOM: Communications Committee
CRM: Customer Relationship Management
DAE: Digital Agenda for Europe
DESI: Digital Economy and Society Index
DG CNECT: European Commission Directorate General for Communications Networks,
Content and Technology
DNS: Domain Name System
DSM: Digital Single Market
ECHR: European Charter of Human Rights
EC: European Commission
ECN: Electronic Communication Networks
ECNS: Electronic Communication Networks and Services
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ECS: Electronic Communication Services
ECTA: European Competitive Telecommunications Association
EFIS: ECO (European Communication Office) Frequency Information System
eMBB: enhanced mobile broadband
EP: European Parliament
EPG: Electronic Programme Guide
ERA: European Railway Agency
ERP: Enterprise Resource Planning
ERT: European Round Table for Industrialists
ESIF: European Structural and Investment Funds
ETNO: European Telecommunications Network Operators' Association
ETNS: European Telephone Numbering Space
ETSI: European Telecommunications Standards Institute
EU: European Union
EUR: euro (currency)
FCC: U.S. Federal Communications Commission
FTE: Full Time Equivalent
FTTB: Fibre to the Building
FTTC: Fibre to the Cabinet
FTTH: Fibre to the Home
FTTP: Fibre to the Premises
FTTx: Fibre to the x
FWA: Fixed Wireless Access
FWD: Framework directive
GDP: Gross Domestic Product
GHz: Gigahertz
GPS: Global Positioning System
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GPT: General Purpose Technology
GSM: Global System for Mobile Communications
GSMA: GSM Association
HFC: Hybrid Fibre Coaxial technology
HSPA: High Speed Packet Access
IA: Impact Assessment
IAS: Internet Access Services
IASG: Impact Assessment Steering Group
ICT: Information and Communications Technology
INTUG: International Telecommunications Users Group
IoT: Internet of Things
IP: Internet Protocol
IPR: Intellectual Property Rights
IPTV: Internet Protocol Television
ISP: Internet Service Provider
IT: Information Technology
ITRE: European Parliament Committee on Industry, Research and Energy
LLU: Local Loop Unbundling
LTE: Long Term Evolution
M2M: Machine-to-Machine
MEP: Member of the European Parliament
MHz: Megahertz
MNC: Mobile network code
MNO: Mobile Network Operators
MS: Member States
MSC/MNC: multi-site/multi-national corporations
MVNO: Mobile Virtual Network Operators
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NFV: Network Function Virtualisation
NGA: Next Generation Access
NIS: Network and Information Security
NRA: National Regulation Authority
ODR: Online Dispute Resolution
OECD: Organisation for Economic Co-operation and Development
OTA: over-the-air-provisioning
OTTs: Over The Top players
P2P: Peer-to-Peer
PATS: Public Access Telephony Services
PSAP: Public Safety Answering Point
PSB: Public Service Broadcaster
PSTN: Public Switched Telephone Network
QoS: Quality of Service
R&D: Research & Development
RSC: Radio Spectrum Committee
RSPP: Radio Spectrum Policy Programme
RSPG: Radio Spectrum Policy Group
SDN: Software Defined Networks
SIM: Subscriber Identity Module
SMA: Spectrum Management Authority
SME: Small and Medium Enterprises
SMP: Significant Market Power
SMS: Short Message Service
TFEU: Treaty on the Functioning of the European Union
TTE Council: The Transport, Telecommunications and Energy Council
US: United States of America
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USD: Universal Service Directive
USO: Universal Service Obligation
VAT: Value Added Tax
VHC: Very High Capacity
VDSL: Very-high-bit-rate digital subscriber line
VoD: Video on Demand
VoIP: Voice over Internet Protocol
VP: Vice-President
VULA: Virtual Unbundled Local Access
WDM: Wavelength Division Multiplexing
WLR: Wholesale Line Rental
4G: Fourth generation of mobile phone mobile communication technology standards
5G: Fifth generation of mobile phone mobile communication technology standards
403