Cooperation between firms to deploy very high capacity networks

This CERRE Telecom report analyses the current regulatory framework and the need for cooperation within and beyond the telecom sector to speed up the deployment of fixed and mobile very high capacity networks (VHCN). The swift deployment of fixed and mobile networks is a top priority for the European Commission. To achieve this, substantial network investments are needed and the COVID-19 pandemic has only increased this urgency.

To accelerate investment in – and thus the deployment of – VHCN, telecom experts and authors of the report, Tony Shortall, Prof. Marc Bourreau and Winston Maxwell, recommend that EU policy makers promote network competition by facilitating competitive entry and lowering entry barriers.

“Facilitating competitive entry and lowering entry barriers should be a priority,” explains Tony Shortall, co-author of the CERRE report. “For this, we need to ensure access to infrastructure and infrastructure sharing. There are many mechanisms already available, but some of them should be revised to ensure they are not counterproductive.”

The report confirms that, in most cases, infrastructure sharing leads to lower costs for operators, it can encourage more investment and facilitate competitive entry. It notes though that infrastructure sharing may lower competition via coordinated effects such as information sharing or unilateral effects. In addition, lowering entry barriers by sharing passive elements seems a universally positive measure to stimulate investment.

The authors flag that there are significant differences across Europe between the regimes in place for fixed versus mobile network sharing and co-investment. With differing institutional structures, operators must navigate two regulatory pathways.

“Network sharing in a fixed context is generally governed by telecom regulation and regulators, network sharing for mobile is generally governed by competition law and competition authorities,” explains Tony Shortall. “Yet, the deployment of fibre networks and mobile 5G is interdependent. One can wonder whether this uncoordinated framework prevents costs efficiencies.”

The authors call for a more unified policy framework, covering both fixed and mobile network sharing. Within the European Commission, DG Competition and DG Connect have not aligned their policy objectives and regulatory provisions, which risks confusing markets. This could be resolved through closer collaboration. The report also shows that much of Europe’s regulatory framework is outdated and that measures are not streamlined with Europe’s connectivity objectives.

Finally, the report confirms Wholesale-Only (WO) operators have been effective entrants in many European markets, stimulating a positive investment dynamic. However, they warn of a risk of investment coordination and investment hold-out when it comes to the next wave of network investments. If the competitive response to WO is for the whole market to structurally separate, this brings risks to innovation and efficiency in the medium term that National Regulatory Authorities should guard against.

The authors recommend that the promotion of Wholesale-Only (WO) operators continues, particularly given their potential to revive declining VHCN markets, but only in contexts where other forms of infrastructure-based operators are present within the ecosystem to mitigate medium-term risks.

“Telecom networks are in the midst of a vast transition. The profound impact these changes will have on the sector demand fundamental changes to regulation. Given technological progress and the impact of the COVID-19 pandemic, the continued development of networks and network functionality will be central to the success of the European economy,” conclude the authors.

This report was presented and debated during a CERRE online event “Deploying very high capacity networks: competition rules and cooperation in the telecom sector“. With speakers from the Commission, industry players, regulators and academics.