Saturday, October 11, 2014

EC Deregulates Fixed Network Voice Because Voice is "Going Away"

One of the key characteristics of competition in any market directly affected by the Internet, and that is most markets, is that old boundaries become quite porous. Where it might once have been possible to clearly define “who our competitors are,” that is tougher in Internet-affected markets.

“Telcos” now routinely compete not only with other fixed network providers, but also mobile service providers, cable TV companies, DirecTV, Skype, Google and WhatsApp. Sometime relatively soon, some telcos will compete with Facebook as well.

Some telcos compete with Netflix and YouTube as well, the simple reason being that, over time, effective substitutes become more prevalent.

There are important regulatory implications, since communications regulators always have a dual role.

Among the most-important considerations for any regulatory body is the fundamental health of the industries regulated, the counterpoint to promoting and protecting consumer welfare and interests.

And there is room to argue that the fundamental health of the communications services industry is an open question, under dynamic conditions. Why as the European Commission deregulated fixed network voice services?

It isn’t just that plenty of competition exists. The EC also is facing declining revenues for the whole industry. Sooner or later, that means less ability to invest in the next generation of facilities.

To reiterate, EC regulators have twin objectives. They must protect consumers and promote consumer welfare. But EC regulators also must try to ensure the fundamental ability of the industry to keep investing.

It might not be easy to balance the twin objectives. But maintaining balance arguably is harder under conditions when end user demand is shifting, undermining industry revenue streams.

To be sure, regulators have the obligation of protecting consumer welfare. But they also have the obligation to ensure the industry supplying communications remains viable and healthy.

That is a point recently reiterated by the European Commission's Digital Agenda staff.

“Regulation must be targeted and balanced in a way that addresses the true obstacles to effective competition in the sector: an excessive regulatory burden on operators would stifle investment and innovation,” a Commission paper argues.

“Too little regulation” also can be a problem, if it limits competition. “Regulation must promote...efficient investment and innovation in the interest of end users,” the staff paper argues.

Also, a  “dynamic and forward-looking” approach that recognizes evolving market conditions also is necessary, the paper

In other words, markets might be effectively competitive, without additional regulation. Barriers to entry might likewise disappear over time, either for technological reasons or because earlier policies have succeeded.

Intermodal competition, as when facilities-based cable TV providers or independent Internet service providers enter a market are able to compete with telcos, can change competitive dynamics as well. In other words, effective competition can exist even when formal regulatory mechanisms are not in place.

Convergence of previously distinct markets also could increase competition. Also, end user demand changes over time.

That is why the EC recently decided to deregulate voice services within the European community.

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