Why European Commission Deregulated Fixed Network Voice

Among the most-important considerations for any regulatory body is the fundamental health of the industries regulated.

The reason is that regulatory policies arguably should be lighter to foster the growth of a new industry, heavier in highly-concentrated industries at their peak and lighter again when an industry already is in decline.

But what often happens is that declining industries lobby for “protection” (which might be considered a form of regulation) when threatened, essentially propping up demand that otherwise might naturally shift at a faster pace.

The point is that flexibility (letting the market shape new demand) is needed most when new industries are struggling to be born, or conversely when an industry is in decline and resources must be shifted to new replacement lines of business.

In other words, though a common industry strategy is “protection,” or artificial support for falling demand, letting a market’s supply fall to match demand arguably is the rational choice. Still, the frequent choice is to “regulate less.”

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During the 1930s Great Depression, for example, U.S. regulators encouraged firms to compete less,  limiting price competition and restricting production, investment in plant and equipment and the workweek.

In essence, the government reversed its normal stance of seeking to prevent market concentration, and actually encouraged such concentration.

So one might argue different circumstances call for different regulatory approaches. When a new industry is growing, it might make sense to forbear from imposing regulations.

When an industry is established and there is danger of market power abuses, regulators might apply more stringent rules.

When an industry is in great trouble, regulators often seek to protect the industry by again loosening rules.

Neelie Kroes, the outgoing European Commission digital agenda commissioner, arguably illustrates the application of the principle.

“It is not a healthy sector,” she says of the EC telecom industry.

In the voice services area, the EC says a shift of calling to mobile, VoIP and over the top messaging (with voice), competition has increased dramatically.

For that reason, EC authorities have decided that two telecom markets should no longer be subject to regulation in Europe, and that two more should be redefined to reflect market and technology developments.

Segments that have been deregulated include retail fixed telephony and wholesale markets for fixed call origination.

The Commission also redefined two broadband markets, in order to limit regulatory burdens to that necessary for competitive broadband access and investment.

The new rules recognize that “virtual access products” can be considered substitutes to physical unbundling when they fulfil certain characteristics.

Those customers who still use fixed telephony also are now able to purchase fixed access from a number of different platforms, such as traditional telephone network, fiber or cable networks, and also from alternative operators offering broadband and voice services over unbundled local loops, So deregulation is possible, the EC says.

Some might argue that, not only is deregulation possible, it is necessary so that service providers can invest capital elsewhere, to support high speed access, for example, while adjusting voice prices as required to harvest what remains of the business.