European Commission and access regulation

The European Commission has called for a review of the new communications framework. Well it seems like they have some weird idea of how open markets will create consumer choice for access infrastructure.

In prose I expect they understand better than the direct way I usually communicate ;-) I tried to press upon them that infrastructure is inherently a natural monopoly and should be regarded as such. Failure to do so will destroy a lot of capital and hamper further innovation simply because it creates unrest in the market and uncertainty for service providers who are supposed to bring innovations to the consumers.

From the response:

”The cornerstone of the regulatory framework, competition between infrastructures is not economically viable or sustainable in physical access networks. This policy hampers investments, creates uncertainty because a destructive price war is foreseen by all players. It drives them to seek regulatory intervention to secure de-facto monopolies. This prediction is based on economic analysis and observing previous infrastructure investment cycles.”

As anyone who has studied the economics of infrastructure in general and access infrastructure in specific knows that the investment for access is so great that the market pressure is immense to fully utilise that infrastructure.

From the response:

“Study of investment in infrastructure from the railways in the USA to recent Internet access investment consistently shows that investment in infrastructure in general and especially access infrastructure leads to an all-out war for dominance, a war driven by the necessity to raise utilisation to 100%. Parties that lose in this war are either removed from the field entirely or find their assets bought out of a bankruptcy sale at a fraction of their worth, destroying investments and fuelling another round of price wars. History shows that such price wars lead to much uncertainty for consumers, loss of investments and no innovation.”

Now why would the nice people in Brussels come to any other conclusion? Well that is because they look at the current telecoms market and see a co-existence if telcos and cablecos. Forgetting that this only came to be because until recently each had their own market for their own product. Now they are fully on each other’s turf they are busy kicking the other out.

From the response:

“The current status is an artefact, created by liberalization of the two networks which started with a de-facto monopoly on exclusive services (telephony, TV). Competition on broadband as we have seen had not possible without the platform created by these de-facto exclusive monopolies. This artefact cannot be used as a basis for a policy for the future. Policy should be based on insights in the economic forces at play in such a market and knowledge gained from earlier infrastructure investment cycles.”

Now let’s hope they listen.
You can find the full response on the EemValley website