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Content

Content......................................................................................................................i
Summary..................................................................................................................ii
Context of liberalisation and main objectives of EU’s ICT regulation................1
Evolution and outcomes of ICT regulation in the EU..........................................3
Conclusion............................................................................................................4
References............................................................................................................6

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Summary
This paper focuses on the liberalisation process that began in the late 1970s,
early 1980s in the European Union. The aim of the paper is to identify the main
objective of the ICT regulation which accompanied the liberalisation process and
to describe the outcomes of the emergence of regulatory regimes in national
telecoms sectors throughout the EU. In order to reach these aims the paper will
look at the general motives behind the drive for liberalisation of public
telecommunications, as well as describe the unique supranational institutional
setting of the EU and its interaction with Member State governments in the
process of liberalisation.

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Context of liberalisation and main objectives of EU’s ICT
regulation

Since the beginning of modern telecommunication systems – the telegraph, the


telephone – these technologies were available only under government supervision
in the form of either government departments, public enterprises or regulated
private monopolies (Hulsink, 1999). Furthermore, similarly to other public
network services, their status as natural monopolies was widely accepted due to
their strategic importance to national economies and security. However, when it
comes to liberalising public utilities, telecommunications are among the first to
undergo the process. Newberry (2001, 292): “telecom industries…are popular
choices…in almost every country – developed, developing, and transitional”.
Why so and what were the reasons for reform in the case of the EU?

Authors tackling this issues identify a connection between the wave of


liberalisation in Europe in the 1980s and cost-efficiency analysis of maintaining
the status quo, the ‘cost of non-Europe’ (Pauwels and Delaere, 2007). Eliassen
and Sitter (2008, 56) state that “technological change combined with the
comparatively low cost of failure and the relatively high potential for benefits
made this [liberalisation of telecoms] a likely choice.” The same authors have
come up with 4 economic and 3 political reasons behind the move from national
vertically integrated monopolies to regulation that shaped a common internal
European market for telecommunication. The large size, inefficiency and
complexity of the public sector were three of the economic arguments put forward
for the need to reform, a fourth being the agency problems associated to every
state owned enterprise. Politically, the ideological shift to the right of both voters
and parties, combined with increasing politician accountability due to pressures
from public finances and the European treaties concerning at free trade reinforced
the liberal tendencies and provided the grounds for policy change in Western
Europe.

The institutional setting of the European Union is unique and at that time the
Commission’s involvement in the liberalisation process from a supranational level
was unprecedented. The decision to act at a European level was motivated by the

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importance of the telecom sector: “The reasoning at that time was that the
European dimension could offer these sectors new prospects for growth and
competitiveness. In turn, these sectors could contribute to the realisation of a
European dimension in other economic sectors, such as micro-electronics,
consumer electronics, advertisement etc.” (Pauwels, Delaere 2007)

Similar reasoning can be identified when we take into consideration another key
factor – globalisation, which can be viewed as pressures arising from international
telecoms’ market dynamism and the technological advances happening in the field
(Humphries and Padgett, 2006). The first – market dynamism – shed light on the
benefits of free(er) international markets for telecoms, stressing that competition
is a “positive sum game” and emphasising the opportunities of growth that it
brought about, including positive spillover effects into other industries (e.g.
banking, shipping etc.). The second – new technologies – exposed the cracks in
the natural monopoly assumption. The so called “electronic alliance” 1 provided a
strong support to liberalisation (Eliassen and Sitter, 2008), much welcomed when
faced with the powerful national monopolies lobby. One can also consider as an
effect of globalisation the emulation, to some extent, of successful liberalisation
models – the American and the Japanese one – by European regulators and
competition advocates.

In light of the facts presented above – the political and economic context in which
liberalisation occurred in Western Europe and the additional factor of
globalisation – two conclusions seem appropriate. First, liberalisation and the
regulation of European telecoms was a product of both economic and political
concerns. As Eliassen and Sitter (2008, 56) observed “most of the actual
privatization processes have been shaped by practical concerns and political
games”. Second, the main objectives of the liberalisation and regulatory processes
were, on one hand, providing the necessary institutional frame for growth and
development of the telecommunications, as well as other crucial sectors of the
economy. On the other hand, politically, the objective was to pave the way for the
Single Market and the implementation of supranational policies, the competition
policy more precisely.

1
The “electronic alliance”, also cited by Pauwels and Delaere (2007, ) consisted of “large
corporate users, multinational companies and it equipment suppliers” (Eliassen and Sitter, 2008)

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Evolution and outcomes of ICT regulation in the EU

The steps the Commission took in order to establish the European regulation for
ICTs were proof of the shift of power from the national to the supranational level.
This trend would only become more evident with the refinement of competition
policy over the years and with the deepening of the European integration process.
It is interesting to asses the impact of EU’s ICT regulation by taking into account
the role the Commission played in relation to national governments during the
different stages of liberalising telecoms markets.

Different papers identify different stages to the liberalisation process. Thatcher


(2001) splits the process into three major periods: first, the EC entry into
telecommunications regulation (1979-1987), second, significant but modest
liberalisation and re-regulation (1987-1992) and third, establishing an extended
EC regulatory framework (1993-2000). Pauwels and Delaere (2006) have a
different, although not conflicting, view of the liberalisation process, with
deregulation, standardization and harmonization as main characteristics of the first
period (1985-1999), the development of competition and antitrust policy in the
second period (1990-2000), and addressing issues stemming from previous
inefficient regulation in the final period (1999 - present).

Just by looking at the time-frame assigned in these two classifications to the


specific periods in the development of ICT regulation in Europe one can notice
there is no clear strategy of action. Rather, the Commission used an incremental
approach and gradually built up power, frequently consulting, bargaining and
sometimes coercing or threatening to coerce countries into making the steps
necessary for liberalisation (Thatcher 2001, Humphreys and Padgett 2006).
European ICT regulation came about as a progressive liberalisation of terminals,
services and ultimately networks, and was achieved with the support of private
agents, other European institutions (the Council and the Court) and, not without
conflicts arising every now and then over specific directives, Member State
governments (Schmidt, 1998).

As a result of “political games” (Eliassen and Sitter, 2008) and given the variety
of capitalism in Western Europe, the outcome of the liberalisation process was

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uneven across the EU, in terms of type, pace and scope of regulatory regimes that
emerged. Many countries adopted the American system of national independent
regulatory agencies (NRAs) and were granted the liberty of choosing which
methods to use when implementing EU regulation. Therefore, while the
Commission claimed some victories and managed to dismantle the national
monopolies of the past and infuse competition in an increasingly free market, it
did not win the war.

With the digitalisation of telecommunications the existing framework of


regulation is pushed to its limit. Increasingly frequent technological changes and
market dynamics have led to the convergence of telecommunications, information
technology and the media, which in turn challenges the understanding of
traditional markets for these products. Now more than ever the diversity of
European regulatory regimes and the existence of independent NRAs is hindering
the functioning of the market, exposing the flaws in present EU regulation and the
need for a more flexible approach.

Conclusion

Regulation of telecommunications in the EU emerged as a response to changes in


the political mindset of the period and, more importantly, to provide the
institutional frame for growth and development of the crucial telecommunications
sector. While it is certain that the EU, through its various institutions, the
Commission in particular, was “a Principal political driving force behind the
transformations the ICT sector went through from the 1980s onwards” (Pauwels
and Delaere, 2006), it cannot be denied that “the EC’s entry into
telecommunications regulation was the result of cooperation between national
policy makers and the Commission.” (Thatcher, 2001)

As Schmidt (1998, 180-183) concluded, the European process of regulating


telecoms was highly influenced by the national governments, which is evident
from the diverse outcomes of the liberalisation, in terms of type, pace and scope.
Nonetheless, the Commission was able to capitalize on the various favourable
conditions in telecommunications (strong incentives to liberalise, due to market

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dynamics, new technologies, political ideology shift and public finance
constraints) and gradually implement the changes that led to the emergence of
regulatory regimes in the EU.

Today’s regulation in telecommunications is confronted with problems arising


from outdated and inadequate regulation and new evolutions in the markets and in
science. On one hand there are technological advancements, like broadband
internet or 4G mobile technology, that challenge existing regulation. On the other
hand, the efforts to shift form an ex-ante type of regulation to competition policy
continue. As differences between the approaches of EU regulation by Member
States persist, the process of harmonising and reforming European regulatory
regimes is far from over.

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References

Eliassen, Kjell and Nick Sitter.2008. Understanding public management. London:


Sage

Humphreys, Peter and Steven Padgett. 2006. Globalisation of the European


Union, and domestic governance in telecoms and electricity. Governance, 19(3):
383-406

Newbery, David M. 2001. Privatisation, restructuring, and regulation of network


utilities. Cambridge: MIT Press

Pauwels, Caroline and Simon Delaere. 2007. The political and regulatory
framework towards a European Information and Knowledge Society. In The
privatization of European telecommunications, Eliassen, Kjell and Johan From
eds. Hampshire: Ashgate.

Schmidt, Susanne K.1998. Commission activism: Subsuming telecommunications


and electricity under European Competition Law. Journal of European Public
Policy, 5 (1): 169-184

Thatcher, Mark.2001.The Commission and national governments as partners: EC


regulatory expansion in telecommunications 1979-2000. Journal of European
Public Policy, 8 (4): 558-584

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