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The Rt. Hon. Stephen Timms MP, Former Minister of State for Competitiveness
Chatham House Conference, London, 22 October 2007
I am delighted to be here – thank you for inviting me. I welcome the opportunity to return to Chatham House, particularly to speak to so eminent and international an audience.
I’d like to summarise recent developments in the UK, particularly our success on broadband, and then consider the lessons from our experience for the European Union, in particular for forthcoming Framework Review proposals.
When I was last Minister, in 2002-4, we had a broadband penetration among the lowest in the OECD. Today broadband availability is over 99% of households, and broadband take-up is over 50% of households. From being a laggard on broadband, the UK has become a leader. How has it been achieved?
It has been partly the result of wider availability of high bandwidth content, and phenomenal interest in social networking. Two years ago no one had heard of Facebook. Today there are 24 million regular users and the company is worth £10 billion.
But the key in the UK has been effective broadband competition, in particular through Local Loop Unbundling which followed functional separation within BT in 2005.
The background here is important, given the current debate in the European Union. Our regulator, Ofcom, had a clear goal for infrastructure-based competition at the deepest level in the network where it would be sustainable – providing scope for innovation and risk-taking, not just reselling of BT’s products and services.
Ofcom asked whether competitive forces – fixed-mobile convergence or other new, disruptive technologies – could remove BT’s historic monopoly control of fixed access by providing alternative end-to-end services. It concluded it was highly unlikely in the foreseeable future.
So then Ofcom looked at why prior regulation had failed to create sustainable competition in the UK. It concluded that the multiple regulatory interventions across the value chain of UK fixed telecoms had failed to provide fair access to the monopoly parts of BT’s network, to local access and backhaul where the bottlenecks are located.
Worse, the regulation was in part responsible for a weak and fragmented market structure. And for high levels of regulatory dependency amongst alternative operators.
Ofcom concluded that only an intervention focused on providing equivalent access to the bottleneck parts of the BT business would lead to sustainable competition. Getting the right terms for key access and interconnection products would be critical. The UK would in particular need to succeed - where it had previously failed - in establishing viable local loop unbundling.
Equivalence required more than just well-designed wholesale regulation. It needed behaviour change within BT, with BT staff having incentives to treat alternative operators’ businesses as equally valued customers alongside BT’s own downstream purchasing arms.
Ofcom concluded that this did not necessarily require full, legal separation, but that it did require a significant degree of functional separation.
If it could be delivered, then much existing regulation could be progressively removed. In particular, where equivalence of wholesale inputs was guaranteed and underpinned by behaviour change in BT, then Ofcom could start to remove downstream retail regulation which had been considered essential over the previous twenty or so years since BT privatisation.
That was the logical sequence that led to the regulatory settlement in September 2005. The BT undertakings have been in place for almost two years. The policy appears to be working well in practice. For example:
Its been a success in the UK, but is it a model for Europe? What is the relevance of UK experience as the European Union embarks upon the important review of the Telecommunications Framework, established in 2002? Would the same approach in other Member States improve their national broadband markets? And should the European Commission take steps to encourage National Regulatory Authorities to take steps like those Ofcom took in 2004?
I think the answer to these questions is “Yes”. Where similar issues around bottlenecks exist, functional separation could improve competition in EU markets as it has done in the UK.
I think it is right that the Commission consider steps, not to mandate but to empower National Regulatory Authorities to assess and, if necessary, require functional separation. So I am encouraged by recent remarks by Commissioner Reding referring to the success of the UK model, and suggesting that functional separation may have an important role in other member states.
And even before the Commission proposal are made, forms of functional separation have been proposed in Sweden and Italy, and other national regulators are considering it seriously too.
I hope such moves may make it easier for competitors to the large incumbents on the Continent to compete in those broadband markets on equal terms; just as, through Orange, France Telecom, for example, is increasing choice and improving services for users in the UK.
The current situation, where British and other European and international companies have to re-configure expensively wholesale products in order to compete in different EU markets, is not tenable in a “European Single Market”.
The simple availability of a functional separation remedy in the Framework, though potentially valuable, is not on its own going suddenly to transform the EU telecommunications market.
Other changes are needed in Europe to realise the full benefits of open and competitive telecommunications – helping our businesses compete globally, reaping productivity gains from innovative and competitive services.
This is the real challenge that Commissioner Reding faces as she puts the finishing touches to the legislative package the Council will consider on 15 November.
Let me set out what I would like to see in it. First, I would like the powers, responsibilities and competence of National Regulatory Authorities to be strengthened. I want a requirement that, like Ofcom, they must be financially and politically independent. It is not appropriate that, in some Authorities, staff salaries are paid by Government. Well resourced, independent National Regulatory Authorities in every country will go a long way in improving regulation.
Second, I hope Commissioner Reding will encourage more liberal, market driven, more flexible spectrum management. Given today’s innovative and converged business environment, it makes no sense for Government alone to determine what use of spectrum is the most economically efficient. I am not advocating a complete free for all. Care does need to be taken to avoid monopoly use or hoarding. But I hope market mechanisms will become the norm rather than the exception.
Government is not best placed to allocate spectrum, but neither is the Commission. I have every sympathy for Commissioner Reding’s arguments for flexibility by Member States in allocating the digital dividend spectrum – which has unique value for the communications market – but it would not be appropriate for the Commission to take it upon itself to decide how it should be allocated for communication and broadcast services across the EU.
Third, I hope the Commission will take the opportunity in this Review to reduce regulation where they can, and to streamline the notification process that National Regulatory Authorities currently have to follow.
I am pleased there may be a reduction in the Markets on the Commission list, with some traditional retail markets being removed. I don’t think it would be appropriate to remove the requirement to review wholesale markets. In Transit Markets, and Trunk segments of leased lines, regulation is often essential to competition at the retail level. I also hope the Commission will retain on its list, as originally proposed, the Mobile Access Market. Review there has encouraged mobile competition.
I am not looking for an increase in centralised powers in the Commission. Coordination and harmonisation are important, but it does not always need to be done in Brussels. A better way forward is a well resourced and respected grouping of national regulators, able and obliged to give authoritative opinions on how to promote competition and consumer choice in Member States.
Looking further afield – and further ahead – I want to highlight the importance of Next Generation Access networks, and of encouraging their growth.
Real change is taking place. Fibre is being laid to the curb and, in many countries, in the last mile to the home. Faster wireless networks are coming on stream. Mobile services are supporting richer data services.
We are also seeing, for consumers and businesses, increasingly innovative services to take advantage of higher bandwidth. I am not sure it is totally a case of “you build it and we will fill it” – though I am sure Ambassador Gross will have a view on that – but I do believe we are beyond the rather sterile argument as to whether there will be services to fill 100Mbits of bandwidth. Today I believe we can be certain that there will be.
How do we ensure Next Generation Access becomes widely available? Past lessons in this market may help us. In the UK, and in most of Europe, these new networks are not going to be built with Government money. Some may want that to happen, but I am not among them, and it is in any case not realistic to expect public investments on the necessary scale.
Instead we need to build the right environment for investment – one in which businesses are confident to invest. Regulation has a critical role: intelligent regulation that rewards investment in new infrastructure but does not create monopolies of provision. Regulation which requires appropriate access to ducts, or to dark fibre, but does not stifle new services.
Differing national situations call for different approaches. But I hope we can learn from one-another, policy makers and regulators, so that we do not make mistakes that reduce competition and choice.
In many places we have expended great efforts to unpick monopolies of the last mile in copper. We don’t want to go through it all again with fibre.
We need to continue the dialogue – in the EU, OECD, UN, ITU or in new fora, like the Internet Governance Forum meeting in Rio next month, an excellent initiative which emerged from the work of my colleague Alun Michael at the World Summit on the Information Society in Tunis.
In all those ways we can work together for the best possible networks for the largest possible number of people – for the success of our businesses, and the wellbeing of our citizens.
Thank you.