Investment in new technologies in markets of electronic communications – can it live together with regulation? (Part 2)

But this does not seem to be the end of the story yet. Last Friday a Deutsche Telekom spokesman said that DT was still not satisfied with the situation, i.e., the fact that the VDSL market will be regulated. In addition, the French Industry Minister Francois Loos has said lately that the government is examining an industrial policy that will favour investments by France Telecom and other telecom network operators for high-speed internet. In an interview published on Monday in La Tribune he stated that he would not want the service providers to decide not to invest in new technologies in markets of electronic communications out of the fear that their networks would be opened up to competitors which do not have the same cost-risk. It is significant to point out that this statement comes after France Telekom cut its 2005 revenue guidance (again!). Well it is clear that France is rather restricted as to how exactly this new industrial policy could look like – as long as there is the current European regulatory framework which foresees regulation in the discussed markets, France will remain limited as to whether the regulation of those markets could be relaxed. Therefore, this statement clearly means that France will do everything possible to influence the review process of the regulatory framework in order to achieve that the new regulatory framework will allow denying competitors access to networks in those markets. The European Commission still seems to remain in favour of the main ideas behind the current regulatory framework. The main arguments are the huge price decreases and more choice to consumers as a result of increased competition over the last few years. Furthermore, it is also pointed out that the calls for allowing regulatory holidays do not come from for example the Nordic countries which are most successful for opening up markets to competition, decreasing prices and ensuring levels of penetration, which are amongst the highest in the world. It is pointed out that the countries which seem to be very keen on not allowing competition in markets which require high levels of investments, for example Germany, are doing not so well in terms of those criteria when compared with the rest of Europe. In addittion, another strong argument used by the Commission is that the competitors of Deutsche Telekom, for example, United Internet, have offered to co-finance the required investment in the VDSL markets. Therefore, the argument used by Deutsche Telekom that if access to their networks is allowed in those markets the competitors would be free-riding on the DT investment simply fails: if the competitors take part in co-financing the investment the cost of innovation is split up equally amongst all the involved firms. However, one also cannot forget the US model which foresees much less regulation of markets of electronic communications, especially those requiring high levels of investment. Nobody has ever claimed that the EU model is any better than the US model. Maybe the US model offers ‘the ultimate solution’ to this debate? Furthermore, the European Commission will not be able to ignore the two most influential Member States of the European Union in their calls to allow regulatory holidays for certain markets which require high levels of innovation costs during the review process of the regulatory framework. This is even more so if they manage to persuade the public that more regulation can lead to less investment…