Investment in new technologies in markets of electronic communications – can it live together with regulation? (part 1)

This will be a very significant year for the development of markets of electronic communications – the review process of the existing regulatory framework has been started. The new regulatory framework will determine how those markets will develop during at least five years after the new framework comes into power. However, this will definitely also leave a significant impact for at least the next couple of decades: the reason for that is that right now is the moment when the technological advances are about to revolutionise the markets of electronic communications. As a part of the debate to find the best solutions to reform the existing framework a new issue has arisen, namely, whether the investment into new technologies in markets of electronic communications should not be exempted from regulation (which is not possible now). The clearest example of this clash of interests has been the previously described case of the VDSL market development plans by Deutsche Telekom. The case can be summarised in the following way: Deutsche Telekom and the German government were seeking to exempt the VDSL markets from regulation. The main argument was that if competitors of Deutsche Telekom were allowed access to the VDSL infrastructure they would be able to gain unjustifiable profit as a result of the Deutsche Telekom’s 3 billion Euro investment. Furthermore, it was claimed that this would preclude Deutsche Telekom from effectively recouping the invested capital. However, the European Commission pointed out that the current regulatory framework does not allow such a general exemption. It was claimed that the so-called regulatory holidays for Deutsche Telekom would lead to a factual monopoly situation. This would in turn damage consumers and lead to stagnating markets with low levels of innovation and investment (i.e. a situation similar to that which most European countries experienced before the relatively successful attempts of the European Commission to liberalise telecommunications markets). This dispute now seems to be settled – the German authorities and the Commission reached an agreement in which the Commission agreed to exempt those markets from regulation which could truly be considered as emerging markets such as internet television (and as a result, this would not be in conflict with the existing regulatory framework).