The 11th Digital Regulation Forum tackles Europe's lagging #internet speeds

€600bn is the price tag of the ambitious political broadband objectives put forward by the European Commission in its 2016 gigabit communication. Public funding available can likely not cover more than 10% of this amount. How to incentivize private investors to match the difference? This was the underlying question throughout the 11th two-day Digital Regulation Forum, the leading regulatory conference in Europe for the digital and telecommunication communities, co-organized by Broadband4europe and Barclays bank in London on 28-29 March. For the third consecutive year, ChinaEU took part in this event, hosting a panel discussion to introduce the Chinese approach to digital regulation and give an overview on China’s prolific environment of digital services.

Luigi Gambardella, Chairman of Broadband4europe and President of ChinaEU, opened the forum with the words of the famous Greek philosopher Socrates, who lived 25 centuries ago. Socrates claimed to be the most intelligent Athenian because he knew that he knew nothing. In the digital industries we are, he said, all like Socrates: the sector is evolving so quickly that we have, less than ever in the past, any certainty on what the future will bring us.

The Forum brought together experts and policy makers from Europe, the United States and China to share their views and perspectives and confront these with those of the stakeholders of the industry. The main topic was the new European Electronic Communications Code (EECC), currently discussed by the European Parliament.  Will these rules promote investment and the Gigabit Society, or, on the contrary, stifle investment and innovation? Opinion diverged. For example, Robert Pepper, Head of Global Connectivity and Technology Policy of Facebook, said that the extension of the EU regulatory framework to over-the-tops (OTTs) using telephone numbers would lead to technical problems and destroy the confidence in the new proposed rules.

The telecom industry is, by its very nature, global. In particular, the announced relaxation of the US regulatory framework applicable to information services will, in comparison, render investment in the EU even less attractive, said Roslyn Layton of the FCC Landing Team for President Trump’s transition team.

Fiber investment and 5G were high on the agenda of the Forum. The pervasive deployment of fiber will allow the deployment of 5G networks, which on its turn will enable a wide range of new services, most of which we can even not yet imagine today.

Investment in fiber is a pre-condition for this innovation cycle to start and succeed. China provides an interesting model in this regard.  Digital has been put very high on the agenda by the current political leadership, said Zhao Shuyu, Researcher at the Internet Law Center of the China Academy of ICT, the think tank of the Ministry of Industry and Information technology (MIIT). China’s 13th Five-Year Plan set a mobile broadband subscription rate of 85% by 2020. Home to the world’s largest 4G network and enjoying some of the highest fiber penetration levels, China has now bold plans to accelerate the development of 5G, expected to be commercialized by 2020.

Investors demand political predictability.  However, the EU merger control constitutes a major factor of uncertainty.  Whereas entry is strongly facilitated through the regulatory framework, exit is made increasingly difficult, since the sector started consolidating.  Benno Buehler, Analyst at DG Competition, reminded that mergers can be cleared only if sufficient commitments are proposed to remedy the competition concerns, which result from the elimination by the proposed merger of one of the few competitors in highly concentrated markets. This can involve, like in the Italian Hutchinson-Wind merger, helping the entry of a new operator in the market, said Gabriella Muscolo, Commissioner at AGCM, the Italian Antitrust Authority.

While financial analysts stress the need for consolidation of the mobile communications sector so as to allow sufficient critical mass to move on to the new 5G networks, competition authorities seem still reluctant to consider the efficiencies that can be brought about by in-country mergers.

For this reason, one needs probably to look for new models, said Luigi Gambardella. In particular, the wholesale-only model seems to be promising. Franco Bassanini, President of Open Fiber, explained in detail how Italy is increasingly relying on the wholesale-only model to attain the EU’s gigabit objectives. Bassanini’s full speech can be found here.

A question that was asked to Reinald Krueger, Head of Regulatory Coordination and Markets Unit at DG Connect, is why the proposal for a code falls short of empowering national regulation authorities (NRAs) to impose structural remedies such as legal separation. National competition authorities can impose ownership separation in case of abuse of dominance or as a condition to approve mergers. Why should national telecom regulators not have similar powers? However, Mark Shurmer, Managing Director of Openreach, Ben Wreschner, Head of Network and Economic Regulation at Vodafone Group and John Strand from Strand Consult strongly disagreed, stressing that the national regulators have already very intrusive tools. Krueger stressed that regulatory intervention should be the exception and that NRAs should first consider the least intrusive remedies.

5G will require further spectrum. However, Kalpak Gude, President of Dynamic Spectrum Alliance, stressed that if some governments continue to see spectrum auctions as a kind of ATM to take cash out of the mobile sector, the EU will again – as it happened with 4G deployment – be lagging behind. Chris Woolford, Director for International Spectrum policy of OFCOM, the UK regulator, added that contrary to what was the case until now, the spectrum earmarked for 5G already has users in several member states. Harmonisation of spectrum band will less be a priority, than exchanging best practices and new spectrum management models. For example, dynamic spectrum allocation.

The Forum was nevertheless not only dedicated to supply side aspects. Robert Pepper stressed that demand side policies were likely even more important on the basis of the data from the joint Facebook-Economist intelligence unit initiative, the inclusive Internet index, which allows to compare the relative situation of (nearly) any country in the world with that of others in terms of Internet usage and availability.

High on the agenda was also the heated discussion between over the top operators (OTTs) who claim to generate consumer demand for Internet traffic via their innovative services – and the telecom operators –who claim a larger share in the internet revenues based on their investments in costly networks on which the OTT services eventually run. Should the two side comply to the same set of rules and regulations? The European Commission proposes to level the playing field by imposing new regulation on OTTs in the form of additional obligations related to emergency calls and services interoperability. On the other hand, the US telecom regulator – the FCC -  is not keen to introduce new rules for its OTTs. This would be in line with China’s light-touch supervision of internet players, especially e-commerce platforms, domestic social media, mobile gaming providers and sharing economy applications, who appear to enjoy a relatively approach, aimed at ensuring innovation. But probably the most important reason behind the proliferation of Chinese Internet applications is the very high level of competition in the sector, which requires companies to continuously come out with new user-oriented innovations.

A case in point is WeChat, invention of the tech giant Tencent, today the most valuable brand in China with a valuation of 106 bn USD. According to Tom Griffiths, Creative Strategy Director at London-based digital marketing agency Qumin, WeChat was able to accumulate a user base of over 800 million people in less than 6 years by winning their trust. Differently from Facebook, only a small proportion of WeChat’s revenue is generated by advertising, making the platform more social and less commercial.  WeChat’s business model has become a role model for many of its counterparts in the West.

Ji Bo, Deputy Dean and Europe Representative of the Cheung Kong Graduate Business School, made a point by saying that regulation is often a way to eliminate competition. Answering to a question on the Chinese interpretation of the Western concept of Open Internet, Ji Bo responded that the control of Internet content in China is needed to maintain stability in in such a big country. Precondition for Chinese and foreign companies’ success in the local market is to build a good relationship with the government.

Alfredo Acebal, Vice President for Global Affairs at Huawei, noted that while in the EU and in the US regulators and the industry are fighting against each other, in China there is greater harmonisation thanks to the fact that both players are focused on a common objective, that is improving the end-user experience.

Innovation and user experience enhancement at core goals of the Chinese government regulator, said Claudia Vernotti, Director of ChinaEU. On March 6th China's three state-owned telecommunications companies announced plans to eliminate domestic roaming fees and offer pricing incentives to small and medium-sized enterprises, to encourage corporate customers to adopt network technologies such as could computing. In order to foster the development of internet society services and sharing economy solutions, the government appears to favor a “regulation-free first, problem-fixing later” approach. We can see this in the case of the bike sharing boom led by Ofo and Mobike – who let users rent and drop bikes wherever they want, using a mobile app to help them locate nearby available bikes - who after almost a year of uncontested growth, are now facing regulations that limit violations such as illegal parking and define liabilities of citizens, governments and service operators.

Finally, since the forum took place in London, the capital of the United Kingdom, the organiser of this year’s Forum could not escape from putting two extremely topical issues on its agenda: first, the legal separation between BT and Openreach, which was agreed mid-March.  Second, Brexit and its consequences for the digital industries. John Strand warned that if the legal separation of BT is smooth and successful, regulators from other Member States will follow OFCOM’s example and also consider legal separation.

Brexit was seen by Kumar Singarajah, Director for Regulatory Affairs & Business Development at Avanti Communications Group, both as a challenge and as an opportunity for the sector. Luigi Gambardella said that Brexit raised the question whether the cooperation bodies of EU regulators - RSPG and BEREC – should remain EU bodies, or whether it would be better to transform them into open, international bodies where the UK regulator could continue playing a key role as today.  He added that issues like cybersecurity are global and that major internet jurisdictions should also be involved in the current specialized bodies, aiming at coordination of member state policies. Gambardella advocated in this regard that ENISA – the EU’s specialised body on Cybersecurity – would be transformed into an international body of which China could become a member.

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