EU Telecommunications Policy - Case Study Example

EU Telecommunications Policy 2008 EU Telecommunications Policy Introduction The importance of the telecommunications industry for social and economic development of the European Union has been steadily increasing over the last two decades. Although the policy conducted by the European Union in telecommunications involves a broad set of political objectives, the key motive underlying the majority of reforms in the sector is liberalization of the telecommunications industry. The role of state in the European telecommunications sector has traditionally been immense because of the importance of telecommunications for internal and external security. The provision of facilities that ensure communication over long distances was reasonably perceived as unalienable function of the state: some authors used to address this function as a key element in the 'logistics of power' of the state (Mann 1986). Consequently, the sphere of telecommunications was regarded to be the natural monopoly of the state while administrations and enterprises that provided communication services traditionally belonged to the public sector. The only exceptions were Spain and Italy, where mixed public-private or fully private companies offered telecommunications services (Noam 1992). However, public monopoly over the telecommunications sector started to dissolve gradually from the early 1980s on. During only one decade from 1980 to the early 1990s, the majority of telecommunication monopolies in the countries of continental Europe transformed (though not fully) into competitive markets. This process was paralleled by the transformation of bodies and enterprises formerly controlled almost exclusively by governments into private organizations (Schneider 2000). Although the transformation had multiple causalities that involved a broad range of technical, social, political and other contributing factors, the key driving force highlighted by the researchers was the drive for liberalization and privatization that became the central tendency in Europe in the late 1980s (Noame 1992). A series of decisions and directives issued by the European Commission and the Council of Ministers called for transformation of the European market in general and telecommunications sector in particular in terms of market regulations, standardization, and procurement rules. These decisions and directives have "ultimately directed toward a near-total liberalization of all kinds of telecommunications networks and services within the European Union (EU) in the year 1998" (Schneider 2000, p.61) and laid the foundation for the current strategy applied by the EU members to regulate the telecommunications sector. The EU Telecommunications Policy: Origins and Current Situation The beginning of serious structural reforms in the telecommunications sector of the European Union can be traced back to the late 1970s with the current telecommunications policy being the result of gradual evolution those days until now. These three decades can be divided into several stages characterized by specific contents, developments and implementation patterns. 1977-1986: Early Reforms The need to address the issues related to the telecommunications sector in the European Community was first highlighted in 1977, but it was not until 1980 that the European Council received a proposal clearly with clear statement of such need. However, the amount of telecom issues raised by the document was rather limited: the essence of the proposal was harmonization of the development of new services while monopoly of the state and other essential problems remained unnoticed (Alabau 2006). As a result, the action plan that ensued from the proposal was largely industrial in its nature (envisaged only opening up the handset market) and did nothing to reduce the huge influence of state monopolies in the telecommunications sector. 1987-1998: Emergence of the First Telecommunications Regulations The Single European Act of 1986 enabled the Commission to exercise more control over the telecommunications sector which subsequently led to the introduction of free competition in the handset and added value service markets in 1987. Revision of the Act's provisions in 1993 was the result of the GATS negotiations: it defined the priorities in development of the telecommunications sector and set 1998 as the date for the liberalization of voice telephony segment that still remained a public monopoly. However, it was not until 1995 that the Commission and Member States finalized the process of approval of the decision to fully liberalize the sphere of European telecommunications starting from 1998 (Alabau 2006). However, heated struggles between opponents and advocates of privatization led to different outcomes. Thus, by 2000, Denmark and the UK fully relinquished ownership rights; Portugal and Spain retained a "golden" share; Ireland and Italy reduced their ownership to 1.1% and 3.5% of equity capital; Germany and France announced their plans for further privatization and liberalization of Public Telecommunications Operators but the process was delayed due to political troubles and instability of the stock market (Bauer 2005). The famous Information Society project had been designed and launched during that period. 1999-2005: First revision of the Electronic Communications Policy The year 1998 was marked by the introduction of full competition in the telecommunications, but rapid development of the sector, coupled with the political and economic changes in Europe led to subsequent revision of the Directives issued during the previous decade. The revision pursued two major goals: Reduction of the State involvement in the field of telecommunications and its replacement by free competition. Incorporation of the increasingly popular electronic communications in the EU telecommunications policy "to address aspects related to the convergence of infrastructures and interoperability of services" (Alabau 2006, p. 50). Eventual adoption of the new package of Directives in 2002 followed by the process of incorporating them into domestic legislations of the Member States continued up to 2005. This period coincided with the presentation of the Lisbon Strategy and the commencement of the famous eEurope initiative designed to modify the EU telecommunications sector to properly cover the sphere of Electronic Communications (Bauer 2005). 2005-: Second Revision of the Electronic Communications Policy In 2005, the Commission launched the process of revision of the Regulatory Framework of the EU Electronic Communications Policy. The objectives pursued by this new revision are fully congruent with those of the previous one, namely further harmonization of and convergence between various sectors of telecommunications and further reduction of non-market interventions in the field of telecommunications (Alabau 2006). One example of how these objectives affects the process decision-making in the EU telecommunications sector is the new Information and Communication Technologies (ICT) strategy, known as i2010. This strategy lists the priorities in development of EU information society as well as operation of EU media policies for the next three years. The priorities are set as follows: (1) the development of a single European information space which promotes an open and competitive internal market for ICT and media; (2) strengthening innovation and investment in ICT research to promote growth and more and better jobs; (3) achieving an inclusive European information society (European Commission 2007). These objectives logically continue the liberalization, privatization and harmonization tendency set almost three decades ago. Discussion The European Union's decision to develop a comprehensive policy in telecommunications was congruent with the central trend observed in economic, political and social spheres, namely globalization. Contemporary scholars continue to pay much attention to studying various aspects of this phenomenon, including its origins. One popular view of globalization stresses the role of policy choices associated with a broader program of neoliberal reforms. This explanation implies that globalization must be perceived as the international manifestation of the general shift towards market-oriented neoliberalism. The new tendency has replaced the social-democratic paradigm, and produced the growth of unregulated international capital markets, which occurs in parallel with ".the shift to free-market domestic policies such as privatization, capital market deregulation and the abandonment of Keynesian macroeconomic management" (Quiggin 1999, p. 248). The term 'neoliberalism' is comprised of two notions, namely neo meaning new and liberal meaning free from government intervention. Liberalism stems from the work of Adam Smith who, in the mid 1770s, advocated for a minimal role of government in economic matters so that trade could flourish. The mind set of liberal economics held sway for almost 200 years and was temporarily replaced in the 1930s by Keynesian economics which saw a place for government intervention. In the 1970s, liberalism, or the cry for deregulation, privatization and deletion of government intervention in the market economy, resurfaced with a vengeance; hence, the name renewed liberalism or neoliberalism (Martinez and Garcia 2000). Neoliberalism, which is also known as economic liberalism or economic rationalism, "has an interest, like liberalism, to provide reason to limit government in relation to the market" (Gordon 1991, p.6). This paradigm rests on the "beliefs in the efficacy of the free market and the adoption of policies that prioritize deregulation, foreign debt reduction, privatization of the public sector...and a (new) orthodoxy of individual responsibility and the "emergency" safety net - thus replacing collective provision through a more residualist welfare state" (Hancock 1999, p.5). Therefore, neoliberalism seeks its own ways to integrate self-conduct of the governed into the practices of their government and through the promotion of correspondingly appropriate techniques of self. It constructs ways in which individuals are required to assume the status of being the subjects of their own lives - the entrepreneurial self. Government impinges upon individuals in their individuality, in their practical relationships to themselves in the conduct of their lives and at the very heart of themselves by making its rationality the condition of active freedom. It opens up a new uncertain, often critical and unstable domain of relationships between politics and ethics, between government of others and practice of self. From this perspective, society is merely the product of government's intervention and not the cultures of its various constituent groups (Gordon 1991). Paradoxically, under neoliberalism, many western states have been reformed through government intervention. The neo-liberal explanation for the impetus for state sector reform locates it in a need to improve a nation's international competitiveness by increasing the efficiency of all sectors of the economy. Whereas under Keynesian welfarism the state provision of goods and services to a national population was understood as a means of ensuring social well-being; neoliberalism is associated with the preference for a minimalist state (Gordon 1991). The Success Story The major outcome of the policy implemented by the European Union over the last three decades is the emergency of free competitive market in the sector that has traditionally been dominated by state monopolies. Competition in its turn has immediately become a major driver for the technological innovations and greatly stimulated the inflow of investment in the telecommunications sector. Thus, Viviane Reding, the Member of the European Commission responsible for Information Society and Media and one of the leading experts in the field of telecommunications, outlines the following major outcomes of the EU telecommunications policy: Total investments in the European telecommunications sector reached 45 billion Euros in 2005, which is significantly higher than the level of investment in the US and the Asia Pacific Region for the respective period. The emergence of a pan-European telecommunications industry (Reding 2006). The Electronic Communications Policy currently implemented by the European Union is the product of long, complex and diverse process of evolution. The process was also painful because it had to consider not only the rapid development and convergence of telecommunications, information technologies and media but also the interests of the different economic and political players within the sector. The key problem, especially during the first stages of transformation, in this regard was the conflict between the liberalization of the European telecommunications sector and the existing public monopolies that had dominated the realm of telecommunications (Schneider 2000). However, this conflict did not have serious implications on the process of liberalization. Thus, some states (Germany and France) launched the liberalization effort domestically to adequately respond to the global tendency and eventually did not have difficulties adapting their domestic policies to the European policies. And those states governments of which did not respond to the global tendency in a timely manner (Italy) also had no other choice but to implement the European policies in their telecommunications industries though this process took them significantly more time and effort (Schneider 2000). The reluctance to base domestic telecom legislation on the ER regulatory framework was largely unjustified because such step paid off immediately. As Vivian Reding admits, "EU countries that have applied the EU rules in a timely and efficient manner, following the principle of competition, have clearly achieved the best results in terms of investment in new networks and take-up of new innovative services" (Reding 2006). The regulatory reform index of the OECD demonstrates that failure to deregulate the telecommunications sector in such manner results in less investment. Countries that timely and effectively incorporated the EU rules in their domestic telecom policies currently enjoy high investment in the electronic communications industry: 0.42% of GDP in the UK, 0.72 % of GDP in Denmark, and 0.79% of GDP the Netherlands. The same correlation is clearly observed in the broadband segment: the broadband penetration in the Netherlands, Denmark, Sweden and Finland where competition between cable operators and incumbents if strong exceeds 20 percent which is higher than in the US (Reding 2006). The strategic nature of the European Union's Electronic Communications Policy is another factor contributing to its success. As Alabau (2006) observes, "Since 1977, the Commission has remained one step ahead of the problems and almost always offered coherent and reasonable solutions for drafting a European Union Electronic Communications Policy" (p.311). Furthermore, these solutions were implemented in a highly reasonable and clever fashion. Thus, although liberalization efforts bound the Member States, the Commission did not specific any particular ownership regime: the choice had to be made by the national government in each particular case, but regardless of ownership regime the member states was obliged to observe the competition rules stipulated by the EU Treaty to create transparent competitive regulation (Clifton, Comin and Diaz Fuentes 2003). This approach helped the Member States avoid debates on the ownership issues and also reflected "the pragmatic stance that in most cases competition was more important than ownership for sector efficiency" (p. 163). Conclusion The EU strategy in the field of telecommunications is a comprehensive, effective and flexible that relies on a broad set of political, social and economic objectives with liberalization being the central one. Despite seeming complexity, it is a well-designed, absolutely coherent, and solid instrument that effectively performs its function. This assumption relies on several equally essential considerations. Firstly, within a relatively short time the policy eliminated public monopolies that traditionally dominated the telecommunications sector in Europe. Secondly, given the history of fighting monopolies in different sectors of economics, one might expect the process of replacing telecom monopolies would be long and painful. However, the process of liberalization went on smoothly and with relative ease. Thirdly, the effect of liberalization in the telecommunications sector was impressive: the level of investment increased dramatically while the EU telecommunications services became substantially cheaper. These evidences convincingly demonstrate that the EU telecommunications policy provides an exceptionally effective framework that successfully maintains the balance between state ownership and free competition. References Alabau, A. 2006, The European Union and its Electronic Communications Policy: Thirty Years in Perspective, Valencia Polytechnic University Bauer, J. M. 2005, 'Regulation and State Ownership: Conflicts and Complementarities in EU Telecommunications', Annals of Public and Cooperative Economics, Vol. 76, No. 2, pp. 151-177. Clifton J., Comin F., and Diaz Fuentes D., 2003, Privatisation in the European Union: Public Enterprises and Integration, Kluwer Academic Publishers, Dordrecht and Boston. MA. European Commission 2007, 'The Lisbon Strategy and the Information Society' [available online at http://ec.europa.eu/information_society/eeurope/i2010/docs/launch/lisbon_strategy_and_ict.pdf] Gordon, C. 1991, 'Governmental Rationality: An Introduction', in Burchell, G. Gordon, C., and Miller, P. (eds.), The Foucault Effect. Studies in Governmentality, Chicago: Chicago University Press. Hancock, L. 1999, Women, Public Policy and the State, Macmillan, Melbourne. Mann, M. 1986, The sources of social power: A history of power from the beginning to A.D. 1760, Volume 1, New York: Cambridge University Press. Martinez, E., and Garcia, A. 2000, 'Corporate watch - What is neoliberalism' [available online at http://www.globalexchange.org/campaigns/econ101/neoliberalDefined.html] Noam E. M., 1992, Telecommunications in Europe, Oxford University Press, New York. Quiggin, J. 1999, 'Globalisation, neoliberalism and inequality in Australia', The Economic and Labour Relations Review Vol. 10, No. 2, 240-59. Reding, V. 2006, 'The Review 2006 of EU Telecom rules: Strengthening Competition and Completing the Internal Market', Speech delivered at the Annual Meeting of BITKOM Brussels, Bibliothque Solvay, 27 June [http://europa.eu/rapid/pressReleasesAction.doreference=SPEECH/06/422&format=HTML&aged=0&language=EN&guiLanguage=en] Schneider, V. 2000, 'Institutional Reform in Telecommunications: The European Union in Translational Policy Diffusion', in Cowles, M. G., Caporaso, J., Risse, T. (eds.), Transforming Europe: Europeanization and Domestic Change, Cornell University Press, pp. 60-79. Read More