The New EU Trade Strategy Should Break Down Telecoms Access Barriers
The European Commission is set to present its new Trade Strategy this autumn and the removal of digital trade barriers is expected to feature prominently. As part of the strategy, the EU should seek to enable cross-border data flows, simplify customs and VAT rules, discourage forced data localisation and promote non-discriminatory access to networks.
The latter is an essential, but often overlooked, requirement for a vibrant digital economy as a competitive marketplace for communications services is a necessary condition for the growth of a vibrant Internet economy that is built on top of communications networks. International corporate users rely on connectivity for networks in support of online business processes and communications. Sensitive business information increasingly speeds across networks — including between cloud platforms and the sensor-driven Internet of Things. Demand is rising for unfettered, cross-border movement of proprietary corporate information within a secure and fully reliable environment. While this is all based on IP technology, those intra-corporate communications are not done over the public internet.
Despite existing trade agreements, some countries let dominant providers of wholesale transmission capacity exploit their market positions, driving up prices for communication and IT services and reducing competition and innovation. Wholesale access (also called special access) is for instance not available in a pro-competitive way in many U.S markets. This severely affects competition for end-consumers, but also the provision of business-to-business ICT services. (However, the U.S. Federal Communications Commission is looking into the matter and strongly considering taking pro-active steps to address identified problems in the special access market.)
Europe has a more competitive framework owing to the liberalisation since the 1990s which opened up national telecoms markets to foreign competition and investment. The International Telecommunications Users Group (INTUG) states in a 2015 submission to the FCC that over 90% of last mile business access services in the U.S. continue to be controlled by a few incumbents. Their unfettered control generates estimated profit margins of 60-170%, compared to the U.S. regulator’s last authorized rate of return which was 11.25%. The lack of access and competition harms everyone. Many business customers will be forced to use the local incumbent ICT service suppliers due to the lack of service-based competition.
EU trade negotiators can encourage trading partners to create frameworks in which broadband service providers and businesses can obtain access services for reasonable and non-discriminatory conditions.
The EU should moreover press for the independence of regulators, consistent with the GATS telecom reference paper, which the U.S. and EU have endorsed. They should seek elimination of equity caps in this sector as in all others.
Europe has already liberalised its electronic communications market and welcomed foreign competition. The new EU Trade Strategy should seek the same liberalisation of key trading partners’ telecoms markets. The Trade Strategy has the potential to establish here a fair global level playing field to the benefit of investment, innovation, growth and new job creation in all markets concerned.