EC declares “no need for State intervention” in broadband duopoly because there’s no market failure

May 28, 2009

In a significant blow to U.S. advocates of Government-mandated open access networks — over facilities-based broadband network competition — the European Commission (EC) just declared “no need for State intervention” in geographic zones where there are at least two facilities-based broadband network competitors, because that means “there is no market failure.”

  • The EC made the declaration in its just-released report:”Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks.” This is the EC guidance for spending economic stimulus funds for promoting broadband.
    • “2.3.2.2. “Black areas”: no need for State intervention (37) When in a given geographical zone at least two broadband network providers are present and broadband services are provided under competitive conditions (facilities-based competition), there is no market failure. Accordingly, there is very little scope for State intervention to bring further benefits. On the contrary, state support for the funding of the construction of an additional broadband network will, in principle, lead to an unacceptable distortion of competition, and the crowding out of private investors. Accordingly, in the absence of a clearly demonstrated market failure, the Commission will view negatively measures funding the roll-out of an additional broadband infrastructure in a “black zone”.

           

This is a highly significant development because proponents of a more Government-directed U.S. broadband policy, which includes mandating net neutrality/open access, routinely cite European policy as a model for the U.S. to emulate.

Far from viewing facilities-based “broadband duopoly” competition as a problem to be fixed, the EC emphatically sides against state support of a third Government-supported broadband network (like the Australian “Fiber Mae” proposal), as an “unacceptable distortion of competition and the crowding out of private investors.

It is ironic that some in the U.S. are calling for a more European-style state intervention in the broadband industry when the European Commission is declaring its desire to move in the opposite direction — away from state intervention in broadband deployment — in favor of facilities-based competition like the U.S. has achieved in most of the country.

  • “…it must be ensured that State aid does not crowd out market initiative in the broadband sector.” (Para (5))

Put another way, the EC aspires to achieve what the U.S. has already achieved, in that an estimated 80+% of American households have a facilities-based choice of either cable modem or DSL/fiber, and 90+% of American households have access to three or more broadband facilities (including cable modem, DSL, fiber, mobile and satellite broadband technologies).

As this latest EC Broadband Policy report indicates, the Europeans appear to be shifting away from their longstanding policy emphasis on deeply-discounted resale of incumbents on a wholesale open access basis toward trying to better promote facilities-based competition. The core reason for this policy shift is that private investment in super-fast next generation networks (fiber) in Europe has largely stalled because many EC nations’ incumbents see insufficient prospects for a return on wide-scale fiber investment.

In sum, fissures are showing up in the conventional wisdom that European open access resale competition has been more successful than U.S. facilities-based broadband competition.

  • If that conventional wisdom was correct, why would the European Commission be shifting their broadband policy emphasis from promoting open access resale competition to more closely emulating the facilities-based broadband competition success achieved in the U.S.?
  • And if that conventional wisdom was correct, why would the latest OECD data show that “the U.S. is no longer falling behind on broadband?”

What have the Europeans learned from experience that the D.C. conventional wisdom has not?

 

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