The European Commission will next week face a test of its commitment to creating a competitive telecoms market in the EU. 

On 21 October the Commission has to say whether it backs a decision by Italy’s telecoms regulator AGCOM to increase wholesale charges for telecoms service providers using the local loop.

AGCOM has approved an increase in the wholesale rate to €9.48 per month from 1 January 2012, up by 24% from the end of 2009.

The European Competitive Telecoms Association (ECTA), which represents new entrants to the telecoms market, is calling for the Commission to take action against such wholesale-price increases.

Ilsa Godlovitch, a director at ECTA, said it was time for a “crackdown on excessive wholesale charges”, so as to make broadband affordable and to meet ambitious targets for take-up of high-speed broadband.

One of the goals of the European Digital Agenda, agreed by EU governments in June, is for 50% of users to have access to broadband with a speed of 100 megabits a second.

Godlovitch said consumers would face higher prices and dominant firms would not invest in renewing copper networks if they were allowed to make “super-normal profits” from assets inherited from the days of telecoms monopolies. Wholesale charges for access to the local loop make up a major part of retail charges.

Setting a precedent

The European consumers’ association BEUC is also calling on the Commission to take action on the Italian regulator’s decision.

Kostas Rossoglou, legal officer at BEUC, said that the Italian regulator’s decision could “set a precedent in Europe allowing incumbent operators to continue to exploit revenues from the copper network, rather than investing in the roll-out of next-generation access networks”.

He said such practices would “further slow down take-up of broadband” and “undermine competition in the telecoms markets at the expense of European consumers”.

Rossoglou said allowing the Italian regulator’s decision to stand would “run contrary to the objectives of the Digital Agenda and the recently adopted Broadband Package”.

Many incumbent telecoms companies – former state-owned monopolies – argue that they need increases in wholesale charges in order to invest in new networks. But new entrants to the market argue that as long as incumbents continue to be allowed to increase wholesale charges, they are actually discouraged from upgrading their networks, as they can continue to make healthy profits from their existing copper assets.

Methodology

The Commission cannot veto the Italian regulator’s decision, but it could indicate that it does not agree with the decision or the method used to calculate the new rate.

National regulators are obliged to take “utmost account” of the Commission’s opinion. AGCOM has based the increase on a move to a methodology that involves the cost of building a new copper network today rather than the historical cost of the existing network.

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