Willingness to invest in telecommunications networks

Developments are currently taking place that ask more and more of telecommunications networks. Think of the explosive growth of new internet applications.

ACM’s role

ACM wishes that optimal investments are made in telecommunications networks. In its regulation of the telecommunications market, ACM wishes to stimulate the rollout of networks further. Our interventions thus influence the investment decisions of telecommunication companies.

Results of the online consultation

For six weeks, ACM put four provocative statements and questions online. The goal was to find out what investments are desired, and what ACM could do to avoid a reduction of the willingness to invest. ACM discussed with various parties, ranging from market participants to academics, about the willingness to invest in the telecommunications market.

Rollout of broadband networks in remote areas

Several participants in the discussion indicated that more investments in broadband networks are needed in rural areas. Local investment initiatives must be given enough room. ACM finds it important that these kinds of initiatives are organized as much as possible by the market itself. In areas where the creation of such networks would be unprofitable, municipalities or provinces could provide financial support. In 2013, the European Commission released guidelines that should stimulate the creation of networks in rural areas. ACM advises governments about how they can make sure that competitors have access to such local networks. ACM requires providers with market power such as KPN/Reggefiber to make their fiber-optic networks available for other providers. This will ensure that consumers continue to have enough options. In such cases, ACM makes sure that investors are able to achieve a reasonable return.

One or more telecommunication networks?

Several participants argued that it would be more efficient if there were only one national telecommunication network. Demand for telecommunication services continues to grow, which, in turn, asks more and more of networks. And the capabilities of networks increase as well. For example, the speeds of mobile networks continue to increase. This means that investments must continue to be made in the improvement and replacement of networks. ACM believes that if only one network existed, its owner would not have enough incentives to keep making investments in the improvement and replacement of its network. The regulatory framework is based on competition between networks. And with its regulatory efforts, ACM wishes to make sure there is.

Open networks

A number of participants think it is important that networks are open, leaving consumers with enough choices. Competitors are then able to offer consumers services over these open networks. Network owners can open up their networks on a commercial basis. Yet if providers enjoy a dominant position, they often lack the incentive to open up their network. How many networks can be created that are economically profitable varies per network type. If an operator enjoys a dominant position, ACM has the power to force that operator to open up its network against conditions that ACM sets. At this point, ACM has imposed such a requirement on KPN for its fixed network. ACM regularly assesses competition between telecom providers to see whether such interventions are necessary. In late-2014, ACM will issue draft decisions, which will shape the next few years. These will be published on ACM’s website, after which everyone will have the opportunity to react to these draft decisions.

Investments must be able to be profitable

Several participants said that too little competition may lead to too few incentives to invest. On the other hand, other participants said that there are situations where there can be too much competition. In those situations, prices are too low, and investments are no longer profitable. If competition is too fierce, the least efficient market participants will leave the market until the remaining participants are able to earn a reasonable return. For ACM, it is important that its regulation of networks does not negatively affect investments. That is why, in the implementation of its regulation, ACM makes sure that regulated parties, but also new entrants continue to have an incentive to invest. ACM does so by ensuring that regulated parties are able to earn a reasonable return on their investment, and that new entrants are not pushed off the market by too low prices from the regulated party.

Increasing regulatory certainty

ACM analyzes the telecommunication markets every three years. That long a period creates a great deal of uncertainty, some participants say. The payback period of investments is longer than three years. Furthermore, parties file appeals against almost all of ACM’s decisions. Such legal proceedings take a long time, thus creating uncertainty for a long time about the conditions that ACM sets.

In addition, it was mentioned that the burden of proof for ACM to open up a network is high. Taken together, these uncertainties negatively affect investment levels. One participant noted that it is possible to extend the period of a market analysis decision to six years from its current three years. The European framework in which ACM operates, uses that three-year period. It was based on the dynamic nature of the telecommunication markets, which tend to change a lot. In its market analysis decisions, ACM attempts to increase regulatory certainty, using an integral approach, and it is in discussion with market participants about the best way to do this in practice.

Furthermore, the Ministry of Economic Affairs (EZ) presented its vision for the future to the Dutch House of Representatives. Together with ACM, EZ will explore in what way the European framework should be adjusted in order to increase regulatory certainty as well as the incentives to invest. Moreover, ACM will give advice on the desired adjustments of that framework through the European collaboration of telecommunication regulators (BEREC). ACM will include the comments of the participants in the online discussion in its recommendations.