The Governance of Telecom Markets:

Economics, Law and Institutions in

Europe 1st ed. Edition Antonio
Manganelli
Visit to download the full and correct content document:
https://ebookmass.com/product/the-governance-of-telecom-markets-economics-law-a
nd-institutions-in-europe-1st-ed-edition-antonio-manganelli/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

The Economics of Financial Markets and Institutions

Oren Sussman

https://ebookmass.com/product/the-economics-of-financial-markets-
and-institutions-oren-sussman/

Book Markets in Mediterranean Europe and Latin America:

Institutions and Strategies 15th-19th Centuries
Montserrat Cachero

https://ebookmass.com/product/book-markets-in-mediterranean-
europe-and-latin-america-institutions-and-strategies-15th-19th-
centuries-montserrat-cachero/

Book Markets in Mediterranean Europe and Latin America:

Institutions and Strategies (15th-18th Centuries) 1st
Edition Montserrat Cachero

https://ebookmass.com/product/book-markets-in-mediterranean-
europe-and-latin-america-institutions-and-strategies-15th-18th-
centuries-1st-edition-montserrat-cachero/

Sustainable Finance in Europe: Corporate Governance,

Financial Stability and Financial Markets Danny Busch

https://ebookmass.com/product/sustainable-finance-in-europe-
corporate-governance-financial-stability-and-financial-markets-
danny-busch/
Financial Markets and Institutions 12th Edition

https://ebookmass.com/product/financial-markets-and-
institutions-12th-edition/

Capital Markets Union in Europe Danny Busch

https://ebookmass.com/product/capital-markets-union-in-europe-
danny-busch/

Financial Markets and Institutions 5th Edition Coll.

https://ebookmass.com/product/financial-markets-and-
institutions-5th-edition-coll/

An Institutional History of Italian Economics in the

Interwar Period — Volume II: The Economics Profession
and Fascist Institutions 1st Edition Massimo M. Augello

https://ebookmass.com/product/an-institutional-history-of-
italian-economics-in-the-interwar-period-volume-ii-the-economics-
profession-and-fascist-institutions-1st-edition-massimo-m-
augello/

(eBook PDF) Financial Markets & Institutions 13th

Edition

https://ebookmass.com/product/ebook-pdf-financial-markets-
institutions-13th-edition/
PALGRAVE STUDIES IN
INSTITUTIONS, ECONOMICS AND LAW

The Governance of
Telecom Markets
Economics, Law and
Institutions in Europe

Antonio Manganelli · Antonio Nicita

Palgrave Studies in Institutions, Economics
and Law

Series Editors
Alain Marciano
University of Montpellier
Montpellier, France

Giovanni Ramello
University of Eastern Piedmont
Alessandria, Italy
Law and Economics is an interdisciplinary field of research that has
emerged in recent decades, with research output increasing dramatically
and academic programmes in law and economics multiplying. Increasingly,
legal cases have an economic dimension and economic matters depend on
rules and regulations. Increasingly, economists have realized that “institu-
tions matter” because they influence economic activities. Increasingly, too,
economics is used to improve our understanding of how institutions and
how legal systems work. This new Palgrave Pivot series studies the inter-
section between law and economics, and addresses the need for greater
interaction between the two disciplines.

More information about this series at

http://www.palgrave.com/gp/series/15241
Antonio Manganelli • Antonio Nicita

The Governance of
Telecom Markets
Economics, Law and Institutions in Europe
Antonio Manganelli Antonio Nicita
European University of Rome Libera Università Maria SS. Assunta
Rome, Italy Rome, Italy

ISSN 2662-6535     ISSN 2662-6543 (electronic)

Palgrave Studies in Institutions, Economics and Law
ISBN 978-3-030-58159-6    ISBN 978-3-030-58160-2 (eBook)
https://doi.org/10.1007/978-3-030-58160-2

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer
Nature Switzerland AG 2020
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights of
translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and retrieval,
electronic adaptation, computer software, or by similar or dissimilar methodology now
known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specific statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information
in this book are believed to be true and accurate at the date of publication. Neither the pub-
lisher nor the authors or the editors give a warranty, expressed or implied, with respect to the
material contained herein or for any errors or omissions that may have been made. The
publisher remains neutral with regard to jurisdictional claims in published maps and institu-
tional affiliations.

This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG.
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 Preface

The governance of telecom markets results from a complex dynamic inter-

action between technology, economics and the law. Disruptive innova-
tions, swift market dynamics and policy shifts exacerbate this complexity,
making it increasingly challenging to get a sound understanding of the
sector, its many dimensions and coevolutionary patterns.
Our intent is to provide, in one succinct book, a critical comprehensive
summary of the coevolution of telecom markets, rules and public institu-
tions over the last 25 years, with a focus on the challenges that regulators
and policy makers have been facing. Even if the perspective of the book is
European (as we examine EU law), most of the economic and institutional
issues addressed are common to all telecom markets in advanced
economies.
The book’s introduction deals with the Long Wave of Telecom Markets
Liberalisation. It provides a conceptual and thematic framework to the
following analysis but could be also read as a stand-alone paper. The ensu-
ing chapters expand on specific arguments raised in the introduction and
are grouped in two parts: I. Pro-competitive and Pro-Consumer Rules,
and II. Promotion of Investments and Technological Innovation. In addi-
tion, thematic boxes are included throughout the book to elucidate some
specific relevant issues.
The book addresses some traditional fundamental topics in the telecom
regulation literature, as well as some hot-button topics in the current pol-
icy debate, e.g., development of 5G and ultrafast broadband networks, the
relationship between investments and competition, the digitalisation of

v
vi PREFACE

the sector and the OTT’s role. We only briefly touch upon the wider digi-
tal economy and the challenges posed by digital platforms, as this will be
the subject of a specific forthcoming publication dealing with a regulatory
approach to digital capitalism.
This book is based on our academic research as well as on our profes-
sional experience as civil servants in regulatory and competition authori-
ties at national and EU level. For many fruitful discussions around these
topics, held in different occasions over the years, we would like to thank:
Giuliano Amato, Laura Ammannati, Filippo Arena, Filippo Belloc,
Delphine Bernet-Travert, Erik Bohlin, Oscar Borgogno, Marco Botta,
Marc Bourreau, Eric Brousseau, Chiara Caccinelli, Carlo Cambini, Martin
Cave, Giovanni Cazora, Giuseppe Colangelo, Giorgio Corda, Alberta
Corona, Andrea Coscelli, Stefano da Empoli, Massimo D’Antoni,
Maurizio Decina, Marco Delmastro, Alexandre De Streel, Antonio De
Tommaso, Fabiana di Porto, Annalisa D’Orazio, Elisabeth Dornetshumer,
Valeria Falce, Davide Gallino, Michael Grenfell, Annegret Groebel, Paula
Gori, Stefano Gori, Steffan Hoernig, Martin Holterman, Sharon Horwitz,
Jorge Infante, Panos Karaminas, Laszlo Kasa, Celine Kauffmann, Gavin
Knott, James Lambert, Francesco Lo Passo, Paolo Lupi, Alain Marciano,
Mauro Martino, Sandro Mendonça, Emanuela Michetti, Aldo Milan,
Giorgio Monti, Giulio Napolitano, Pier Luigi Parcu, Antonio Perrucci,
Anna Pietikainen, Anna Renata Pisarkiewicz, Andrea Pezzoli, Giovanni
Pitruzzella, Matej Podbevsek, Gerard Pogorel, Steve Preece, Augusto
Preta, Lorenzo Principali, Giovanni Ramello, Nicoletta Rangone, Maria
Alessandra Rossi, Antonio Sassano, Giovanni Santella, Marco
Scialdone, Vincenzo Valentini, Roberto Viola, Dirk Walpuski,
Anthony Whelan.

Rome, Italy Antonio Manganelli

Rome, Italy  Antonio Nicita
 Contents

1 Introduction: The Long Wave of Telecom Market

Liberalisation  1

Part I Pro-competitive and Pro-consumer Rules  35

2 The Architecture of the European Regulatory Framework 37

3 The Interplay Between Regulation and Competition Law

Enforcement 57

4 Evolution of Consumer Policy and Consumer Behaviour 73

Part II Promotion of Investments and Technological

Innovation  87

5 Competition Enhancement and Investment Promotion 89

6 (Ultra)Broadband Policies in Europe111

vii
viii CONTENTS

7 The Evolution of Mobile Communications and Spectrum

Policy137

8 Digital Transformation and Electronic Communications155

 About the Authors

Antonio Manganelli, Ph.D. is Adjunct Professor of Regulation and

Innovation Policy at the European University of Rome (Italy) and
Competition Law and Policy at the University of Siena (Italy). He also works
as managing director of the DEEP-IN research network. Manganelli has
served in different public institutions, i.e., the Italian Regulatory Authority
for Telecom, Media, and Postal sectors (AGCOM), the UK Competition
and Markets Authority (CMA), the Office of the Body of European
Regulators for Electronic Communications (BEREC). He has previously
held academic positions at the European University Institute (EU) and
holds a Ph.D. in Law and Economics from the University of Siena.
Antonio Nicita, Ph.D. is Full Professor of Economic Policy at LUMSA
University (Italy) and visiting scholar at the Center for Research in
Regulated Industry at the Rutgers Business School, Usa. He has served as
Commissioner of the Italian Regulatory Authority for Telecom, Media,
and Postal sectors (AGCOM) since 2014. Nicita is also member of the
OECD Steering Group in Regulation & Emerging Technologiesat
the Organisation for Economic Development and Cooperation
(OECD). Nicita was Visiting Fulbright Professor at Yale University
(USA), Visiting Scholar at the University of Paris X-Nanterre
(France) and at the European University Institute (EU), and Visiting
Researcher at the University of Cambridge (UK). He holds an M.Sc. in
Economic and Social Sciences from the Bocconi University in Milan, and
a Ph.D. in Economics from the University of Siena.

ix
 List of Figures

Fig. 1.1 Liberalisation waves in EU telecom markets, 1975–2007

(Nicita and Belloc 2016) 8
Fig. 1.2 The evolution of market-oriented policies, 1975–2007 (Nicita
and Belloc 2016) 9
Fig. 1.3 Incumbents average market share and overall broadband
subscriptions in EU 13
Fig. 1.4 MNOs average market share (subscribers) and overall
subscribers in EU 15
Fig. 1.5 Price trends in telecom markets (base 100 in 2015) 16
Fig. 1.6 Incumbent market shares in fixed Broadband, per MS in 2019 18
Fig. 2.1 Upstream and downstream markets 43
Fig. 2.2 The wave of pro-competitive sector-specific regulation 44
Fig. 3.1 The institutional design of European competition policy in the
telecom sector 70
Fig. 4.1 Switching provider by market, 2017 (European
Commission 2018) 82
Fig. 4.2 Ease of switching provider by market, 2017 (European
Commission 2018) 83
Fig. 5.1 The Ladder of Investment 96
Fig. 5.2 Percentage of access type for new entrants in EU, 2004–2013 97
Fig. 5.3 Evolution of full LLU average price, 2003–2018 99
Fig. 6.1 Simplified access network architectures and regulated access
services113
Fig. 6.2 The extended ladder of investments for legacy-NGA networks 120
Fig. 6.3 Evolution of NGA coverage and take-up, EU average (Data in
Figs. 6.3 and 6.4 comes from European Commission (2019)) 128

xi
xii List of Figures

Fig. 6.4 NGA (fast BB + ultrafast BB) coverage in 2019, per MS

(Data from European Commission 2019) 129
Fig. 6.5 Effectiveness and timing of demand-side vs supply-side policies
(Data from Belloc et al. (2012)) 132
Fig. 7.1 5G readiness (DESI Index), per MS by end 2020 150
Fig. 8.1 Multi-play subscriptions in 2017, % households (Data from
European Commission (2018)) 160
Fig. 8.2 Fixed and mobile internet development in EU (Data from
European Commission (2019)) 162
Fig. 8.3 Big Techs market capitalisation and source of revenues
(AGCOM 2019) 163
Fig. 8.4 Simplified representation of digital platforms two-sided market
(Agcom 2018) 165
 List of Tables

Table 1.1 A taxonomy of market-oriented policies 25

Table 2.1 Old Approach vs New Regulatory Approach 41
Table 3.1 Economic regulation vs competition law 59
Table 5.1 Access pricing methodologies: pros and cons 104
Table 6.1 Type of operators and possible regulatory obligations 119
Table 6.2 A market and policy taxonomy 122
Table 7.1 A spectrum management taxonomy 143

xiii
 List of Boxes

Box 1.1 The EU Digital Strategies 23

Box 3.1 Margin squeeze cases in EU telecom markets 62
Box 6.1 State aid rules for broadband: supply and demand-­side aspects 133
Box 7.1 5G Auctions in Europe 149
Box 8.1 Multi-play bundled offers 158
Box 8.2 Big Techs, two-sided platforms and digital data 161

xv
 CHAPTER 1

Introduction: The Long Wave of Telecom

Market Liberalisation

Abstract For many years, natural monopoly and universal service argu-
ments were used as key theoretical reasons for maintaining public legal
monopolies in national telecom markets. At the end of the’80s, legal bar-
riers started to be perceived as inappropriate and economically unsustain-
able and, in the EU, telecom liberalisation was introduced in accordance
with existing treaties’ objectives, i.e., market integration and competi-
tion enhancement. The removal of exclusive rights was a necessary but not
sufficient condition to ensure an effective entry of new competitors.
Economic regulation was further needed to address the competitive
advantages enjoyed by former monopolies. Pro-competitive market out-
comes, however, have varied considerably from country to country in
Europe, despite a harmonised framework. This is due to complex evolu-
tionary relationships among different liberalisation “policy variables”.
Moreover, a crucial policy debate has revolved around the interdepen-
dence of liberalisation and privatisation, and whether or not privatisation
of incumbent firms could have an additional pro-competitive impact.

Keywords Telecommunications economics • Monopoly • Liberalisation

• Privatisation • Competition

© The Author(s) 2020 1

A. Manganelli, A. Nicita, The Governance of Telecom Markets,
Palgrave Studies in Institutions, Economics and Law,
https://doi.org/10.1007/978-3-030-58160-2_1
2 A. MANGANELLI AND A. NICITA

1.1   Telecommunications Economics and the Policy

Case for Legal Monopolies
The telecom sector is defined as a network industry, i.e., an industry char-
acterised by a collection of connected nodes, on both supply and demand
sides. Services or goods are “delivered” among nodes to end-users: deliv-
ery connections are one-way directional in some network industry mar-
kets (e.g., natural gas, water, cable TV, broadcasting), while in others, such
as phone and internet, connections are two-way directional.
A crucial economic feature of network industries, and telecom markets
in particular, is network externalities, sometimes defined as demand-sided
scale economies, due to which: (a) the overall value of a given network
grows as users of the network increase, and (b) the marginal value that
network users receive from their subscription grows as the number of
reachable users increases.1
Networks could be either physical or virtual. Telecom networks, deliver-
ing services to consumers, are pervasive physical infrastructures.2 Building
and managing a telecom network infrastructure require high fixed costs
(i.e., costs not dependent on the level of service provision), which underly
economies of scale, that is, a continuous decline of the long-­run average costs
of production as the quantity produced increases. Moreover, telecom pro-
duction cost is also influenced by economy of density for the provision of
services, where the average cost of production decreases as the density of
customers increases. All these elements in turn imply that a single firm sup-
plying the whole market demand has lower production costs compared to
the overall costs that two or more producers would have.
At the early stages of the industry, this economic framework origi-
nally led to the natural monopoly argument, where, for purely technologi-
cal reasons, a monopoly is more cost-efficient than multi-firm production.
In a single-product industry, scale economies are a sufficient (but not nec-
essary) condition to have a natural monopoly, whereas in a multi-product
industry, such as telecommunications, the sufficient condition for a natu-
ral monopoly is given by the concept of sub-additivity. Applied to the cost
function, this means that, regardless of which combination of desired out-
puts is chosen, it is cheaper for a single firm to produce that combination.3
This also implies the existence of economies of scope, another feature of the

1
Shy (2001).
2
Spulber and Yoo (2009).
3
Baumol (1977).
 1 INTRODUCTION: THE LONG WAVE OF TELECOM MARKET LIBERALISATION 3

telecom industry and those sectors with multi-purpose networks, where

multiple services can be provided simultaneously. Economies of scope
entail the average total cost of production to decrease as a result of increas-
ing the number of different services produced.4
Hence, the traditional thought was that “the presence of natural monop-
oly characteristics often means that competition cannot be relied upon to
provide the socially optimal outcome, and some form of government inter-
vention in these industries may be desirable.”5 In the next section, we will see
how technological innovation led to a paradigmatic change regarding the
natural monopoly argument in telecom markets, favouring the idea of mul-
tiple competing network operators. However, traditionally, the search for a
solution to the economic problem of natural monopoly and to the political
issue related to a pervasive provision of telecom services at affordable prices
(universality of service) led policymakers to provide one single company with
exclusive and special rights, i.e., a legal monopoly. The only company allowed
to lawfully operate in the market was required to guarantee services to the
entire population at fair and equitable prices. The legal monopoly situation
took two alternative forms, not dependent on economic rationale, but rather
on regulatory legacy and political reasons: (a) state-owned national monopo-
lies, as occurred in almost all EU and OECD countries; (b) private (local)
monopolies, subject to public regulation, as occurred in the US.
Regardless of the ownership and control of companies, all legal monop-
olists were responsible for both building and maintaining the network and
for delivering the final service to customers, meaning that “natural monop-
olies in networks supported monopolies in services.”6 This value chain
setting is defined as vertical integration and is further explained by another
economic characteristic of the telecom sector: different market segments
of telecom markets are characterised by complementarities, making verti-
cal integration cost-efficient (and vertical separation subject to opportu-
nity costs). However, end-to-end vertical integration was used by
policy-makers also to extend the scope of reserved activities, in order to
include additional profitable services and products, e.g., the legal monop-
olies on phone terminals and phone directories, which was void of any
economic rationale. Moreover, end-to-end integration allowed complete
control of the network and services by the state for reasons of national
security (national interest argument).

4
Sharkey (1982).
5
OECD (2000).
6
Hellwig (2009).
4 A. MANGANELLI AND A. NICITA

Due to the economics of the sector and other political arguments, for
many years the European telecom markets were indeed legally protected
national monopolies, where only one vertically integrated company in
each country could lawfully operate. Monopolistic market structures were
also chosen based on the consideration that a free market would not have
guaranteed the socially desired universality of service: it was (and still is)
considered essential to provide basic communication services at an afford-
able price to all. In legal terms, communication services satisfy fundamen-
tal needs of customers and citizens, in order to pursue the constitutional
principle of social inclusion. In economic terms, a universal service policy
maximises the positive direct and indirect impact of telecom services on
economic growth and development, and internalise their extensive posi-
tive externalities to the overall economy and society. As a matter of fact,
many empirical analyses recognise a positive causal effect of telecom net-
works and services diffusion on GDP growth.7 This effect increases more
than proportionally as networks and services penetration increase and
become significant once a critical mass is reached. Critical mass appears
sometime to be near universal service level.8
However, profitability in the telecom industry is differentiated accord-
ing to the demographic (and geographic) characteristics of each area, also
because of economies of density. There are therefore more profitable, less
profitable and entirely unprofitable areas. Under a legal monopoly regime,
the provision of service in unprofitable areas is financed by cross subsidies.
Under a cross subsidies regime, monopoly gains in profitable areas, which
are significantly higher than what they would be in a competitive market,
compensate losses in unprofitable areas. Whereas, in a free or liberalised
market, new operators would enter solely on profitable areas and/or pro-
vide solely profitable services. This selective entry or cream-skimming
strategy typically generates two main consequences: (a) development of
competition in the profitable market segments, while a monopoly market
structure is maintained in all other areas; and (b) a reduction of the
expected gains of the incumbent (skimmed by new entrants), preventing
cross-subsidisation of services in loss-making areas. This, in turn, would
imply a market reaction from the incumbent in unprofitable areas: it would
either (i) exit (or reduce services) or (ii) increase prices compared to the
previous affordable levels. Both outcomes are considered undesirable

7
Czernich et al. (2011).
8
Roller and Waverman (2001).
 1 INTRODUCTION: THE LONG WAVE OF TELECOM MARKET LIBERALISATION 5

under a universal service approach and thus reinforced the case for a
monopolistic market structure.
In most OECD countries, natural monopoly, national interest and the
universal service arguments were used as the key theoretical reasons for
adopting and maintaining public legal monopolies in national telecom
markets. Both the social importance and the economic relevance of the
sector in terms of GDP and public employment (political leverages) led
most national European policy-makers to prefer direct public control over
those monopolies. 9

1.2   The Liberalisation of Telecom Markets:

Economic Rationale and Legal Tools
When we talk today about telecom monopolies, we probably think of the
old times of analogue telephones, public telephone kiosks or even tele-
graphs. Indeed, telecom industry has been subject to a continuous evolu-
tion, both under economic and technological perspectives.
Technological innovation has accelerated exponentially over the past
few decades. The development of wireless communications and the inter-
net has completely reshaped service provision, whereas digitalisation has
deeply transformed the entire sector, extending its scope, and setting aside
the rigid correspondence between types of networks and types of services.
Today, one digitised “general purpose” electronic communication trans-
mission network can convey a wide range of services, which in the ana-
logue world either belonged to different sectors (e.g., telecom, audio-visual
media, and information technology) or simply did not exist. This process
has been (partially) acknowledged by European law which has been mov-
ing toward a single regulatory framework for all electronic communications
infrastructure and associated services.10
If digitalisation, convergence and mobility have been the key technologi-
cal concepts of the telecom industry’s momentous evolution over the last
three decades, from an economic policy perspective we have witnessed a
likewise momentous transformation, leading to the shift from monopoly to
full competition.11 From the end of the ’80s, and more extensively from
the ’90s, legal barriers protecting monopolies progressively started to be

9
Nicita and Belloc (2016).
10
Starting from the 1999 review. See European Commission (1999).
11
Recital 1 Directive 2002/21/EC on a common regulatory framework for electronic
communications networks and services (Framework Directive—FD).
6 A. MANGANELLI AND A. NICITA

perceived as politically undesirable and economically unsustainable.

Without a doubt, liberalisation was strongly supported and nurtured by
the liberal political wave animating the US and UK policy agenda at that
time. Furthermore, the evolution of economic theory and technological
evolution gave a crucial contribution.
On the one hand, the natural monopoly argument began losing its
strength as technological innovation and digitalisation had dramatically
decreased telecommunication network deployment costs and increased
telecom service cost-efficiency. On the other hand, the economic and pol-
icy debates focused more and more on the inefficiencies of monopolistic
market structures, in particular:

• dynamic inefficiencies, since a monopolistic firm has lower incentives

to innovate compared to a company in a competitive context;12
• x-inefficiency, according to which a monopoly has higher average
costs due to lack of competitive pressure;13
• allocative inefficiencies, i.e. the social cost of monopolies due to:

–– the so-called deadweight loss, that is the loss sustained by consum-

ers not buying the product/service because of its higher price
(monopoly price, compared to a competitive price), which is not
offset by gains to the monopolist, and
–– the opportunity costs of those resources directed by monopo-
lists to efforts to obtain or keep monopoly profits.14

In the European Union, liberalisation policy in telecom markets was

introduced by the European Commission at the end of the ’80s with a Green
Paper on the development of the common market for telecommunications
services and equipment 15 and implemented in accordance with the objec-
tives of market integration and competition, enshrined in the treaties of the

12
von Hayek (1978).
13
Leibenstein (1966).
14
Posner (1975).
15
European Commission (1987). The 1987 Green Paper on the development of the com-
mon market for telecommunications services and equipment had 3 main objectives: (a) pro-
mote open and competitive markets, (b) build an EU internal market, and (c) pursue EU
citizen interest.
Another random document with
no related content on Scribd: