Broadband development is considered to be central to economic growth in a knowledge-based economy. In Germany, the market leader (Deutsche Telekom) on the telecommunication market recently installed a “next generation” high-speed network (so called VDSL), which is able to transfer phone calls, internet and TV through only one pair of wire to the consumer. The company invested more than 3 Billion Euro. Due to these enormous costs, it claimed to be allowed to refuse competitors access to its new network. If those competitors would be allowed to use the new network, Telekom threatened to stop all investments into this technology, as it would not be profitable. The German Government followed the claim by adopting a new law in December 2006, which was often said to be a “lex Telekom” and guarantees “regulatory holidays” for the new network. The European Commission argues that the protection of a new technology against competitors is against EU competition law and opened a procedure against the German government on the same day.
The question is, whether the strict EU competition law in this case prevents innovation. Starting with the liberalization of the telecommunication market in 1988, the policies of the European Union can be called a “success story”. From state-run monopolies and imperfect competitive conditions with high barriers for new firms to enter the market, the situation has changed dramatically until today: A number of new companies entered the market, prices decreased significantly, and the traditional staterun monopolies lost market shares. Where those monopoly-like situations remain, the EU aims to prevent operators from abusing market power to harm consumers or impede competitors. At the same time, the EU wants to facilitate widespread deployment of new and innovative technologies. Under the heading “i2010”, the digital economy component of the renewed Lisbon strategy, the greater use of telecommunication technologies is said to boost productivity throughout Europe, and generate new services and create jobs. To realize the conditions for a flourishing ecommunications environment, the EU has established a detailed regulatory policy. The so-called “Article 7 procedure” allows national Regulatory Authorities to put obligations on companies with significant market power, whenever a persistent market failure occurs.
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Table of Contents
Introduction
Methodology
Structure
1. A theoretic view on Competition and Innovation
1.1 Competition in classical economics
1.2 Ordoliberalism
1.3 The Harvard approach
1.4 Schumpeter and dynamic innovation
2. Implications on Competition law in the European Union
3. EU competition law in the telecommunication sector
4. Facts of the case: Deutsche Telekom and its VDSL network
5. Legal and economic analysis
5.1 New and emerging markets
5.2 Regulation and Innovation
6. EU competition law and innovation: Empirical evidence
7. Conclusion
Research Objectives and Key Topics
This paper examines the tension between fostering innovation and maintaining EU competition law, specifically focusing on the regulatory treatment of Deutsche Telekom's VDSL network in Germany. It investigates whether strict EU regulations against market dominance hinder the deployment of new, capital-intensive infrastructure technologies by protecting incumbent operators from competition.
- Theoretical perspectives on competition, monopolies, and dynamic innovation.
- Evaluation of EU competition law application in the telecommunications sector.
- Detailed case analysis of the VDSL network controversy and the "lex Telekom" legislation.
- Economic and legal analysis of "new and emerging markets" versus regulatory intervention.
- Empirical evidence regarding the correlation between regulatory reform and sector investment.
Excerpt from the Book
1. A theoretic view on Competition and Innovation
The aim of this Chapter is to clarify what different economic approaches tell us about competition law, especially the role of monopolists and the relation between competition and innovation. It is interesting to have a look on this rather theoretic issue, because different economic theories come to quite different conclusions about economic policies.
1.1 Competition in classical economics
The roots of the classical concept of competition can be found in Adam Smith’s book “The Wealth of Nations”. Smith explains competition as a power which forces prices to a level just covering costs. The main characteristic is the mechanism of the “invisible hand”: Market prices emerge in reaction to consumers’ demands. Because the invisible hand can not operate in a monopoly situation, Smith is suspicious about any kind of cartels or monopolies. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.” In contrast to neo-classical approaches, Smith saw competition as a price-determining force, and not as a market structure.
Classical economics are against government interference in the market, since they believe that the competitive process leads to efficient results. Limited regulation is allowed to ensure that markets can operate freely, and that competitors can enter the market without hindrance. Smith was in favour of a legal framework that prevents abuse by dominant firms.
Summary of Chapters
Introduction: Outlines the broadband development in Germany, the market leader's massive VDSL investment, and the subsequent legal conflict between German "regulatory holidays" and EU competition law.
Methodology: Describes the desk research approach using primary legal acts, policy papers, and secondary literature from telecommunications experts.
Structure: Details the paper's organization into five chapters, tracing the theoretical background to the empirical analysis of the case.
1. A theoretic view on Competition and Innovation: Compares various economic schools, including Classical economics, Ordoliberalism, the Harvard approach, and Schumpeter’s theory on creative destruction.
2. Implications on Competition law in the European Union: Analyzes how various economic theories have influenced the formulation and enforcement of EU competition policy.
3. EU competition law in the telecommunication sector: Reviews the regulatory framework established to realize an internal market, highlighting the liberalization "success story".
4. Facts of the case: Deutsche Telekom and its VDSL network: Provides a chronological overview of the political and legal dispute regarding the VDSL network deployment in Germany.
5. Legal and economic analysis: Examines the core conflict regarding the definition of "new and emerging markets" and the impact of regulation on R&D incentives.
6. EU competition law and innovation: Empirical evidence: Uses OECD data to correlate effective regulatory application with higher investment levels in the telecommunications sector.
7. Conclusion: Summarizes that while monopolies can drive innovation in Schumpeter's view, empirical evidence suggests that appropriate EU regulatory application fosters better market outcomes and investment.
Keywords
Broadband, VDSL, Deutsche Telekom, EU competition law, innovation, market dominance, regulation, telecommunications, internal market, Schumpeter, creative destruction, Ordoliberalism, economic growth, market failure, investment.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the potential trade-off between strict EU competition enforcement and the incentives for companies to invest in innovative, high-speed telecommunications infrastructure.
Which central topics are addressed in the analysis?
The primary topics include the evolution of economic theories on competition, the application of these theories in EU law, the specifics of the German VDSL case, and the empirical link between regulation and sector investment.
What is the main research question?
The study investigates whether strict EU competition law, by mandating access to new infrastructure for competitors, inadvertently hinders innovation by reducing profitability for the initial investor.
Which scientific methodology is applied?
The research relies on desk research, conducting a content analysis of primary data (legal acts, EU policy papers) and secondary literature (political and economic scientific studies).
What does the main body cover?
It covers theoretical economic approaches, the evolution of EU telecommunication regulation, the specific legal timeline of the German VDSL dispute, and an empirical analysis of investment trends in Europe.
Which terms characterize this work?
Key terms include Innovation, EU Competition Law, Broadband, Market Failure, VDSL, and Regulatory Reform.
How did the German government attempt to protect the VDSL network from regulation?
The German government enacted legislation, often referred to as "lex Telekom", which aimed to grant "regulatory holidays" to new broadband infrastructure, effectively exempting it from mandatory competitive access.
What is the significance of the "new and emerging market" definition in this case?
The definition is critical because, under EU law, new markets may be temporarily exempt from ex-ante regulation to encourage investment, but the lack of a clear legal definition creates the primary conflict between the German government and the EU Commission.
What does the empirical data regarding regulatory reform suggest?
Data from the OECD indicates that countries which effectively implement EU regulatory reforms generally show higher investment levels in the telecommunications sector compared to countries with poorer records of regulatory reform.
- Citation du texte
- Daniel Neugebauer (Auteur), 2007, Innovation and EU competition law - a trade-off? The next generation Broadband Network in Germany from a legal and economic perspective, Munich, GRIN Verlag, https://www.grin.com/document/71358
