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European Law Monitor newsConsumers benefit as market opening leads to better performing network industries

The performance of network industries, such as telecommunications, transport and utilities has continued to improve and consumers are generally satisfied, according to a European Commission report. The opening up of these industries to competition has benefited users by putting pressure on service providers to keep their costs and prices down. Access to services at affordable prices for the less well off is also improving. However, there are wide variations between sectors and between Member States. In some Member States delays in market opening and in removing legal and technical barriers to new entrants have held performance back and competition is developing only slowly in postal services, the railways and the energy sector.

"The EU's policy of opening the telecoms, transport and other network industries to competition has been the right one, since this has made them more competitive putting downward pressure on prices without compromising either the service or its quality. But much more needs to be done to extract the full benefits of competition for the consumers of Europe," Economic and Monetary Affairs Commissioner Joaquin Almunia said.

The Commission's report is the fifth of a series of annual reports, which examine the performance of network industries, covering telecommunications, postal services, electricity, gas, air, road and rail transport. Together, these industries account for around 8% of the EU's value added and employ more than 10 million people.

Competition spurs productivity

       * Regulatory changes in network industries have created the conditions for the emergence of more competitive markets, with new and better products on offer. The number of direct flight routes connecting European cities, for example, has doubled since 1992. In the telecommunications sector, the roll-out of broadband access has been greatly stimulated by the EU regulatory framework and households now have the liberty to choose their electricity supplier according to their preferred generation method.
       * As a result of the changes in their structure, the performance of these industries has generally improved. Indeed, over the last decade, prices have either fallen, in particular in the telecommunications (40% in real terms over the past decade) and air transport sectors, or been contained. The benefits are less visible in the energy sector as the liberalisation process is more recent and because of the steep increase in oil and gas prices worldwide since 2004 (the price of the barrel more than doubled and reached an all-time high in August 2006 at $78).

In some Member States this unsatisfactory situation in the energy markets is also a result of the inadequate implementation of the regulatory framework legislation, notably regarding the unbundling of generation and network infrastructure.

       * Productivity in network industries has grown faster than in the rest of the economy: indeed, over the period 1993-2003, annual labour productivity growth in the communications sector (7.6%) and the energy and water sectors combined (5.9%) outpaced the economy as a whole (1.8%). In many cases, productivity increases were accompanied by employment growth, allaying beliefs that there is necessarily a trade-off between the two. Furthermore, in many Member States the number of jobs created by new entrants in the telecommunications sector, for example, greatly outnumbered the job losses at the incumbent companies.
       * The quality and accessibility of the services provided has also remained stable even though there is room for improvement. In the meantime the services have become more affordable, in particular in the new Member States. Low-income households, who tend to spend a higher share of their outgoings on network industry services, are likely to benefit most.
       * Against the background of this improved performance, recent consumer satisfaction surveys[1] indicate that consumers in the EU are generally satisfied with the services offered. The majority of consumers (50-70%) also consider their interests to be "well protected". In 2006, the Commission adopted for the first time a list of airlines banned from the European airspace for failing to meet minimum safety standards. At the same time the rights of persons with reduced mobility travelling by air were strengthened.
       * Despite these improvements and overall satisfaction, consumers still show some reluctance or inertia when it comes to switching to new market entrants, an attitude that may be attributed to switching costs and the difficulty of comparing different offers ( 38% cite such difficulty).
       * The report also points to the need to further integrate the markets at EU level. Insufficient powers of the regulatory authorities in some Member States, inadequate capacity or inefficient use of cross-border interconnections and the vertical integration of transport, distribution and supply activities are some of the obstacles that prevent consumers from fully reaping the benefits of competition. The Commission will propose legislation later this year to strengthen the regulatory framework, notably with regard to the management of radio spectrum in telecommunications and separating the operation of energy transmission networks from generation and supply activities.

The full text of the report and a detailed annex are available at

Reproduced with the permission of the European Commission IP/07/1090