The EU regulatory framework for electronic communications One size fits all Richard Harris

1. This talk was given by Richard Harris (an independent consultant) under contract to Intellect, the trade association that represents the UK Technology Industry.  More information about Intellect can be found at their web-site:  http://www.intellectuk.org/

2. This project is funded by the European Union The EU regulatory framework for electronic communications One size fits all Richard Harris Independent EU telecommunications consultant ICTtrain workshop Istanbul, 27 February 2009 The views expressed here do not necessarily represent those of the European Commission

3. Aim To summarise the origin, principles and scope of the EU regulatory framework for electronic communications services

4. Agenda • the basis of policy for this sector • the common approach • the global dimension • the wider EU regulatory space • the present EU legislation • points to watch and summary • epilogue

5. 1 The basis of the policy The convergence of technologies and industries: • Telecommunications - monopoly • Broadcasting – some competition • Data processing - competition

6. Convergence is a reality Voice telephony Fixed Mobile Telephone/ Handset Broadcasting Cable Satellite Terrestrial Television Data Fixed PC Service Wireless Satellite Cable Telecoms Internet Network Terminal

7. 2 The common approach • Competition law and policy • In the USA – anti-trust court decisions from the 1950s onwards • Communications Law unchanged from 1934 to 1995 • In the EU – the Treaty of Rome • “British Telecom” case in 1982/5 showed that the treaty’s competition rules apply to telecommunications • EU obliged to develop a policy for telecommunications – adopted 1987

8. The sequence in Europe • The UK opened its telecoms market between 1981 and 1990 • EU decided in 1987 to abolish telecoms monopolies in stages • The first stage was in 1988 • The last stage was 1998 • Review in 2000 led to 2002 framework • Further EU review in progress today

9. The competition rules Articles 81-89 of the EU Treaty . 81 Anti-competitive agreements 82 Abuse of a dominant position • Making of laws for enforcement of 81-82 • Until which time MSs are responsible • Commission to police principles of 81-82 • Rules apply also even where there are special or exclusive rights 87-89 No state aid which distorts the market

10. Liberalisation In 1990 an article 86 Commission Directive was adopted that required member states to abolish exclusive and special rights for providing telecommunications services. At first, certain activities were exempted from this but the Directive was later amended five times so that all exemptions were progressively removed. Directive 2002/77/EC explains all this in the recitals and then consolidates the remaining articles.

11. Why is it so important? • EU telecom revenue is 3% of GDP • The sector is vital to most economic sectors and social groups • Mobile penetration very high (112%) but prices vary too much (6:1) • Broadband penetration now growing (EU average 20%) but highest is 5 x lowest • The Internet is bringing new risks

12. 3 The global dimension The WTO decided in 1997 to open the market for telecoms services 95 signatories initially, now many more The ITU sought a solution for the mainly smaller 3rd world countries The EBRD will finance telecoms only where modern policy is pursued The World Bank adapted its lending policy for telecoms because of competition The OECD reports on this sector as an important indicator of economic strength

13. 4 EU regulatory space • The framework spreads beyond the EU • Non-EU Balkan countries have perspective of EU membership • Treaty relationship • Approximate national laws to the acquis • Principles of EU competition rules apply • Cooperation regarding telecoms • Committee structure

14. For EU candidates • The pace intensifies for accession candidates • Accession negotiations ask for action • The EU Council and MSs are involved • Bilateral meetings are more frequent • The Commission monitors the markets more closely • Aid funds are focused more on the acquis • Observer status in groups and committees

15. For EU neighbours • Membership of the EU internal market is offered (without membership of the EU) • This means, treaty relationships • Adoption of EU telecoms acquis • Monitoring of the markets • Consistency arrangements - non EU candidates not yet covered by these

16. EU Neighbourhood policy – 16 countries

17. 5 EU telecommunications legislation • Almost entirely in the form of Directives • First one in 1983 • Mostly Council and Parliament Directives • Underpinned with Commission Directives • A series of Directives which opened the market gradually • 1998 package – complete market opening

18. Authorisation Directive Access & Interconnection Directive Privacy Directive Universal service Directive 2002 regulatory framework- for all electronic communications Framework Directive (Art. 95) Liberalisation Directive (Art. 86) Spectrum Decision (Art. 95)

19. 2002 regulatory framework • Key principles: • Independent national regulators • Minimise regulation • Technological neutrality • Consistency across the EU market • Level playing field for new entrants • Universal service

20. 2002 regulatory framework - laws Framework Directive: outlines general principles, objectives and procedures Authorisation Directive: replaces individual licences with general authorisations Access and interconnection Directive: sets out rules for a multi-carrier market place, ensuring access to networks and services, interoperability etc Universal service Directive: guarantees basic rights for consumers and minimum levels of availability and affordability Privacy Directive: covers protection of privacy and personal data protection communicated over public networks Liberalisation Directive: prohibits special or exclusive rights in this sector Radio spectrum Decision: principles and procedures for developing a EU radio spectrum policy

21. Vocabulary 2 • Significant market power: This phrase is not defined in the Directive but it is very important and occurs 5 times in the recitals and 10 times in the text • It is always used in relation to “undertaking” – this term embraces operators and companies

22. What’s the difference Between the 2002 rules and the previous rules? In essence the previous rules divided the world into incumbents and new entrants. A fixed set of rather heavy ex ante rules were imposed on incumbents and very few rules on new entrants. Ex posterules apply to everyone automatically.

23. What’s the difference 2 The 2002 rules divide the world into markets and assess each operator in respect of each market. The aim is to decide where and whether ex ante rules should be applied and, if so, what particular rules are needed. These are called remedies

24. Who decides? National regulatory authorities Who is this? See definitions in Article 2. “national regulatory authority” means the body or bodies charged by a Member State with any of the regulatory tasks assigned in this Directive and the Specific Directives

25. How do they decide? See recital 28 In determining whether an undertaking has significant market power in a specific market, national regulatory authorities should act in accordance with Community law and take into the utmost account the Commission guidelines.

26. Access - Vocabulary 1 • Access means the making available of facilities and/or services, to another undertaking, under defined conditions, on either an exclusive or non-exclusive basis, for the purpose of providing electronic communications services. It covers inter alia: access to network elements and associated facilities, which may involve the connection of equipment, by fixed or non-fixed means (in particular this includes access to the local loop and to facilities and services necessary to provide services over the local loop), access to physical infrastructure including buildings, ducts and masts; access to relevant software systems including operational support systems, access to number translation or systems offering equivalent functionality, access to fixed and mobile networks, in particular for roaming, access to conditional access systems for digital television services; access to virtual network services;

27. Access - Vocabulary 2 • Interconnection means the physical and logical linking of public communications networks used by the same or a different undertaking in order to allow the users of one undertaking to communicate with users of the same or another undertaking, or to access services provided by another undertaking. Services may be provided by the parties involved or other parties who have access to the network. Interconnection is a specific type of access implemented between public network operators;

28. Access - Vocabulary 3 • Local loop means the physical circuit connecting the network termination point at the subscriber's premises to the main distribution frame or equivalent facility in the fixed public telephone network. • Reference offer is not defined but this vital phrase is used in article 9.2 and 9.4 to describe the standard terms and conditions that SMP operators can be obliged to publish for its wholesale customers.

29. Summary of Access This Directive strongly encourages operators to conclude all of their access agreements by negotiation and, as far as possible to standardise their terms in published “reference offers”. The aim is to minimise the aspects where agreement cannot be reached and where regulatory intervention might be needed. The NRAs are however given strong powers and operators are reminded about the competition rules (which have heavy penalties)

30. Universal service 1 • Before liberalisation, most countries had some kind of obligations as to universal provision of service but there was great diversity in results and in how it was paid for. • There was concern that liberalisation might undermine the achievement of universal access.

31. Universal service 2 • The 2002 rules are designed to ensure that universal service is maintained • Any unfair financial burden arising from supplying it is compensated in a way that does not distort competition • If it is compensated, all potential suppliers must be eligible

32. EC’s Implementation tasks Under the heading of implementation, the European Commission has several roles • Monitoring and publishing • Active day to day regulation • Chairmanship of the Communications Committee • Review and report to the EP • Police the EU Treaty

33. Monitoring and publishing • A series of implementation reports began in 1997 • 13th (relating to 2007) covered 27 Member States. • A short formal summary report plus two volumes. • The first volume contains: • About 70 pages on the regulatory regime as a whole. • About 250 pages reporting on all 27 Member States individually. • The second volume contains: • About 140 pages of data about the market, including volumes and prices in relation to all manner of services and presented in a comparative format.

34. Active regulation Since the 2002 Framework came into effect, the EC has made over 500 decisions relating to notifications under Article 7:

35. The Communications Committee • 5 or 6 meetings a year since 2003 See: http://circa.europa.eu/Public/irc/infso/cocom1/library • 41 committee papers so far in 2008 • Not all papers are published. • Committee business includes some mandatory items and some items of regular interest. • Regulatory developments are discussed

36. The Communications Committee 2008 • Broadband access 1 • Article 7 cases 3 • List of standards 1 • Mobiles on aircraft 2 • 112, 116, numbering, addressing 7 • Creation of Working Groups 2 • Termination rates 2 • Next Generation Access 2 • Roaming 1 • Mobile Satellite services 2 • WAPECS 1 • Digital TV 1

37. Review Each of the Directives contains a review clause. As three years have elapsed, the initial reviews have already happened and an important set of changes has been proposed by the Commission. This can be found at: http://ec.europa.eu/information_society/policy/ecomm/tomorrow/index_en.htm

38. Policing role 1 Legal action for infringement against a Member State is the main weapon the Commission has to enforce EU law. • First the EC sends an initial legal assessment and invites the MS to present its views. • If not resolved the EC issues a “reasoned opinion” that an infringement exists giving a deadline. • If not resolved EC may then refer the case to the Court of Justice.

39. Policing role 2 By end of 2007, the EC had opened proceedings in c.100 cases of failure to implement correctly Belgium 5 France 2 Austria 3 Bulgaria 2 Italy 3 Poland 11 Czech Rep 4 Cyprus 6 Portugal 4 Denmark 1 Latvia 7 Romania 1 Germany 6 Lithuania 4 Slovenia 3 Estonia 4 Luxembg 4 Slovakia 7 Ireland 1 Hungary 2 Finland 5 Greece 2 Malta 5 Sweden 3 Spain 3 Netherlds 3 UK 1

40. Policing role 3 Results • Of the cases started • 61 were closed without reaching the ECJ • 12 were closed after referral to the ECJ • 14 have been referred to the ECJ but are not yet closed • 14 have not yet reached the stage of referral to the ECJ **** Each case clarifies the law and leads to better decisions elsewhere. They can also lead to improvements in the law.

41. 2002 regulatory framework - minimise • Regulation is limited to situations where an operators has “significant market power” - SMP • SMP status is determined by NRAs on the basis of market analysis • These decisions are based on competition law principles • Status under 1998 framework is unchanged until analysis has been done

42. 2002 regulatory framework - consistency Communications Committee: regulatory and advisory functions on implementation of the Directives European Regulators Group: helps consistent application of the regime throughout the EU Radio Spectrum Policy Group: high level platform where member states and the Commission coordinate use of the spectrum Radio Spectrum Committee: deals with technical issues around harmonisation of frequency allocation across Europe and develops an external EU policy Notification procedures: “Article 7” procedure Independent EU Advisory Body on Data Protection and Privacy (Article 29 working party)

43. 6 Points to watch • Investors draw confidence from knowing that regulation is fair and reasonable • The NRAs should have powerful tools and not be open to pressure from operators or investors • GSM operators beyond the EU15 have greater market power • EU universal service model not such a good fit beyond the EU15 • Convergence with broadcasting is unfinished business - who regulates four-play?

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46. Summary • Regulation is needed only where policy aims cannot be achieved without it • Competition is intended to stimulate incumbents • Industry should take the lead in finding solutions • Ministers regard this sector as an aspect of the IS • They discuss cartels, abusive practices, spam, IPRs, the digital divide, universal service, eGovernment, promoting broadband and security

47. 7 Epilogue • USA in 1985 - direct cost of regulation was very high, perhaps 15,000 people employed in total • Rate of return regulation of profits • Separation of state and federal powers • Separation of anti-trust and regulators • Appeals and rules of evidence • Allowing competition was called “deregulation”

48. In Europe at that time? • Only the UK had a regulator by 1985 • UK in 1985 - direct cost of regulation was very low, perhaps 150 people employed in total • Price cap regulation • EU (ie federal) powers prevail over national • Competition authorities and sector regulators obliged to cooperate • Little recourse to the courts • Allowing competition was called “liberalisation”.

49. How is the EU doing today? • Regime is intended to be minimalist and this has started to happen • Convergence with broadcasting makes comparison more difficult • Some disturbing signs • Some national regulators are very large • Increasing recourse to the courts • No study done yet – waiting for a PhD

50. Thank you for your attention For more information: See - Europaweb-site, especially: http://ec.europa.eu/information_society/policy/ecomm/index_en.htm