13 November 2002

Sally Trebble

The EU Framework Directive, which comes into effect in July 2003, requires National Regulatory Authorities (‘NRAs’) to harmonise their activities. The purpose of this is to ensure there is consistent application and effect of the five new Directives making up the new electronic communications regulatory framework across the Member States. This is another step towards creating a common market for electronic communications networks and services.

Member State ratification of the principle of consistent treatment and policy across all Member States sounds innocuous, but it is a potentially powerful mechanism for the Commission to control domestic policies – or inactivity. Member States subscribed to the same idea in the 1998 Directives, but the difference from 2003 is the legal requirement for a high degree of coordination between regulatory bodies and competition authorities and between Member States.

Until now, the Commission has not been slow to pull independent-minded Member States into line with its policies through unilateral regulations, such as the local loop unbundling decision. However, from July 2003, it may go as far as enforcement action against a Member State which adopts a policy inconsistent with general trends across the EU, or which fails to act. This will save the Commission the time, trouble and scrutiny involved in introducing new legislation for individual measures.

Article 7 of the Framework Directive requires NRAs to contribute to the development of the internal market by cooperating with each other and with the Commission in a transparent manner to ensure consistent application of the new rules in all Member States. They are required to try to agree on appropriate remedies for market problems. Key decisions on market definition and identification of Significant Market Power, access and interconnection obligations and lifting of consumer protection safeguards, which affect trade between Member States, must first be discussed and reasoned with the Commission and other NRAs. ‘Utmost account’ must be taken of the views of other NRAs. Market power assessments and determinations may even be overturned by the Commission.

Article 8 of the same Directive, of which ‘utmost account’ must also be taken, imposes a general obligation on NRAs to cooperate with each other and with the Commission in a transparent manner to ensure the development of consistent regulatory practice and the consistent application of the Directives.

The unequivocal clarity of these provisions will forge greater consistency between the decision makers, producing more predictable outcomes for the industry. However, there will be occasions when a NRA is forced to review the assumptions which underlie its decision making and possibly change direction altogether. There are a number of key areas where NRAs have taken different directions over policy or more frequently, had different priorities or assumptions, and these may end up being re-addressed under the new rules.

  • 3G mobile infrastructure sharing

NRAs have generally been consistent in permitting 3G licensees to share ‘dumb’ infrastructure (see June 2002 Communications Law Bulletin). However, sharing the dumb parts of a network has always been permitted – and potentially even required - under Article 11 of the 1998 Interconnection Directive. What matters for 3G licensees who want to reduce costs is sharing the ‘live’ parts of the network which allow management control of service quality and investment. This is where competition issues arise, and on this NRAs have diverged. A key issue is the extent to which rollout obligations can be met through shared infrastructure and, so far, only the Swedish NRA has supported this. One version of infrastructure sharing is ‘market sharing’ where 2 or more operators with licences for different jurisdictions agree to support each others services in different territories, allowing pan-European services. The Commission has taken a liberal approach to the TMobile/MMO2 area sharing proposal – this decision may squeeze Member States who are resisting it.

  • spectrum trading

The Framework Directive permits Member States to allow spectrum trading. This was considered difficult under the original Licensing Directive because it would make radio spectrum available without a competitive process. Trading is a necessary part of the market-based management of the scarce spectrum resource, the policy which produced expensive licence auctions. The UK has indicated a clear intention to permit spectrum trading and is currently consulting on processes for facilitating this. Other jurisdictions, such as France, have suggested that spectrum trading will not be permitted. Since roaming made Europe a village for mobile customers, most operators try to offer pan-European services and spectrum trading is a powerful mechanism for achieving this.

  • wholesale broadband access

Several regulators – NRAs and competition authorities - have been asked by new entrants or service providers to address the terms on which national incumbents offer wholesale access to their broadband networks. Some have opted to use competition law to resolve this, with differing results. The French Competition Council acceded to requests from Internet Service Providers to review the terms on which France Telecom offers fast Internet access through its subsidiary Wanadoo (see Communications Law Bulletin, June 2002). This was on the basis that even though no dominant position yet exists in the fast Internet access market, failure to intervene would allow France Telecom to use its existing market power to establish a dominant position in a new market. By contrast, OFTEL, the UK regulator, considering similar questions has tended to conclude that where no dominant position has already been established, it cannot intervene. NRA decisions on market definition and identification of market power are subjected to close scrutiny under the new rules and this is one area where closer harmonisation may be expected, particularly given the geographic neutrality of the Internet. Harmonisation of disputes such as this is made more difficult where an administrative body is responsible for regulatory policy and a separate judicial tribunal enforces competition law.

  • call termination rates and reciprocity

Since 1997, OFTEL has supported the principle that charges made by competing local access operators for call termination should be based on BT’s costs and should thus be reciprocal to BT’s charges for call termination. This is considered by OFTEL to promote competitive neutrality between operators, for whom the ‘calling party pays’ principle means call termination charges are not paid by their own customers. The French NRA this year adopted the same principle. By contrast, the Belgian and Dutch NRAs have considered the principle of reciprocity and have rejected it on the basis that new market entrants without market power should be allowed to set their call termination charges to reflect their own costs. Call termination charges could directly affect trade between Member States, by creating barriers to entry for international operators trying to compete with national incumbents in national markets.

Under the existing rules, operators in dispute often use practices in third party Member States to support their position with the domestic NRA, and NRAs will usually survey each others’ approaches as a matter of good practice before adopting important policy decisions. From July 2003 when the new Directives come into effect in national markets, there will be a legal obligation on NRAs to do this and they may be answerable to the Commission if they fail to follow the general direction of their peers, without a good reason.

For more information about changes to be introduced by the new EU Communications Directives contact:

David Kerr or Sally Trebble in London;
Frédérique Dupuis-Toubol in Paris;
Marjolein Geus in The Hague;
Jan Byok in Düsseldorf;
Richard Fawcett in Hong Kong;
Johan Tyden in Stockholm; and
Catherine Erkelens in Brussels.