13 November 2002

Sally Trebble

In July next year, individual telecommunications licences will be withdrawn and replaced by general authorisations, depriving EU countries of the right to prohibit establishment without prior permission. Regulation will not disappear, but state control of the competitive market will have a new legal form.

Thanks to the new Authorisations Directive, which is already law in the EU, the providers of electronic communications networks, electronic communications services and ancillary services will need no explicit permission from the authorities of the country of operations to conduct their businesses in any national market. All will become known as ‘communications providers’ and it is intended that distinctions between them for regulatory purposes disappear.

Changes ahead

Member States may still require companies to notify a name, address and service description for their records, but as soon as this has been provided, services can be launched. Existing individual authorisations will be revoked – although it is not clear whether fees paid for unexpired licences will be refunded.

Any company which is active in the communications industry – telecommunications, broadcasting, Internet – can expect to be affected in some way, although for most the change will be administrative. Individual licences will disappear, to be replaced by general authorisations. Assumptions about the economic market power of former incumbents will be systematically tested and those regulatory obligations which are not justified by market conditions will have to be removed.

Processes and timetables for change will be determined by EU legislation and the freedom of National Regulatory Authorities (‘NRAs’) to regulate domestic markets will be severely curtailed by obligations to comply with Community law and to consult each other before making decisions. Services provided by resellers will become subject to the same rules as services provided by network operators which are available in the same market and voice telephony rules will extend to data-only operators such as Internet Service Providers. The perception is an extension of regulation to previously unregulated sectors. However, the reality is the reverse, high level rules which previously applied to unregulated sectors are superseding detailed controls formerly contained in licences. These changes are liberalising in most respects, the exception being an extension of consumer protection to new obligations to supply written contracts and quality of service benchmarking information.

The UK regulatory authorities are consulting the new framework. In May 2002, a consultation document entitled ‘The General Conditions of Entitlement’ was published, followed in July by a consultation on draft ‘Electronic Communications (market analysis and universal service) Regulations’. The most fundamental change is to remove the distinction between a Systems Operator, which requires a licence under the Telecommunications Act 1984, and a Systemless Service Provider which requires no authorisation, however substantial they and their market share may be. This is through breaking the connection between the licence and the ‘Applicable System’ to which at present it applies.

Another consequence is that the UK authorities will no longer apply different rules to Public Telecommunications Operators (currently known as PTOs) and to service providers authorised by the Telecommunications Services Licence (the TSL class licence) by virtue of their licensing status. Former PTOs and TSL operators, as well as former systemless service providers, will be authorised by a single, statute based ‘General Authorisation’ which contains general rules on how any electronic communications services can be provided. The content of the General Authorisation is circumscribed by the Authorisations Directive and no obligations will be permitted which go beyond its scope.

However, the Authorisations Directive does permit ‘specific conditions’ to be imposed on communications providers who have been designated as having Significant Market Power (SMP), which unlike the 1998 rules, is now fully aligned with the economic concept of dominance. In another departure from the 1998 rules, the Commission has limited the markets in which a finding of SMP may be made and specific conditions imposed. These are set out in the Commission’s draft ‘Recommendation on relevant product and service markets’, published in June 2002. NRAs’ approach to market definition is also circumscribed by the Commission’s ‘Guidelines on market analysis and the assessment of significant market power’, published in July 2002.

Specific conditions may also be imposed on a communications provider which has been designated a universal service provider.

Only certain specific conditions are permitted. The Access and Interconnection Directive contains the specific conditions which may be imposed on operators with SMP and the Universal Service Directive determines the conditions which may be imposed on a universal service provider. The relationship between these provisions is set out below.

Framework Directive

Access Directive

Universal Service Directive

Authorisations Directive

Guidelines on market analysis and assessment of significant market power Article 15(1) (adopted 8 July 2002)NRA adopts methodology for ‘Effective Competition Review’ Article 7 (OFTEL adopted criteria 5 August 2002)

NRA may designate operators as ‘Providers of Universal Service’ Article 8

Special Conditions

Commission Recommendation on relevant product and service markets Article 15(2) (draft published 17 June 2002) NRA reviews existing regulatory obligations in relevant wholesale markets Obligations in non-relevant markets removed but remain under review and subject to Competition Law Article 7

NRA reviews existing regulatory obligations in relevant retail markets

Obligations in non-relevant markets removed but remain under review and subject to Competition Law Article 16

General conditions of entitlement

OFTEL has produced guidance on the relationship between current PTO licence conditions and the proposed new rules. Key changes to note are:

  • annex 2 status granting interconnection rights will be replaced by a rule which provides that all operators who are capable of interconnection will have obligations to negotiate interconnection with each other;
  • greater clarity concerning the retail obligations which apply between communications providers and end-users, which are set out in the Universal Service Directive, and wholesale obligations between communications providers which are set out in the Access and Interconnection Directive;
  • new remedies and enforcement procedures, which will be contained in the proposed Communications Act (see draft clauses 74-81);
  • obligations to provide a minimum set of contract terms and even quality of service statistics to OFCOM. For providers of access to Internet services, this goes further than the eCommerce Directive and its recent implementing regulations;
  • retention of billing records for 15 months instead of 2 years; and
  • non-geographic numbers should become accessible from overseas.

The limited scope of the General Authorisation will require many existing obligations to be removed (although some may be reintroduced by OFCOM using its powers under the Communications Act). Obligations which will disappear cover:

  • service obligations for non-SMP operators;
  • publication of interfaces;
  • accounting separation for companies with special or exclusive rights in unrelated sectors;
  • notification of changes in shareholdings;
  • extension of controls from the licensee to the ‘licensee’s group’, all of whom are individually subject to the General Authorisation anyway;
  • fees, which will be dealt with by the Communications Act;
  • international business special provisions which protect the UK market;
  • special protection of mobile service providers, but this will be superseded by powers in the Communications Act in relation to SMP operators; and
  • Schedule 2 dealing with revocation, although suspension of the General Authorisation for individual communications providers is possible under draft Clause 79 of the Communications Bill, including the prospect of an order to pay compensation to parties who suffer damage through the resulting loss of service.

OFTEL has published a letter to all UK operators to introduce the forthcoming changes and reference should be made to the regulatory authorities in other Member States for the detailed provisions.

For further information about EU communications licensing 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.