The new EU communications legislation has just been adopted. Member States have until July 2003 to introduce the new rules into domestic practices. This, the first in a series of articles on the EU package examines the main differences between what regulators and operators do now and what they will be doing in 18 months time.
Most of the EU's new regulatory framework for telecoms and other electronic communications services, a package of measures which dictate the rules that national telecoms legislation must follow in future, was formally adopted on the 7th of March, and published in the Official Journal in April. The new regulatory framework seeks to respond to increased convergence and competition with respect to electronic communications networks and services.
In addition to a Framework Directive, the new regime comprises directives on access and interconnection, universal service/users rights, authorisations, a decision on radio spectrum (a regulatory framework for EU radio spectrum policy) and a further draft measure consolidating the Commission's Services Directive. Another part of the regime, the regulation on local loop unbundling, was adopted in 2000, while the final element of the jigsaw, a new directive on data protection in telecoms, is still awaiting final adoption. The new regime has to be implemented in national legislation by the 25th of July 2003. This article looks at some of the key elements of the framework, access, users rights and authorisation directives. The next issue of this bulletin will look at the telecoms data protection directive in more detail.
The cornerstone of the new regime is the Framework Directive. Responding to the needs of convergence, this extends the application of the new regime beyond the traditional telecoms area to all forms of electronic communications networks and services, including all transmission systems and other resources which permit the conveyance of signals by wire, by radio, by optical or by other electronic means, including satellite networks, fixed (circuit and packet switched, including Internet) and mobile terrestrial networks, as well as electricity cable systems, to the extent that these are used for the purpose of transmitting signals, networks used for radio and television broadcasting and cable television networks. The new regime applies to all conveyance of signals on electronic networks, but excluding services providing, or exercising editorial control over, content transmitted using electronic networks and services, and excluding Information Society services, as defined in the E-commerce Directive, where these do not consist wholly or mainly in the conveyance of signals on electronic communications networks.
The new legal framework has a stronger and clearer requirement for legal and functional independence of national regulatory authorities from market operators, as well as structural separation of the regulatory function from the activities of the state in owning or controlling undertakings providing electronic communications services.
Procedural provisions with respect to consultation, co-operation and concerted action between a national regulatory authority on the one hand and the national competition authority, regulatory authorities in other Member States and the European Commission on the other hand bring about major changes. For many States, a right of appeal against national regulatory authority decisions introduced by this Directive as well as other procedural rules in the area of, for instance, exchange of information, confidentiality, mediation, preliminary proceedings and consultation of interested parties will bring about significant changes as well.
The Directive also establishes a large number of regulatory policy objectives and regulatory principles to be complied with by national regulatory authorities, including internal market objectives. The new provisions are of importance, in that they allow the Commission to control the decisions of national regulatory authorities against the requirements of Community principles and objectives, where previously there were no overarching EU provisions. These include efficient use and management of radio frequencies and numbers. One of the objectives whose application could give rise to considerable interest is the requirement that national regulatory authorities take the utmost account of the desirability of making regulation technologically neutral, neither imposing nor discriminating in favour or the use of a particular type of technology. However, this is expressed not to preclude "the taking of proportionate steps to promote certain specific services where this is justified, for example digital television as a means for increasing spectrum efficiency".
The new provisions on rights of way are one of the more disappointing elements of the new regime by comparison with what was originally hinted at in the 1999 review, going little beyond the existing requirements of non-discrimination and transparency in the grant of such rights, and doing nothing to address the high charges, complexities and lack of co-ordination that exists in many Member States. Nor does the obligation on national regulatory authorities to encourage co-location and facility sharing give rise to sufficiently specific obligations, confirming only the need for a consultation process, and the possibility of rules for apportioning costs or property sharing. The new regime allows secondary trading in frequencies, and requires notification and following of public procedures where it takes place, but fails to make secondary trading mandatory. In terms of numbering, a new provision allows for the grant of numbers to all suppliers of electronic communications services, not only public network operators. National regulatory authorities may decide that rights for "numbers of exceptional economic value", such as so-called "golden numbers", are to be granted through competitive or comparative selection procedures.
Introduction of Competition Law analysis of significant market power
The new regime will further introduce Competition Law analysis into the regulatory process, by requiring that regulation be rolled back where there is effective competition, and that additional "ex ante" regulation should apply only to operators who have significant market power on the basis of dominance according to a Competition Law-type assessment. In this respect, the Framework Directive repeats the Competition Law definition of dominance, from the case law of the European Court of Justice, and combines this with the notion of an undertaking enjoying a position "equivalent" to dominance:
"an undertaking shall be deemed to have significant market power if, either individually, or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers, and ultimately consumers."
As in the application of the competition rules, the new test also applies to situations where a number of operators are jointly dominant. National regulatory authorities are required, in assessing significant market power based on joint dominance, to "take into the utmost account" guidelines on market analysis and the assessment of significant market power which are to be published by the Commission, and to take into account certain criteria set out in the annex to the Directive.
The Directive also applies to situations of dominance in closely related markets, indicating that where an undertaking has significant market power on a specific market, it may also be deemed to have significant market power on a closely related market, where the links between the two markets are such as to allow the market power held in one market to be leveraged into the other market, thereby strengthening the market power of the undertaking.
The new procedure
The Commission adopts a recommendation, before entry into force of the new regulatory framework, with subsequent updates, on markets whose characteristics may justify the application of certain regulatory obligations set out in the Universal Service and Access Directives (see below). It also publishes guidelines on market analysis and significant market power. The national regulatory authorities then, as soon as possible after the adoption of the recommendation, analyse the relevant geographic and product markets, "taking the utmost account of" the recommendation and the guidelines.
Where required to impose, maintain, amend or withdraw certain obligations on undertakings pursuant to this analysis by virtue of the Universal Service Directive (existing and future obligations on retail tariffs, carrier selection/pre-selection and leased lines) or the Access Directive (existing and future interconnection and access obligations), the national authorities must determine on the basis of that market analysis whether a particular market is effectively competitive or not. In the event that the market is deemed to be effectively competitive, the national regulatory authority must not impose or maintain any of the specific obligations allowed for. On the other hand, where a relevant market is not effectively competitive, it must identify undertakings with significant market power on that market, and impose appropriate specific regulatory obligations. A special case arises where the Commission identifies transnational markets. In this case, undertakings must jointly undertake the relevant market analysis, and impose specific obligations in a concerted manner.
According to the Directive the Commission issues a recommendation identifying the markets that justify analysis by national authorities for the purposes of ex ante regulation. Commission Officials have recently said that a draft of the recommendation will be published shortly and this will not significantly differ from previous unpublished versions. If that is the case, the following may be identified as relevant markets:
- Access to the public telephone network at fixed locations
- Publicly available telephone services provided at fixed locations
- Call origination for publicly available electronic communications services provided at fixed locations
- Call termination on individual networks for publicly available telephone services provided at a fixed location
- Unbundled local access, including unbundled metallic loops and sub-loops, shared access to the local loop or sub-loop and wholesale bit-stream access for the provision of electronic communications services
- Local dedicated capacity (wholesale local or terminating segments of leased lines)
- Call origination on mobile networks
- Call termination on individual mobile networks
- National market for international roaming on mobile networks
- Broadcasting transmission services and distribution networks, to deliver broadcast content to end users.
In the event that regulatory authorities identify other relevant markets in deviation of the recommendation, the Commission may require them to withdraw such a decision (see below).
Pursuant to the Directive the Commission also has to issues guidelines on market analysis and the calculation of significant market power. These guidelines must be taken into account by the national regulatory authorities as much as possible in relation to the markets referred to in the recommendation of the Commission referred to above as well as in relation to any other markets identified by the regulatory authorities which are approved by the Commission. The major objective of the guidelines is to ensure consistency in the application of certain provisions of the directives and especially when the national regulatory authorities designate undertakings with significant market power. The Commission has published draft guidelines in March 2001.
National regulatory authorities and the Commission have to co-operate in order to ensure a consistent application of the directives. Therefore the national regulatory authorities have to submit draft measures to the Commission in the event that such measures have a material impact on interstate trade. The new regime also introduces the possibility for the Commission to require that a national regulatory authority withdraw a decision to identify a relevant market, or the designation of an undertaking with significant market power, in the event that the internal market is affected or in the event that such a measure is not consistent with Community Law including the directives.
Universal service and user rights
The provisions on universal service contain a number of changes compared with the existing regime, including a change in the scope of the universal service obligation to include data communications at rates sufficient to permit functional internet access taking into account the most prevalent technologies, in addition to the possibility of allowing coverage of universal service by several operators, with the universal service obligation split according to different elements or geographic areas.
A wide variety of other user rights and consequent possible obligations on operators are provided for, including provisions relating to the obligation to provide leased lines and the possible imposition of retail price control. The imposition of these obligations on market operators are to be assessed in accordance with the new market analysis provided for in the Framework Directive. Mobile to mobile number portability, already introduced in a number of Member States, will now become an obligation (although not mobile/fixed portability), and Member States may also introduce carrier selection or pre-selection obligations on SMP mobile operators, according to a market analysis to be carried out under the new procedure.
Operator rights: access and interconnection
In terms of interconnection and access of market participants to the facilities of others, the new regime not only now applies to the broader notion of electronic communications, including broadcast infrastructure, but also reforms the lack of clarity about the relationship between interconnection and access under the existing framework with a more specific definition which expands the notion of the relevant facilities to include buildings, ducts and masts, software systems, mobile roaming, number translation, conditional access for digital television services and "access to virtual network services".
The structure of the regime is that while a small number of obligations are applied to all public operators, such as the right and obligation to negotiate interconnection, further obligations can only generally be imposed on operators which have significant market power under the new competition-based test. Only specific types of obligation listed can be imposed (unless Commission approval is given in exceptional circumstances), including obligations of transparency, non-discrimination, accounting separation, access to and use of specific facilities, and price control and cost accounting obligations. Within each category, further detail is given as to the types of obligation that can be imposed, the circumstances in which they can be imposed, and how the extent of the obligation should be decided. "Sunset" provisions require existing rules to be reviewed against the new SMP test on the entry into force of the new regime and periodically thereafter, and where relevant modified or withdrawn.
The new licensing regime contained in the Authorisation Directive will reduce the cases in which an individual licence requiring the positive consent of an authority is needed, and individual decisions of this type can only be required for numbers and radio frequency. All other obligations must now form part of the general law, or be contained in a general, not individual, authorisation, and can only require a simple notification at most. Only minimum information can be requested to commence activities, and thereafter information can only be required in the case of complaints or suspicion of non-compliance. For many regimes, particularly the UK, the abandonment of individual licences, and shipping out of obligations into general legislation or authorisations will mean significant legislative changes. Interconnection rights and rights of way must also fall under the conditions attaching to general authorisations. Fees can only be charged to operators on the basis of the administrative costs actually incurred.
The new EU regulatory regime forms a next important step towards total harmonisation of regulations in the electronic communications sector. The amendments are focussing not only on the harmonisation of material regulations but also to a substantial extent on the harmonisation of procedural rules in order to ensure a consistent application of the harmonised regulatory framework. The changes in the EU regulatory framework will bring about important changes for the national legislation in the various Member States. At the same time the national regulatory authorities will be kept busy because they will have to reconsider existing designations of significant market power and existing obligations pertaining thereto while at the same time they have to analyse the position in other relevant markets which the Commission has identified including the possible designation of significant market power and obligations to be imposed. Last but not least they will have to enter into consultations with competition authorities, other national regulatory authorities and the Commission about measures which they or other authorities intend to take in order to ensure consistency. However, as a result, the electronic communications sector will remain one of the leading sectors in the European Union as far as harmonisation and liberalisation are concerned.
To find out more about the new EU rules, contact Marjolein Geus, and in relation to the new competition provisions, Simon Topping.