Select Committee on European Scrutiny Eighteenth Report




COM(01) 706

Commission Communication: Seventh Report on the Implementation of the Telecommunications Regulatory Package.

Legal base:
Document originated:26 November 2001
Forwarded to the Council:30 November 2001
Deposited in Parliament:Report: 31 December 2001; annexes not yet received
Department:Trade and Industry
Basis of consideration:EM of 15 January 2002
Previous Committee Report:None; but see (21940) 14511/00; HC 28-v (2000-01), paragraph 15 (7 February 2001)
Discussed in Council:6/7 December Transport and Telecommunications Council
Committee's assessment:Politically important
Committee's decision:Not cleared; further information requested

  7.1  This is the Commission's seventh report on telecommunications liberalisation in the Member States.[42] It reviews the major developments in telecommunications markets over the course of the year, analyses the effectiveness of the implementation of the key parts of the current regulatory framework and draws attention to the regulatory matters that are still to be resolved.

  7.2  It was written just before the 6/7 December 2001 Telecommunications Council[43] at which the telecommunications regulatory package was expected to be discussed, prior to adoption by the Council and European Parliament. The Commission refers to this Council as an important milestone in the process since the Lisbon European Council set the objectives for the eEurope Action Plan, thus stamping the authority of the Heads of State and Government on the movement towards increasingly competitive and converging markets.

Market developments

  7.3  The Commission notes that the telecommunications services sector continues to represent a substantial factor in the growth of the European economy. The projected growth of 9.5% is three percentage points less than actual growth in 2000, but a slight increase over the 9% forecast in the previous implementation report. Generally, it notes the buoyant state of the electronic communications market, against the broader economic trend.

  7.4  Incumbents' market shares have continued to decline in all fixed call markets, accompanied by an increased choice of operators for consumers and lower tariffs overall. There has been dramatic growth in the market for mobile phones, with 36 percent more mobile subscribers across Europe and an average market penetration rate of 73 percent, with rates at 75 percent or higher in seven Member States.

Regulatory developments

  7.5  As regards transposition of the framework, the Commission says that three Member States, France, Italy and Luxembourg, have notified it of national legislation that will remove its major concerns.

  7.6  The report's main negative conclusion is that, while there has been continuing progress in implementation, a number of regulatory bottlenecks persist. These are due to the framework not yet being applied fully or consistently in all Member States. Also, the framework leaves room for manoeuvre by the implementing authorities, which has resulted in regulatory divergences. But the Commission's main concern is the slow progress made in unbundling the local loop (LLU)[44].

  7.7  The report says that implementation of the Regulation, 2887/2000, which became mandatory from January 2001, has been very disappointing:

"Full unbundling agreements have been concluded in ten Member States and involve more than 200 operators, half of them in Germany where unbundling was mandated under national law in 1998. The numbers of lines that have actually been unbundled varies greatly ... from a handful to a substantial quantity. No lines have been unbundled in Ireland or Luxembourg. Shared access is actually operational only in Belgium, Denmark, Finland and Sweden, although the number of lines is limited to a few hundred. Trials are proceeding in France.

"Translation of the political imperative into operational reality has been complex for all parties and subject to a number of delays. The NRAs[45] and operators have had to ride a steep learning curve to overcome practical difficulties relating in particular to collocation and pricing. Further, LLU is subject to precisely the same factors that have slowed the provision, for example of leased lines at competitive prices and with non-discriminatory provisioning times, such as poor supervision of cost accounting systems and slow dispute resolution procedures. To this must be added the reluctance or inability of some incumbents to open this service fully to non-discriminatory and effective access by competitors, and the ability afforded by their relative size, and in some cases State holdings, to 'sit out' the current financial situation. High one-off costs (collocation, line connection, investment in equipment or backhaul links[46]) are difficult to amortise and have to a larger extent deterred entry into the market. However, the financial downturn should not give cause to incumbents to delay unbundling in the hope or expectation that it will force competitors out of the market. In the current climate NRAs will need to be particularly alert to this factor."

  7.8  Nevertheless, the report says, the number of fully unbundled lines is growing in a number of Member States. In Sweden, about 1,605 are now operational, compared to 40,000 in Denmark, 550,000 in Germany and 137 in the UK. Trials are being carried out in France and Portugal.

  7.9  In 13 Member States , the incumbent operator offers a high speed internet access retail service and this has been developing rapidly in nine Member States, not including the UK. However, it is only in Denmark and the UK that the number of high speed access lines held by new entrants is comparable to the number of the incumbent's retail access lines.

  7.10  The reports says that:

"All Member States have taken on board the message from Lisbon concerning the need to ensure cheap internet access as a stepping stone to the information economy, but some have not taken sufficient measures to ensure that low-cost DSL[47] access is provided on a competitive basis. Where artificially low access prices are provided by incumbents they may constitute predatory pricing; where imposed by government or regulatory action they may constitute an infringement of the tariff principles in the ONP[48] framework. In either case they tend to strengthen the dominant position of the incumbent player and foreclose entry by competing players. In addition, questions of price squeeze arise where unbundled local loop and shared access tariffs are set too high to allow entrants a margin on their own retail offerings; price squeeze may also exist between the wholesale price of bitstream access and the incumbent's DSL offering."

  7.11  Other problem areas are: high interconnection charges; some tariff distortions and price squeezes; availability of carrier selection and pre-selection services; and disparate requirements relating to rights of way. The report is critical of the monitoring of consumer issues and the length of procedures adopted by some national regulatory authorities in dispute resolution.

  7.12  However, the Commission is generally positive about the increasing expertise and authority of national regulatory authorities in implementation and their growing tendency to co-operate with each other.

  7.13  According to the Minister for eCommerce and Competitiveness (Mr Douglas Alexander), the report is based on information from representative groupings of operators, consumer and user groups, and national regulatory authorities and relevant ministries in the fifteen Member States, plus data obtained from the national regulatory authorities. In the UK, Oftel, the Radiocommunications Agency and the Department of Trade and Industry made contributions. He adds that the annexes to the main report provide detailed market data and an overview of implementation in each Member State including the UK.

  7.14  We have not yet received these annexes, but note the Minister's comments on the section on the UK's implementation of the package. He says:

"The annex relating to the UK's record is generally positive and shows many encouraging developments. The incumbent's share by revenue of voice-telephony markets has continued to decrease: local calls were down from 73.4% at end-1999 to 68.2% by end-2000, long distance calls from 65% at end-1999 to 58.9% by end-2000, and international calls from 49.4% at end-1999 to 48.3% by end-2000. There has been a decrease in tariffs thanks to increasing competition from new entrants, which, for example, charge between 36% and 56% less than the incumbent for long-distance calls and 18% less for local calls. The UK is one of six Member States where the whole population can choose from more than five alternative providers for local-call services. Mobile penetration has continued to increase: in October 2000, the number of mobile subscribers passed the number of fixed lines for the first time, and by March 2001 there were over 43 million mobile subscribers. Internet penetration has also increased: 46.5% of UK households and 60% of small businesses — around the Community average— have access. In respect of high-speed Internet-access retail services, agreements relating to the provision of wholesale services by the incumbent to new entrants have been concluded. The UK is one of only two Member States (the other being Denmark) where the number of high-speed access lines held by new entrants is comparable to the number of incumbent's retail access lines.

"The Commission appears reasonably satisfied with Oftel's performance in recruiting and retaining staff (an area in which the sixth report had expressed concern), and with the stricter guidelines which Oftel has put in place to speed the resolution of interconnection disputes.

"The report does identify some regulatory bottlenecks in the UK, being particularly critical about slow delivery of leased lines and the low demand for, and provision of, LLU. Although the Commission notes that the introduction of LLU in the UK has not been without practical problems, the report also documents the huge volume of work done by Oftel to put an effective regulatory framework in place, also accurately reporting that BT offers fully unbundled lines, shared access and sub-loops and that Oftel has set the key charges for both fully unbundled loops and shared access".

  7.15  In December 2001, agreement was reached by the Council and the European Parliament on four proposed directives which comprise the greater part of the new regulatory framework for electronic communications networks and services[49].

The Government's view

  7.16  The Minister says:

"This report confirms continuing progress towards greater consumer choice and competition in the UK and across Europe. In the area of greatest criticism of the UK — slow progress in LLU — Oftel has made a big effort to put an effective regulatory framework in place and to ensuring its fair and impartial operation. In addition, the Government is committed to pursuing the successful path of promoting local access over a range of platforms in parallel with LLU.

"The report's overview of conditions in other European markets is very welcome; barriers to competition exist elsewhere and it is important for UK operators that they are identified and lifted. The UK will continue to support the role of the Commission in monitoring and enforcing the existing rules for the liberalised market, and those of the new regime which will result from the package of measures agreed in December 2001".


  7.17  The Minister concentrates in his Explanatory Memorandum on the comments made about the UK, without dealing in any detail with the barriers to competition elsewhere in the internal market. It is important that these are drawn to Parliament's attention and we ask him to provide us with a Supplementary Explanatory Memorandum (SEM) in which he notes which areas are of particular concern to the British industry and what the Government is doing to get them lifted.

  7.18  When we have received his SEM and also the annexes to the document, which will provide us with more detail on the performance of each Member State, we shall comment more fully.

  7.19  Meanwhile, we shall keep this document under scrutiny.

42  We cleared the Sixth Report on 7 February 2001 - (21940) 14511/00; see HC 28-v (2000-01), paragraph 15 (7 February 2001). Back

43  Transport and Telecommunications Council of 6 and 7 December 2001: Press Release 14660/01, pages 5 to 11. Back

44  The local loop is the line which connects the customer to the local exchange. Back

45  National Regulatory Authorities. Back

46  The link from the cablehead to the international switching centre. Back

47  Digital subscriber line. Back

48  Open network provision. Back

49  The proposed "Framework", "Access", "Universal Service" and "Authorisation" Directives. A Common Position on the "Data Protection" Directive has been deposited with the European Parliament for Second Reading. Back

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