IMPLEMENTATION OF TELECOMS REGULATORY
Commission Communication: Seventh Report on the Implementation of the Telecommunications Regulatory Package.
|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.
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
7.2 It was written just before the 6/7 December 2001
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.
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.
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
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).
7.7 The report says that implementation of the Regulation,
2887/2000, which became mandatory from January 2001, has been
"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
"Translation of the political imperative into operational
reality has been complex for all parties and subject to a number
of delays. The NRAs
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)
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
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 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
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
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.
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
cleared the Sixth Report on 7 February 2001 - (21940) 14511/00;
see HC 28-v (2000-01), paragraph 15 (7 February 2001). Back
and Telecommunications Council of 6 and 7 December 2001: Press
Release 14660/01, pages 5 to 11. Back
local loop is the line which connects the customer to the local
Regulatory Authorities. Back
link from the cablehead to the international switching centre. Back
subscriber line. Back
network provision. Back
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