House of Commons - European Scrutiny

Select Committee on European Scrutiny Fourth Report

8 The Universal Services Directive

(26600)

9592/05

COM(05) 203 + ADD I

Review of the Scope of Universal Service in accordance with Article 15 of Directive 2002/22/EC

Commission Staff Working Document

Legal base —

Document originated 24 May 2005

Deposited in Parliament 3 June 2005

Department Trade and Industry

Basis of consideration EM of 8 July 2005

Previous Committee Report None

To be discussed in Council To be determined

Committee's assessment Politically important

Committee's decision Not cleared; further information requested

Background

8.1 The 2002 Universal Service Directive lays down the basic principles on universal service (i.e. for telecommunications and information) and addresses other specific user and consumer rights, and the corresponding obligations on undertakings. It provides National Regulatory Authorities (NRAs) with the necessary powers to protect users' interests in situations where competition and market forces are generally the most effective means to satisfy users' needs. The Universal Service Directive is part of the overall regulatory framework, whose other components are:

· the Framework Directive: containing rules and principles which apply horizontally to all the activities covered by the other, specific, directives, focussing on the responsibilities and powers of the National Regulatory Authorities (NRAs) as the foundation of the new system;

· the Authorisation Directive: intended to reduce the regulatory burdens on market access and to ensure more consistent treatment of operators and different technologies;

· the Access and Interconnection Directive: aimed at ensuring that relations between operators are left as far as possible to competitive market forces, while giving flexible powers to NRAs to intervene where necessary; and

· the E-Privacy Directive: aimed at controlling unsolicited direct marketing communications by email, SMS[20], fax and automated calling machines; the use of cookies[21] by website operators; and data.

The Commission Communication

8.2 The Directive requires the Commission to review the scope of universal service in 2005 (and every three years thereafter). The results of the review are set out in this Communication. The Commission notes that competitive markets are the main route to an "inclusive knowledge society": "universal service is not a mechanism whereby the roll-out of new technologies and services is financed by increasing the costs for all existing (telephone) users. Rather, it is the safety net that allows a minority of consumers to catch up with the majority who already enjoy basic services".

8.3 The Directive defines universal service as the "minimum set of services, of specified quality to which all end-users have access, at an affordable price in the light of national conditions, without distorting competition" (Art. 1.2). The current scope of universal service includes:

Connection to the public telephone network at a fixed location

"All reasonable requests for connection at a fixed location to the public telephone network and for access to publicly available telephone services at a fixed location must be met by at least one undertaking." (Art. 4.1). The connection to the network is limited to a single narrowband connection to the end-user's primary location/residence. The principle of technological neutrality allows universal service providers to use any technology, whether wired or wireless, capable of delivering that service at fixed location (Rec. 8).

Access to publicly available telephone services

According to Article 4.2, end-users must be able to make and receive local, national and international telephone calls, facsimile communications and data communications. In addition, the Directive incorporates a number of services that are closely associated with basic telephony: the provision of directories and directory enquiry services (Art. 5), public pay telephones (Art. 6) and special measures for disabled users (Art. 7).

8.4 Member States must ensure that the defined set of services is made available to all users, independently of geographical location, upon reasonable request, giving undertakings an opportunity to fulfil them and imposing obligations on them only if the market fails to deliver the defined services (Arts. 3, 4 and 8)

8.5 Article 15 of the Directive requires the Commission to review the scope of universal service "in the light of social, economic and technological developments, taking into account, inter alia, mobility and data rates in the light of the prevailing technologies used by the majority of subscribers". Any change of scope is subject to criteria that the Commission summarises as follows:

"a) A minority of consumers would be excluded from society by not being able to afford specific services that are both available to and used by the majority; and

b) Inclusion of these services within the scope would convey a general net benefit to all consumers in case they are not provided to the public under normal commercial circumstances."

8.6 Given the rapid changes in communications, the Commission has also judged it timely "to provoke a forward-looking policy debate on universal service provision that allows input from all interested stakeholders and can contribute to the general regulatory review in 2006".

8.7 The Commission notes that "competition and technological progress have brought more choice, lower prices and innovation for consumers". 97% of households in the EU 15 (the pre-accession States) have fixed or mobile telephones. At least 95% of the total EU population is covered by mobile networks, with mobile penetration in many States (including several of the new ones) exceeding fixed-line penetration. Households across the EU have also been rapidly taking up broadband services (either through cable, copper, DSL services[22] or wireless networks), with around 85% of the population in the EU 15 being covered by fixed broadband networks (the Commission Staff Working Document examines these developments in more detail).

Mobile communication

8.8 The Commission notes that, thanks to the second-generation mobile networks, all Member States now benefit from the operators' license requirement that at least 90% of the population is covered. Mobile communications have rapidly become a mass market, with over 80% of the EU 25 population using them; this equals the average household penetration of fixed lines. In nine of the EU 15, there are more mobile subscriptions per household than fixed-line ones. Average mobile penetration in the EU 10 is lower than in the EU 25, but with considerable variations — saturation in some; fast growth elsewhere. Although fixed telephone lines remain the main delivery mode of universal service, the most notable trend, particularly in the new member States, is fixed-to-mobile substitution. Overall, mobile communications "provide services to mass markets at costs that consumers are able and willing to pay". With networks in place, subscribers can be added at low marginal cost; with the vast majority using pre-paid services, "mobile communications offers potentially for all consumers the lowest cost method of providing basic connection to publicly available telephone services". Against this background, the Commission conclusion is unsurprising:

"the evidence demonstrates that the competitive provision of mobile communications has resulted in consumers already having widespread affordable access to mobile communications. The conditions for including mobile communications within the scope of universal service (as set out in the Directive) are therefore not fulfilled."

Broadband internet access

8.9 While broadband[23] access networks cover around 85% of the EU 15 population, the actual percentage of users across the EU is only 6.5% (EU 15 = 7.6%). The Commission accordingly concludes that:

"the regulatory data complemented by market-based analyses show that only a small, although rapidly growing, minority of European consumers currently make use of broadband services. As the figure of 6.5% actual take-up per head of population shows, the EU as a whole does not meet the criterion of use of the service by a 'majority of consumers'. Broadband has not yet become necessary for normal participation in society, such that lack of access implies social exclusion. At the present time, therefore, the conditions for including broadband services within the scope of universal service (as set out in the Directive) are not fulfilled."

Longer-term issues

8.10 The Commission then looks at some longer-term issues with respect to the provision of Universal Service; firstly, the effect of likely technological developments — and particularly convergence between telecommunications, media and information technology — on the scope of Universal Provision. The growth of IP-based[24] services challenges the current provision of universal service, which is based on consumers using a fixed location for voice-related and basic internet services provided over the public switched telephone network, which is in turn based on a vertically-integrated service provision model whereby the main infrastructure provider is also the telephone services provider. But if voice telephony service increasingly moves to an IP environment, an internet-like model would be created, whereby anyone with a broadband connection could choose between a range of competing voice service providers: "In such a scenario, the provision of telephone service as an access service would become ubiquitous, and the focus of universal service could evolve towards the provision of an affordable broadband access link". The Commission accordingly invites comment on the following long-term issues:

(b) In as much as consumers are increasingly mobile while using communications services, should universal service continue to address access at a fixed location, or should it address access at any location (including access while on the move)?

(c) With widespread affordable access to mobile communications, the demand for public payphones is declining. Is it still appropriate to include provisions on public payphones, and as they are currently conceived, within the scope of universal service?

(d) In view of the competitive provision of directory enquiry services in many countries, for how long will there be a need to keep directories and directory enquiry services within the scope of universal service?

(e) Taking into account the complexity of the ever evolving communications environment as described above, and noting the challenges presented to date for existing universal service provision, it is likely that advanced services will bring both benefits and new difficulties for users with disabilities. Should special measures for such users in the context of universal service provision be further harmonised at EU level?"

8.11 The second long-term issue referred to in the Communication is the financing of universal service. Currently, it is generally funded by the body providing the service (usually the dominant carrier) or from a fund provided by all the carriers. The Communication suggests that this methodology might need to be addressed, especially in view of the widespread liberalisation in markets. It therefore asks:

"(a) Is a universal service funding scheme an appropriate means to address the objective of social inclusion in a competitive communications environment?

(b) Is funding from general taxation a viable alternative?"

The Government's view

8.12 The Minister of State for Industry and the Regions, Department of Trade and Industry (Mr Alun Michael), in his Explanatory Memorandum of 8 July, endorses the conclusion that the scope of the Directive should not be amended; he believes this will be generally welcomed. He says that "the Commission's assertion that mobile phones are now widely available in a normal commercial manner to the public would not be considered controversial. Nor would their conclusion that broadband services, however desirable from an economic and social perspective, are not yet available to a majority of the public".

8.13 He adds that the longer-terms issues raised in the second half of the Communication are equally important, but not in terms of their obligations under the Directive:

"The Commission have raised them to solicit views ahead of the overall review discussions of the 2003 Telecommunications 'package' (which includes the Universal Service Directive) that will commence in 2006. As such there are no immediate policy implications for these latter questions. We do, however, believe that Member States, and other stakeholders will take the opportunity of expressing their views during the UK Presidency.

"The first two questions, (a) and (b) relate to the technology and market convergence being witnessed across the EU, and also in the UK. lt may well be that in the future, although possibly not at present, the market may fragment vertically so that those entities providing the infrastructure will be distinct form those providing services. And it may well also be the case that the majority of the public will indeed secure their access from mobile, as opposed to fixed points. On the questions of public payphones and directory answer: clearly public payphones are still useful at present (at least in some locations) though the ever-increasing penetration of mobile technology may erode such a need. Whilst in the UK, competitive directory services have possibly removed the obligation for provision as a universal service, though this may not be so in other Member States.

"Question (e), relating to the possible need for special measures for users with disabilities, is also pertinent. It would seem sensible to keep this issue under review, especially given the potential benefits that the IP revolution (especially VOIP services) may bring disabled users.

"The questions raised on 'financing' the provision of universal service are no less pertinent or challenging. It would seem that a review of these issues is important. Whether a change, from the current choices, as indicated above, is required, is less obvious. Clearly several member States, including the UK, are unlikely to be in favour of the general assumption that the provision of universal service should be met from general taxation."

8.14 He goes on to explain that the Office of Communications (Ofcom), the UK National Regularity Authority, has recently been reviewing the scope of Universal Service in the UK, including examination of the need for an evolution of universal service obligations, looking both at scope (the services to which obligations should apply) and funding (the most appropriate method of subsidising the USO):

"Ofcom's conclusions are that there is no need to review funding yet, but that it could be an issue as competition bites further — one to keep under review. On scope, Ofcom has concluded that there is no case for extension to mobile; though an arguable case for extension to broadband when the market has matured — but unlikely to be an issue this decade."

8.15 Ofcom has also been reviewing how the delivery of existing universal service obligations in relation to voice services, including requirements to offer special tariffs for low-income users, to maintain certain public payphones, and to maintain uniform pricing for services regardless of geography, could be improved: "A statement on this will be published soon". In addition to the Ofcom consultation, "DTI will be consulting various organisations and trade bodies before replying to the Commission Communication".

8.16 On the timetable, the Minister says that this Communication was adopted by the Commission on 24 May 2005: "There are no legislative timing issues associated with this Communication. During our Presidency we may, however, endorse and comment on the Communication through Council or Presidency Conclusions".

Conclusion

8.17 The Communication invites comments on the conclusions and longer-term issues by 30 June 2005, which seems an unreasonably short timescale that militates against the thorough consideration these issues require. We understand that the Commission intends to produce a further Communication, once all the views have been gathered in and assessed. We would not wish any endorsement of proposals to be given, in Council or Presidency Conclusions, until the Minister has written to us with the outcome of the two consultation exercises to which he refers, with his views thereon, or before the subsequent Communication has been submitted for scrutiny.

8.18 Meanwhile, we hold the document under scrutiny.

20 Short Message Service - a text message service that enables short to be sent to and transmitted from mobile phones. Back

21 A small data file created by a Web server and stored on the recipient computer, which provides a way for the Web site to identify users and keep track of their preferences. Back

22 Digital Subscriber Line (DSL) technology dramatically increases the digital capacity of ordinary telephone lines (the local loops) into the home or office and allows for "always-on" operation. Back

23 Broadband refers generally to "always on" services with the capacity to transmit significant amounts of data at a high rate, ranging from 128 kbps (kilobits per second) to several Megabytes (millions of bits per second). "Traditional" voice band modems typically offer a data range up to only 56 kbps. Back

24 The first impulse behind the dramatic surge in the Internet's growth in the mid 1990s was the development of the IP (or SMTP) -the Internet mail Protocol - as the global e-mail standard, enabling users of different Internet Service Providers to connect with each other. Back

25 Voice over IP: a telephone service that uses the Internet as a global telephone network, typically offer in-country calling for a fixed fee and low per-minute international charges. Broadband Internet access is required. VoIP services that use regular telephones can generally make calls to and receive calls from any regular phone. Back



© Parliamentary copyright 2005	Prepared 3 August 2005