7 European electronic communications
regulations and markets
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6700/06
COM(06) 68
+ ADDs 1-2
| Commission Communication: European Electronic Communications Regulations and Markets 2005 and Annex (Commission Staff Working Paper Volumes I and II)
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| Legal base | — |
| Document originated | 20 February 2006
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| Deposited in Parliament | 28 February 2006
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| Department | Trade and Industry
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| Basis of consideration | EM of 24 March 2006
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| Previous Committee Report | None; but see HC 34-xxi (2005-06), para 9 (8 March 2006)
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| To be discussed in Council | 8 June 2006 Telecoms Council
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested.
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Background
7.1 The main aim of the new legislative package for electronic
communications introduced in 2003 was a lighter, but comprehensive
and technology-neutral, framework, based on competition law principles.
It also aimed to streamline the entire regulatory process by limiting
ex ante regulation[16]
to what is strictly necessary and by rendering the regulatory
process as transparent as possible. It adapted the existing rules
to take account of the convergence between telecommunications,
information technology and media in evolving markets, where the
same services can be delivered over a variety of platforms and
received via a range of different terminals. Consultation and
co-operation are key features, in the light of the increased flexibility
given to National Regulatory Authorities (NRAs) to choose the
most appropriate tools for dealing with regulatory concerns as
they arise. The five main Directives are:
- Directive 2002/21/EC, the Framework Directive, contains
the rules and principles which apply horizontally to all the activities
covered by the other, specific, directives. It focuses particularly
on the responsibilities and powers of the NRAs, the foundation
of the new regulatory system;
- Directive 2002/20/EC, the Authorisation Directive,
is intended to reduce the regulatory burdens on market access
and to ensure more consistent treatment of operators and different
technologies;
- Directive 2002/19/EC, the Access and Interconnection
Directive, aims to ensure that relations
between operators are left as far as possible to competitive market
forces, while giving flexible powers to NRAs to intervene where
necessary;
- Directive 2002/22/EC, the Universal Service
Directive, provides NRAs with the necessary
powers to protect users' interests in situations where competition
and market forces are the most effective means to satisfy user
needs generally; and
- Directive 2002/58/EC, the E-Privacy Directive,
the main elements of which are controls on sending unsolicited
direct marketing communications by email, SMS,
fax and automated calling machines; rules
on the use of cookies[17]
by website operators; general data retention rules; and rules
on the use and retention of communications traffic and location
data;
7.2 Development of radio spectrum policy also contributes
to the implementation of the eCommunications regulatory
framework and is based on the Radio Spectrum Decision 676/2002/EC
which co-ordinates and supports the radio spectrum needs of
EU policies and initiatives in such sectors as communications,
R&D and broadcasting.
7.3 The Framework also establishes a number of committees
and policy groups to manage and implement the new system:
- Communications Committee:
which advises on implementation issues;
- European Regulators Group:
to encourage co-operation and coordination between NRAs and the
Commission, in order to promote the development of the internal
market for electronic communications networks and services and
consistent application, in all Member States, of the provisions
set out in the Directives;
- Radio Spectrum Policy Group:
to enable Member States, the Commission and stakeholders to coordinate
the use of radio spectrum; and
- Radio Spectrum Committee:
to deal with technical issues around harmonisation of radio frequency
allocation across Europe.
The Commission Communication
7.4 This Communication from the Commission is its
11th Implementation Report on the regulation of, and
the status of, the overall market for electronic communications
in the European Union, and the second to cover a full year under
the new regulatory framework. The situation described is that
of 1 December 2005, while the market data generally covers the
period up to 1 September 2005. A compendious Commission Staff
Working Paper is annexed, which was prepared following visits
to Member States by the relevant Commission officials and analysis
of notifications of the national transposition measures and other
information received from NRAs and Member State national ministries.
Volume I contains a detailed analysis of electronic communications
services markets, the regulatory environment and consumer interests,
along with an overview of the sector in each Member State; Volume
II is a market overview and includes detailed statistics and interpretation.
The Communication will be presented to the Telecommunications
Council on 8 June 2006, when discussion is not expected to lead
to formal Conclusions.
7.5 The main findings of an extensive and thorough
piece of work are fully and helpfully summarised by the Minister
of State for Industry and the Regions (Alun Michael) in his Explanatory
Memorandum of 24 March 2006.
MARKET DEVELOPMENTS
"The Communication notes that the telecommunications
sector is moving through a transitional phase driven by both competition
and technological change. The lines between content, services
and applications are becoming increasingly blurred, and competition
is driving investment in new technology to deliver innovative
services to consumers.
"The value of the e-communications services
sector was estimated at €273 billion, with overall revenue
growth estimated at between 3.8% and 4.7%.
"Revenues from traditional fixed voice services
continued to show a gradual decline of 1.6% a year, but this is
still an attractive market for new entrants as it constitutes
the largest revenue source for those in the fixed market, at €85.8
billion. Incumbents' market shares have continued to fall, and
new entrants continue to drive down call prices. Voice over
IP (VoIP)[18] is
also proving a challenge for entrenched players, as there would
appear to be few barriers to entry.
"Broadband take-up has grown rapidly
to nearly 53 million lines EU-wide, an increase of almost 20 million
lines during 2005. Whilst the EU average Broadband penetration
rate stands at approximately 11%, significantly below the USA
(15%) and Japan (16%), growth has been uneven and some 23 percentage
points now separate the highest and lowest penetration rates by
country. The five best-performing EU countries (Netherlands, Denmark,
Finland, Sweden and Belgium) all outstripped the USA and Japan.
The trend for the provision of bundled services of voice, broadband,
television, and in some cases mobile, is seen as driving take-up
rates.
"Take-up rates for mobile, particularly
in the EU-10, continue to increase, with penetration rates tending
to be highest in countries with the greatest number of service
providers. Overall, EU penetration of mobile services reached
92.8% in October 2005.
"However there are some market concerns in the
Report, including the continuing high price of calls from fixed
networks to mobiles, which can be eight to ten times the level
for calls to other fixed-network subscribers. Intervention by
NRAs began in 2001, and has brought termination rates down 40%
over the last four years, with most setting a glide path to bring
rates down to a cost-orientated level.
"Network competition is also highlighted,
with direct access competition still seen as weak with only 8.3%
of subscribers (for EU-20) using direct access from a new entrant,
seen as reflecting incumbents' continuing dominance of the local
access market.
REGULATORY DEVELOPMENTS
"The Commission took legal action against the
Member States furthest behind in transposition of the regulatory
framework into national law, resulting in judgements of the Court
of Justice against Belgium, France, Luxembourg and Greece. Belgium
and Luxembourg notified their transposition measures to the Commission
in June 2005, France notified final secondary measures in September
2005, and Greece adopted primary transposition measures in January
2006. Secondary measures are incomplete in a few Member States,
and a number have yet to start on the notification of market reviews
— a key aspect of the framework. This latter aspect was
commented on in relation to the recent EM associated with the
Commission Communication on the Article 7 procedure (6114/06).[19]
"Increased regulatory certainty is thought to
have led to increased cross-border investment in terms of capital
expenditure, and in terms of mergers and acquisitions, which in
the past have proved a good indicator of the overall level of
foreign direct investment.
"A number of concerns remain about the NRAs
in a number of Member States, including ensuring independence
from commercial and political concerns, the possible limitations
of NRA powers, the appeals process, and the provision of feedback
during NRA consultation with market players.
"The Commission is also examining local loop
unbundling (LLU)[20]
which is seen as not working in practice in eight of the EU-10,
effective interconnection which remains an issue in six of EU-10
and cost accounting systems in Luxembourg, Malta, Poland and Slovakia.
CONSUMER INTERESTS
"The Report highlights the reduction in prices
for calls on fixed networks. Since 2000 the EU weighted average
charge for a three-minute national call has fallen by 65%, and
a ten-minute national call by 74%. The past year saw further significant
price reductions for national calls — 15.3% for a three-minute
call and 17% for a ten-minute call in the year to mid-2005. However,
reductions were far more modest for local calls over the same
period, where there was little change in the price of a three-minute
call and a reduction of 6% for a ten-minute call.
"Number portability on mobile and fixed
networks is seen as a driver of competition as it makes it easier
for customers to switch suppliers and operators must work harder
to retain them. Across the EU by October 2005 some 25.1 million
mobile numbers had been retained by subscribers when changing
supplier, with the UK accounting for almost 18%, only behind Spain
(almost 25%) and Italy (20%). For fixed networks, just over 8
million numbers had been retained by subscribers across the EU
by 2005, with the UK accounting for 7%.
"The Communication also highlights continuing
problems with the cost of using mobiles abroad, which remains
expensive compared with using a mobile within national boundaries,
mainly due to high wholesale tariffs and retail mark-ups. The
Commission has publicised international roaming charges to try
to foster greater competition, and plans to table a Regulation
in April 2006 to oblige operators to charge no more for roaming
than for national calls. In preparation for this a public consultation[21]
was launched on the Commission's website on 20 February 2006.
"The Commission also raises concerns about the
designation of universal service providers in a number
of Member States, where players may have been excluded a priori.
ASSESSMENT OF THE UK
"In the UK Chapter of Volume I of the Annex,
implementation of the regulatory framework in UK is seen as well
advanced as all initial reviews of markets have been completed
except for the wholesale national market for international roaming.
"It is noted that the outcome of the Ofcom Telecommunications
Strategic Review has, in general, been welcomed, as has the regulator's
proactive approach to new technological and regulatory challenges,
such as next generation networks and VoIP.
"Some concerns have been raised about the length
of time taken for appeals against Ofcom decisions, heard by the
Competition Appeal Tribunal (CAT), to reach a conclusion. Whilst
some smaller operators have also expressed concern about the costs
involved, the CAT has established that the unsuccessful party
will not necessarily bear the costs.
"The UK Chapter also mentions the potential
distortion that UK business rates may have in calculations of
the value of communications infrastructure of the fixed incumbent
and other operators. The Commission is investigating this issue
under the state aid rules.
"The Report highlights that the UK has amongst
the lowest interconnection charges in the EU for call termination
on the incumbent's fixed network, and that the incumbent's share
of the fixed market is the lowest in the EU at 51%, down from
63.7% in 2004.
"The UK's broadband penetration rate
stands at 15%, roughly the same as France and the USA, and just
behind Japan (16%). The UK incumbent market share is identified
as 25% — the lowest in the EU-25, where the average incumbent
market share is 50%, signalling a high degree of competition in
the UK market.
"The growth in broadband lines is seen as one
of the main successes — more than 8.9 million broadband
lines were in operation as at 1 October 2005, an increase of 70%
over the previous year, with the number using broadband lines
now exceeding those using dial-up internet.
"An increase in consumer complaints about
the mis-selling of fixed line telecoms, including the practice
of "slamming" where a subscriber's service provider
is changed without consent, led to Ofcom's introduction of a mandatory
code of practice for sales and marketing of fixed line telecoms
in May 2005. The Commission notes that these rules do not yet
extend to LLU.
"In the Report the Commission states that users
want ready access to a directory and enquiry service containing
all subscribers who have not chosen to keep their details private,
and that where a subscriber has given up a fixed line number in
favour of having a mobile number only, that these subscribers
may want their mobile number to appear. The Report identifies
the UK, along with nine other countries, as having been subject
to infraction proceedings for not having a comprehensive subscriber
directory and/or enquiry service available."
The Government's view
7.6 The Minister says:
GENERAL ISSUES
"The thrust of Communication is consistent with
the policies advocated by the UK; that where the current Regulatory
Package has been thoroughly and consistently implemented, it has
increased competition, driving down costs for users and increasing
choice, and it has encouraged investment in the sector through
greater regulatory certainty. The Report provides evidence that
the current inconsistencies between Member States have had an
impact on the benefits arising from the Regulatory Framework,
in terms of confidence in the single market, competitiveness and
economic growth.
"This year the Commission is conducting a review
of the current Regulatory Framework, the 2006 Review, and as part
of this process the UK recently submitted a joint response from
the Government and Ofcom. The UK Response is consistent with the
situation described in the Report, stressing the importance of
ensuring full and effective enforcement of the current framework,
the need for properly resourced and independent NRAs, support
for further reductions in the regulatory burden, and continuing
flexible approach to ensure technological neutrality and to take
account of market and economic developments.
"The Commission, as noted in paragraph 16, have
launched a 'Call for Input' regarding a potential Regulation to
cap the international roaming charges by mobile network operators.
It is understood a Regulation could be adopted before the summer.
The UK is considering their response on this complex issue; though
have already noted that we would want the Commission to consult
on the detail of any Regulation before it were adopted.
UK CHAPTER
"In the UK Chapter, the Commission is supportive
of Ofcom's approach, noting the Regulator's proactive way of dealing
with the challenges posed by new technology and regulatory developments
such as next generation networks and VoIP, as well as its authoritative
and thorough stance on ongoing regulatory matters. The Commission
is to monitor the implementation of the BT undertakings (arising
from Ofcom's Telecommunications Strategic Review in 2005), and
their effect on future market reviews, to ensure their continued
conformity with the Regulatory Framework.
"In terms of the UK market, the UK Chapter contains
much to cheer about. Inter-alia, it notes that we have the lowest
interconnection charges in the EU for call termination on the
incumbent's fixed network while the incumbent's market share (a
sign of competition in the market) stands at 51%, again the lowest
in the EU and down from 63.7% in 2004. Carrier pre-selection (CPS)
now extends to 5.5 million subscribers. Broadband take-up has
also been a success story, with an increase in lines of 70% over
the last year; with 99.6% of the population falling within the
area of a broadband enabled exchange by the summer of last year
(the figure is now 99.9%) and with the incumbent only having 25%
of the fixed broadband market.
"During 2005 the Commission issued infraction
proceedings[22] against
the UK, under the Universal Service Directive, for not having
a comprehensive directory of subscribers that covers mobile telephone
numbers. Ofcom responded to the Commission, via UKREP, on 13 February
2006. This is referred to in paragraph 26 above.
"Ofcom commissioned market research in this
area, an initial analysis of which has revealed that only 5% of
respondees would want their mobile phone number to appear in a
directory or be available through a directory enquiries service,
with an overwhelming 94% against such an entry, possibly due to
concerns about unwanted marketing calls, an expectation that they
may change their number in the near future, or because the subscriber
has a fixed line connection which is already listed.
"The UK does not accept that it has failed to
fulfil its obligations under Articles 5 and 25 of the Universal
Service Directive in relation to the inclusion of mobile subscribers
in a directory — subscribers do have the opportunity to
be listed in a directory if they request it, and they are not
listed in a directory without their knowledge or against their
wishes. The absence of a comprehensive directory covering all
mobile subscribers cannot necessarily be taken as a failure to
fulfil obligations under Articles 5 and 25, as mobile subscribers
may not wish to be included.
"In relation to the length of time that appeals
before the CAT takes to reach a conclusion ([see] above),
it is difficult to predict how long any particular case will last
as it will depend very much on the circumstances. This is one
of the key policy areas that the UK may address in its response
to the Commission's formal Communication on the Review of the
regulatory framework for electronic communications in the summer.
"On the issue of the "business rates"
case ([see] above and page 282 of the UK Chapter) the Commission
are currently considering this Case and we await their decision.
"Finally, in relation to the comments the Commission
has made with respect to the Ofcom Code of Practice (page 287
of UK Chapter), Local Loop Unbundling (LLU) was not initially
included as mis-selling was not an issue in this market at the
time these rules were put in place. The LLU market is now growing
significantly in the UK and Ofcom is currently consulting on the
process of consumer migrations between communications providers.
One of the options would be for Ofcom to extend the code of practice
to LLU services."
Conclusion
7.7 As the Minister notes, this thorough and impressive
Commission analysis contains a lot of good news for UK consumers
of a growing range of telecoms services. It also again demonstrates
the importance of a commitment by public opinion and government
to market-based solutions, of flexible regulation and of a strong,
determined and independent National Regulatory Authority. All
of this lends support to the Conclusion of our examination of
recent Commission Communication on the Article 7 procedure —
that the Commission should focus its fire on the recalcitrant
Member State governments and NRAs who are holding back the benefits
that UK consumers are now beginning to enjoy.[23]
7.8 The exception to these glad tidings, of course,
is that of mobile roaming charges. The Minister says that the
Commission is considering a Regulation on "this complex issue".
He also mentions in passing that, although implementation of the
regulatory framework is well advanced in the UK, the review of
the wholesale market for international roaming (one of a minimum
of 18 product and services markets that have to be reviewed under
the regulatory framework) has not been completed. But he does
not say why. Nor what it is that makes this a complex issue, or
what sort of Regulation the Commission is considering, or what
the UK view is thereon.
7.9 We should be grateful if the Minister would
let us have this information, and in the meantime shall keep the
document under scrutiny.
16 Under ex ante, prior control is exercised,
with the action in question being reviewed and approved before
it is taken, rather than being examined subsequently. Back
17
Often used by website operators to save customers time when customers
revisit the operator's website to place a new order, cookies contain
information that is automatically sent from the operator's website
and stored on the user's PC during the user's first connection
to that site, which allows the operator to identify the user's
profile on any subsequent connection made from that PC to the
website. Back
18
Voice over Internet Protocol uses the Internet infrastructure
connecting computers all over the world to enable free long-distance
phone calls from a computer that has installed the necessary software.
Back
19
Which we considered in our Twenty-second Report: see headnote. Back
20
Local Loop Unbundling, or LLU, is the process where the incumbent
operator makes its local network (the connection between the customer's
premises and the local exchange) available to other companies.
The customer is then able to choose another supplier other than
the incumbent to provide service. Back
21
http://europa.eu.int/information_society/activities/roaming/index_en.htm. Back
22
Article 226 letter 2005/2399. Back
23
c.f. HC 34-xxi (2005-06), para 9 (8 March 2006). Back
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