11 European electronic communications
regulations and markets
| (28519)
8089/07
COM(07) 155
+ ADDs 1-2
| Commission Communication: European Electronic Communications Regulations and Markets 2006 and Annex (Commission Staff Working Paper Volumes I and II)
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| Legal base | — |
| Document originated | 29 March 2007
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| Deposited in Parliament | 3 April 2007
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| Department | Trade and Industry
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| Basis of consideration | EM of 25 April 2007
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| Previous Committee Report | None; but see (27315) 6700/06: HC 34-xxiii (2005-06) para 7 (29 March 2006) and (27286) 6114/06: HC 34-xxi (2005-06) para 9 (8 March 2006)
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared; further information requested.
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Background
11.1 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[31]
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
cooperation 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.
- 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[32]
by website operators; general data retention rules; and rules
on the use and retention of communications traffic and location
data.
11.2 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
coordinates and supports the radio spectrum needs of EU policies
and initiatives in such sectors as communications, R&D and
broadcasting.
11.3 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 cooperation 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
11.4 This is the twelfth Report bringing together
the Commission's annual research on communications markets across
the EU and its assessment of how well each Member State has implemented
the regulatory framework. It covers the period up to 1 October
2006 in terms of the data used and up to 31 December 2006 for
the regulatory situation.
11.5 In preparing the Report, Commission officials
visit each Member State to interview Government officials, regulators
(Ofcom in the UK), leading companies (e.g. BT, C&W, Orange,
Vodafone) and consumer groups.
11.6 A
Commission Staff Working Paper accompanies the Communication.
Volume I (289 pages) reviews the state of EU electronic communications
services markets (fixed, mobile and broadband) and looks at the
regulatory environment, consumer interests and spectrum management.
It also includes a detailed annex on national markets and regulatory
performance of each Member State. Volume II (167 pages) gives
a comprehensive, detailed overview of national and EU markets.
11.7 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 (Margaret Hodge) in her
Explanatory Memorandum of 25 April 2007.
MARKET DEVELOPMENTS
"Traditional fixed voice telephony revenue has
decreased across the EU. The cause is a) competition pushing prices
down and b) people turning to their mobile phones or to new (and
still emerging) services like Voice over Internet Protocol (VOIP).
Revenue from mobile services continues to grow but at a slower
rate than in 2005. Most movement was seen in the broadband market,
the fastest growing area, in which the Commission notes that increasing
revenues have offset some of the losses in traditional business.
"Investment
in the electronic communications sector was 5% higher than in
2005 and 2006. It was the fourth consecutive year-on-year increase.
The EU invests more in this sector in absolute terms than either
the US or Japan. The value of the sector had increased by 13.53%
during 2006 and by 23.84% over the last three years. Merger and
acquisition activity added to the impression of a healthy and
dynamic market sector.
"There is an
increasing trend for convergence with most major fixed and mobile
operators offering two or more traditionally distinct services
(e.g., fixed, mobile, broadband). Content is becoming more important,
with the emergence of internet and mobile TV and a trend towards
bundled package deals for a single flat price.
"Mobile
penetration has now exceeded 100%, i.e. there are more mobile
phones than people in the EU. Increased competition is pushing
down national prices and the Commission is working on a Regulation
to deal with the problems it identified with high roaming charges
in previous reports.
"Incumbent
operators continue to increase their presence in Member States
outside their home country (e.g. France Telecom via the Orange
brand and BT in EU-wide business markets).
"Broadband
speeds in the EU are still lower than in the US, Japan and Korea.
This is due, in part, to the high density of population in Japan
and Korea and more high-capacity cable networks in the US (as
opposed to much of the EU which is dominated by traditional copper
lines to and from premises).
"Broadband
take-up rates (the percentage of people using broadband technologies
in their home) are encouraging, although the gap between the best
and lowest performers is increasing because countries with the
highest take-up rates are growing more rapidly. The best performing
EU countries (the top six, of which the UK is 6th)
have rates above 20% and are growing faster than Japan and South
Korea. The Commission cites effective competition as a major driver
of broadband take-up.
"Member
States that have competing national infrastructures, such as the
Netherlands and Denmark, have the best take-up rates. The UK performs
well, too, because access to BT's network is effectively regulated
by Ofcom".
REGULATORY DEVELOPMENTS
"Twenty-five
Member States have now transposed the 2002 regulatory framework
(the last of these, Greece, implemented in 2006). Two of the new
Member States, Romania and Bulgaria, have started implementation
via primary legislation.
" The Commission is concerned (as are we) by
the proposed amendment to German telecoms law which would give
Deutsche Telekom a regulatory 'holiday' to encourage them to build
a higher speed broadband network. The Commission has started legal
proceedings against Germany which are likely to lead to a case
at the European Court.
"On deregulation,
the Commission noted the voluntary settlement reached between
Ofcom and BT in the UK that led to the functional separation of
BT's monopoly network to an independent company within BT Group:
Openreach. Some sector-specific regulation has been reduced or
removed in markets that have been found to be competitive, e.g.
mobile access (outbound calls) and international fixed calls markets.
"On the importance
of independent national regulators (like Ofcom in the UK), the
Commission notes that competition and investment will only reach
its full potential where the independence and impartiality of
the regulator can be relied on by those considering investing
('the market'). The Commission raises some concerns about the
political independence of the Polish and Slovakian regulators,
as well as enduring state ownership of some incumbent operators.
"Most national
regulators have completed the first round of market reviews to
determine whether any operator has significant market power. There
are, however, delays in implementing 'remedies' to neutralise
the effect of significant market power (e.g. infrastructure access
rules or price caps). Some countries have lengthy appeals processes
that delay the imposition of effective remedies, while other regulators
are too slow in proposing remedies once they have found significant
market power (Germany was singled out, again).
"On spectrum,
the Commission notes that some Member States are implementing
a more liberal and flexible approach to spectrum management, which
the Commission believes is essential for efficient spectrum use
and economic growth. The Commission is concerned about the lack
of harmonised approaches and is examining these 'shortcomings'
in its current review of the framework.
"The Commission
notes that digital switchover is starting to happen in most Member
States, which should be completed within the timeframe set by
the Commission (2012)".
CONSUMER INTERESTS
"The
Commission makes passing comments on the state-of-play of universal
service, services for disabled users and emergency access via
the '112' telephone number (equivalent to '999' and available
in all Member States, including the UK) and the importance of
price transparency. These aspects are being reviewed in greater
detail in the Commission's current review of the regulatory framework.
"The e-Privacy
Directive (an extension of the Data Protection Directive for electronic
communications) has been implemented in all Member States and
the Commission is looking at strengthening some aspects in its
current review of the framework, of which the e-Privacy Directive
is part.
"Number portability
(the ability to take your phone number with you when you change
supplier) is noted as a key element for competition. Ofcom is
currently looking at ways of improving the UK system of porting
numbers, which has been criticised (though not in this Report)
as being too tortuous for supplier recipients of ported numbers
(i.e. the phone numbers that new customers want to bring with
them when they switch)".
CONCLUSIONS
"The Commission concludes that where the framework
has been implemented well the resulting effective competition
has brought benefits to consumers in terms of price and innovative
new services and/or packages".
"There remain some concerns about the single
market not being attainable under the existing framework and the
Commission is seeking to address its concerns via its review of
the framework. A communication is expected in the summer setting
out the Commission's plans for changes to the Directives that
form the framework".
ASSESSMENT OF THE UK
"The UK is praised for having competitive markets
(including competitive retail prices) and for healthy growth in
investment and broadband take-up.
"The Commission focused on the contribution
to effective competition of Ofcom's solution to improving competitor
access to BT's monopoly local network (the bit between exchanges
and premises): 'functional separation' and the creation of Openreach.
The Commission notes that it is too early to say whether functional
separation has been a long-term success (compared to doing nothing
or to 'structural" separation', as in the case of British
Gas and Transco). However, it has recognised some early positive
signs (e.g., greater choice and lower prices for consumers and
increased investment).
"Openreach was set up by BT via voluntary, legally-binding
Undertakings under the UK Enterprise Act. Ofcom is one of the
few EU regulators that has concurrent competition and sector-specific
(EU framework) powers. The Commission's immediate reaction to
functional separation was concern that the arrangement might not
be compatible with the EU framework. They have since understood
and supported Ofcom's approach.
"BT's voluntary approach in agreeing the deal,
and its commitment to seeing it through was noted by the Commission
as vital for success. BT stands out among most other incumbent
operators in the EU as one with as much focus on overseas business
as the home market. This means that BT is often operating as a
competitor to incumbents in other Member States and that access
to incumbent infrastructure is as much a priority for them, as
it is for BT's competitors in the UK.
"The UK market is noted for the dramatic increase
in investment and resulting competition, following the Openreach
deal. Convergence is really happening in the UK. We have seen
acquisitions (e.g. Sky buying Easynet, the internet service provider
with some broadband infrastructure), mergers (Virgin and NTL:Telewest)
and other significant high-street brands entering the broadband/telephony
market (e.g. Carphone Warehouse). Investment in local loop unbundling
(taking over control from BT of the management and maintenance
of the local connection to their customers) by internet service
providers, including Tiscali and Orange (formerly Wanadoo), has
also increased significantly.
"The fixed telephone market is the most competitive
in the EU, with the highest number of operators (11) sharing 90%
of the market. BT's share of this market is the lowest of all
EU incumbents. The mobile market remains competitive with the
highest number of service providers offering mobile calls over
the five mobile networks (mobile virtual network operators, or
"MVNOs") as well as prices that continue to fall.
"Around 70% of UK homes now have digital television
and internet TV is starting to take-off. Concerns were raised
to the Commission about access to monopoly premium audiovisual
rate content and the Commission urges vigilance in Ofcom's application
of its competition laws to sort out any abuse of a monopoly position.
"The Commission is very satisfied with both
the UK position on flexible spectrum management, including spectrum
trading and the current state of play (Ofcom is the first regulator
to enable spectrum trading but it has yet to take off in large
volumes).
"On consumers, the Commission notes Ofcom's
work on improving the availability of price comparison information
via an independent website. The mobile operators have also launched
an independent service and price comparison website.
"The Commission wrote to Ofcom in December 2005
about its concerns that all mobile subscribers who want to be
included in the phone directory are given the opportunity. Ofcom
is working towards ensuring that all operators explicitly offer
a directory entry to all new subscribers, but notes that over
90% of mobile phone users do not want to have their number in
a public directory.
"Ofcom is also urgently reviewing its position
on the legality (in UK and EU law) of BT being obliged to offer
access to its master directory database, to ensure that the UK
is compliant with the relevant part of the Universal Service Directive
(Article 5). We continue to monitor the situation in liaison with
Ofcom.
"The Commission also notes Ofcom's plans to
regulate to bring down the costs of calling revenue-sharing phone
numbers including 0870, in the face of consumer and media outrage
at 'being ripped-off'. The industry had raised viability and cost-benefit
concerns with Ofcom about, what is (in their opinion), an overly-harsh
new regime. Ofcom went with the consumer lobby, although the changes
will not start to take full effect from 2008, to give industry
time to adapt to the changes."
The Government's view
11.8 The Minister says:
"The UK has performed well in implementing and
enforcing the EU regulatory framework and the Commission reports
that the UK regulatory regime has led to effective competition
(e.g., wide choice of service providers, low prices) and healthy
investment.
"There is a clear link between Ofcom's independence
and effective regulation. Ofcom, as an independent organisation,
and its decision-making processes are praised as being both effective
and consistent with the letter and spirit of EU law.
"The Commission now understands and accepts
the UK-specific solution (achieved through Ofcom's concurrent
competition powers under the Enterprise Act) to solving access
problems to an incumbent's monopoly local network (the 'Openreach'
model, or 'functional separation'). The Commission is now seriously
considering putting a 'functional separation' significant market
power remedy into the revised framework, so that it is available
to regulators who do not have concurrent competition powers".
11.9 Looking ahead, the Minister says the next phase
of policy activity in this area will begin in earnest this summer,
when the Commission publishes its proposals for legislative change.
Conclusion
11.10 There continues to be much good news for
UK consumers in this latest Report, and much to commend in the
UK's performance and approach.
11.11 But a broadband take-up rate performance
threshold of 20% might be regarded as somewhat low, particularly
when coupled with the lower broadband speeds in Europe when compared
with the US, Japan and Korea. The Minister notes the German approach
to this latter concern and the Commission's, and her own, unhappiness
with it. But she does not suggest what her own views are, given
that European performance is clearly lagging, and needs to be
improved if, for example, the Lisbon ICT targets —with all
their implications for jobs and growth — are to be met.
We should be grateful if she would expand more fully on what the
German approach is, what is wrong with it and how the Government
would see this particular challenge best being tackled.
11.12 The immediate challenges are two-fold. The
first is an effective Regulation on mobile roaming charges, where
discussions between the Presidency, Commission and the European
Parliament are currently under way, and upon which we have recently
taken evidence from the Minister.[33]
11.13 The second is to maintain the current approach
and the momentum towards ensuring that the benefits of competition,
innovation and cost reduction are spread throughout the single
market. As the Minister notes, given BT's position and ambitions
in a number of European markets, it is not just the general good
that is at stake here.
11.14 As the Minister says, this Report sets the
scene, in part, for the Commission's proposals for amending the
legislation, which are expected in the summer. Given the pace
of change and the convergence of wireless technologies, one of
the key issues will be spectrum management, which we consider
elsewhere in this Report.[34]
11.15 We look forward to scrutinising the Commission's
proposals in this and other areas in due course. In the meantime,
we clear this Communication.
31 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
32
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
33
(27110) 11724/06: see HC 41-xv (2006-07), para 3 (21 March
2007). Back
34
See paragraph 9 of this report. Back
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