Select Committee on European Scrutiny Twenty-Fourth Report


Mobile phone "roaming" costs



(27710)

11724/06

COM(06) 382

+ ADDs 1-2

Draft Regulation on roaming on public mobile networks within the Community and amending Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services

Legal baseArt 95 EC; QMV; co-decision
Document originated12 July 2006
Deposited in Parliament21 July 2006
DepartmentTrade and Industry
Basis of considerationMinister's letter of 4 June 2007
Previous Committee ReportHC 41-xv (2006-07), para 3 (21 March 2007): see also HC 41-vi (2006-07), para 1 (17 January 2007); HC 34 xxxvii (2005-06), para 13 (11 October 2006) and HC 34-xxiii (2005-06), para 7 (29 March 2006)
To be discussed in Council7 June 2007 Telecoms Council
Committee's assessmentLegally and Politically important
Committee's decisionCleared, on the basis that the key elements of the final text do not differ significantly from those in the draft provided by the Minister

Background

1. "International roaming" is the ability of mobile phone subscribers to use their phones whilst travelling abroad. For this, a mobile network operator needs to conclude international roaming agreements with operators in other countries. Mobile termination rates (MTRs) are the fees mobile phone companies charge other carriers to terminate calls on their networks. The mobile phone subscriber pays both to make and receive calls when "roaming". High "roaming" charges have been identified as a persistent problem by consumer organisations, regulators, policy makers and legislators across the Community.

2. Arguing that there had been no general industry response sufficient to obviate the need for regulatory action, the Commission proposed:

—  a "wholesale" price cap for the charges made between the operator of the roaming customer and the operator of the network used while roaming; based on the MTR, which is already regulated within the EU.

—  for calls made within a country, the "cap" would be twice the average termination rate; and three times the rate for calls made back home.

—  a "retail" cap for calls made abroad, at 130% of the maximum wholesale price; and

—  a cap of 130% of the average MTR for receiving calls while travelling abroad.

3. We considered these proposals (outlined in more detail in our previous Reports) and the views of the Minister for Industry and the Regions at the Department of Trade and Industry (Margaret Hodge) on 11 October 2006, and kept them under scrutiny pending further information from her on discussions in the Telecoms Working Group and with the European Parliament , prior to the 11 December 2006 Telecoms Council.[1]

4. The Minister's subsequent letters, from before and after that Council meeting, reported that: the European Parliament had not yet begun consideration, and was unlikely to produce a view before May; so political agreement was unlikely before the end of the German Presidency; and the UK and France had been working together to promote a different approach.

5. In considering the merits of the Commission's proposals, the Minister was concerned that the proposed retail price cap for outgoing calls would impact upon the cost of other mobile communications services; disadvantage the less affluent on pre-pay contracts; and deter competition and innovation. She and the European Regulators Group favoured a "sunrise" clause that would only "trigger" the maximum retail cap if, after a certain time period, the operators had not reduced their call charges to an average level agreed by Member States. While the Commission saw "significant procedural and legal problems", she saw it as offering an opportunity to provide the assurance that the Commission was seeking that cuts in wholesale prices would be passed on to consumers in the form of lower retail prices. The package being promoted by France, with UK support, appeared to be moving in the direction she desired.

6. The Minister was uncertain at the outset last September (though not explaining clearly why) about the use of Article 95 EC as the legal base. Come December, all she said in her first letter was that she was pursuing this with the Commission legal services; that she had nothing to say in her second was no doubt because only a fortnight separated them.

7. We felt that this and other points — particularly how the French/UK package would attain the objective of ensuring lower "international roaming" prices in the EU for all types of mobile phone subscriber — would best be discussed at an evidence session with the Minister. This took place on 28 February, and was published as HC 366-i.[2]

The Minister's oral evidence

8. The discussion reviewed:

—  the nature of the Commission proposals and the Minister's views thereon; and

—  the proposed legal basis of the draft regulation.

9. The Minister's evidence on the technical issues may be summarised as follows:

—  there was a good case for regulation to ensure that consumers pay a fair price, but the regulation needed to be got right.

—  the present Commission proposal, for a maximum retail price with a 30% mark-up between the wholesale and retail tariff, would generate negative spill-over effects on the domestic marketplace. It would in her view become a minimum retail price, which would inhibit both innovation and competition. She was, along with French counterparts, instead advocating two alternative proposals:

—  she agreed that this was "a really complex issue of regulation" and that it was very important to avoid unintended consequences, which was the Minister's "great fear with the initial proposition put forward by the Commissioner". It would be important to ensure that the different tariffs set both reflected fairly the consumers' interest and also maintained competition and innovation. She felt that a package centred on transparency and rigorous control over wholesale tariffs, with both the consumer protection tariff — available to everyone, of approximately 50 cents for outgoing calls and 25 cents for incoming calls — and an average tariff would achieve these objectives. Overall, the operators' aggregate charges would have to be under a retail target, which at the moment in the Council negotiations was around 40 cents. This would provide both protection under the consumer protection tariff and protection if the consumer opted into another type of package.

—  although convinced of the need for regulation around wholesale tariffs, for retail tariffs the Minister would have preferred to have had a "sunrise clause", i.e., a period in which operators could demonstrate that they were bringing down retail charges without regulation; if they failed to do so "then regulation would kick in". But that position did not command much support in the Council: "people want political certainty that prices will actually fall, and I can understand that".

—  having conceded that point, the Minister said that the UK/France proposition would reduce prices to consumers more quickly than the Commissioner's proposition because the changes would be introduced more quickly.

—  however, there was still "a discourse to be had in Europe around what is called a 'sunset' clause": a regulation would be in place for three years, a study would be undertaken 18 months into the regulation to see whether or not there was justification for renewing the regulation and then there would have to be "agreement in the Council, with the Commission and with Parliament to put that regulation back in place".

—  although there were differences within the European Parliament's Industry, Research and Energy Committee and Internal Market and Consumer Protection Committee on exactly how they would be calculated and the precise figures for each one, both Committees' opinions were building on the Council's position of a wholesale cap, a consumer protection tariff and an average retail charge. Discussions between the Presidency and the Parliament were aiming at a consensus that would enable agreement on a regulation at the June "Telecoms" Council meeting; if that was achieved, consumers could expect to see prices falling by the early autumn. Much would depend on what happened in the next few weeks.

—  although "unclear at present quite where the Commission stands", the Minister felt that agreement in the Council and with the Parliament was possible; so, although based on majority voting, the necessity of even having to try to block the Commission's proposal would not arise "because we think we have won the argument, or we think we are winning the argument".

10. We then examined the question of the legal base. The Minister confirmed that she had as yet had no response from the Commission. The Head of the Department of Trade and Industry's Legal Group dealing with Competition and Communication explained her belief that Article 95 was an appropriate base for this particular regulation as follows:

11. We considered that Article 95 could be used to approximate existing national legislation or to deal with a situation where prospective national legislation was likely to diverge, but that it could not be used simply to approximate prices. It seemed to us that this case concerned price controls across Europe. We asked if the Government had considered the possible consequences for the scope of the Community's regulatory powers on the wider economy of allowing Article 95 to be used as a legal base to regulate prices in the absence of any need for the approximation of national laws in the area.

12. The Minister referred to two judgments: firstly, the December 2005 judgment on "smoke flavourings"[4] and then the judgment on the European Network and Information Security Agency (ENISA)[5] in January 2006. Having regard to these judgments, she said that the advice she had received from those leading the negotiation on this particular regulation was that Article 95 EC was an appropriate base. These two cases gave a very wide interpretation as to what would be a harmonising measure, which led Government legal advisers to believe that divergences in national laws would not always be a necessary condition for harmonisation. The approach was "case by case"; it was not a general view, and another Minister might take another view on a different regulatory proposal, but in this particular instance it was appropriate. The Minister did not think that it would prove an unhelpful precedent for future cases. It could be looked at on an individual basis. We were also to "remember we do actually support the Commission in trying to introduce a regulation around pricing so that we can reduce charges to consumers and to business users".

13. We noted that in the Tobacco Advertising case,[6] the ECJ indicated that Article 95 could be used not only where there were existing divergences in national law but also to prevent future obstacles to trade resulting from varied development of national law, provided such obstacles were likely. We noted that, in this present case, there was, however, no reference anywhere to the likely emergence of divergent national legislation; the only relevant reference before us being to a theoretical possibility that the present Community regulatory framework might leave some scope for Member States to address the problems identified in the international roaming markets by means of other legislative measures. However, the Commission nowhere pointed to evidence suggesting any actual intention on the part of any Member State to adopt such supporting legislation. We questioned whether the Minister was not going too far down the route of looking at the broad purposive approach to the Treaty even in the light of the Court's own decisions, and whether there was a danger that any of the companies which might become regulated would challenge the legal basis of the Regulation before the ECJ which could risk the Regulation being struck down, thereby denying the consumer the expected benefits.

14. We concluded by noting that we would be looking to the Commission to provide watertight legal support for the Minister's view if other developments enabled the draft Regulation to be brought forward for formal adoption in June.

The Minister's letter

15. The Minister's letter of 4 June 2007 is written ahead of the 7 June Telecommunications Council, to update us on developments and to seek agreement to the lifting of scrutiny. Referring to her earlier references to the complexity of the issue and the difference in views both across the Council and the European Parliament, she says that she is pleased to be able to report that, despite these difficulties, a provisional agreement has been reached, which should be ratified by the European Parliament Plenary on 24 May and then agreed by the Council of Ministers on 7 June.

16. This provisional agreement is, she says, broadly along the lines discussed at the February evidence session:

—  an Average Wholesale Cap, which is applied to all operators in their dealings with each operator in another Member State;

—  a Euro Tariff (formerly called the Consumer Protection Tariff) that would be offered to all subscribers with maximum rates;

—  transparency requirements (both obliging information to be provided on prices and to be available on request); and

—  a "sunset" provision, such that the Regulation will only last for 3 years, unless Council and Parliament determine otherwise.

17. The most contentious issues, she says, have been the nature of the Euro Tariff and the level of the wholesale and retail caps.

THE EURO TARIFF

18. The Minister says that the Council took the position that the Euro tariff should be offered on an opt-in basis for existing customers while new customers would automatically benefit from the new and lower Euro Tariff, which would enable individuals to choose between the new Euro Tariff and existing packages. She says that an estimated 2.3 million Vodafone subscribers would be worse off if they were automatically switched to the Euro Tariff.

19. But, supported by the Commission, the EP Industry Committee voted for "opt-out" arrangements for all subscribers, i.e., subscribers would be "migrated" onto the Euro tariff and would then have to "opt-out" should they not want it.

20. Eventually a compromise has been reached, which she says has been largely brokered by the UK and which she describes as follows:

THE RATES

21. On the rates themselves, the Minister recalls that in February the Council was discussing a wholesale rate around 30 cents and a Euro Tariff with regulated rates of 50 cents for outgoing and 25 cents for incoming calls.

22. The European Parliament, however, voted for substantially lower figures, for example 40 cents and 20 cents for the Euro Tariff. She then explains that the compromise agreement will, providing it is endorsed, comprise:

—  Year 1 rates of 30 cents for wholesale and 49 cents for outgoing/24 cents for incoming calls for the Euro Tariff.

—  Years 2 and 3 rates of 28 and 26 cents for wholesale and 46/22 and 43/19 for the Euro Tariff.

23. Ofcom have advised the Minister, she says, that this rate structure is "sufficient to both ensure competition in the market and to prevent the "spill-over" effect — where domestic prices could be affected — "which your Committee was rightly concerned about".

TIMING

24. The Minister says that the provisional agreement would see the wholesale cap being introduced after two months while the Euro Tariff would be offered to subscribers ("in other words they would be written to") after one month but only migrated onto it (if they are "standard" subscribers) after three months. "In effect, assuming that the Regulation might be published by the middle of July, subscribers would be seeing lower prices before the end of October".

THE LEGAL BASE OF THE REGULATION

25. The Minister then makes "a few comments on Article 95 being used as the legal base of the Regulation", with which the Committee "raised some concerns", as follows:

    "In both Smoke Flavourings and ENISA the ECJ (in its judgements delivered in December 2005 and May 2006 respectively) rejected the UK's arguments and took a very broad-brush view of the interpretation of Article 95. The ECJ decided that the Community has a discretion in deciding what "harmonisation measures" can be adopted under Article 95. As a result, it is not always necessary for a measure, under Article 95, to approximate national provisions. Further, where a measure is sufficiently close to and complements an existing regime, the ECJ argued that Article 95 confers discretion on the Community legislature to achieve the necessary harmonisation. The Roaming Regulation complements the current EU telecommunications regime, which seeks to establish a harmonised framework for the regulation of electronic communications services and networks.

    "The EC telecommunications regime is not controlling roaming charges in the way that had been envisaged when it was originally established. Despite competition laws, Community wide roaming charges have remained at a high level which the national regulatory authorities within Member States have not been able to address. The current regime was enacted under Article 95. ENISA shows that the EC may, in some circumstances, use Article 95 to supplement an existing regime and it allowed the Community legislator some discretion as to how it adapted that regime, including by adopting measures that would not be possible at national level.

    "I can confirm that since I met the Committee in February, the Government has had further discussions about legal base and the use of Article 95 in this context with the Commission and in the relevant Council Working Groups. Recital 2a (please see Annex 1) has since been added to the Regulation to further strengthen the justification for using Article 95. This Recital makes it clear that the current Regulation supports the existing framework and is not an isolated measure. The existing regulatory framework for telecommunications had not provided the national regulatory authorities with sufficient tools to take effective action in relation to prices in the roaming market. Recitals 3 to 11 further clarify the justification for using Article 95.

    "The Government remains sensitive to the concerns of the Committee as regards the scope of Article 95 and what it may be used for in the future. We believe that the use of Article 95 as the legal base for this Regulation is unlikely to set an unhelpful precedent because of the specific nature of the measure and the distinct nature of the international mobile roaming market. In the light of this and having taken account of the judgments of the ECJ referred to above, the recitals to the draft Regulation and the particular circumstances of this measure, the Government has reached the view that Article 95 is an acceptable legal base for this Regulation. The Government will continue carefully to consider the suitability of Article 95 as a legal base for other EC proposals, on a case by case basis.

26. The Minister concludes in hoping that "the above will serve as a suitable update on this dossier" and enable us to lift scrutiny ahead of the Council meeting.

Conclusion

27. We are grateful to the Minister and her officials for having kept us so well informed during what have plainly been difficult negotiations. However, we are disappointed that, in the end, it proved impossible to have the debate that this important piece of legislation warranted.

28. The prospect of cheaper mobile "roaming" charges for all consumers that also ensures competition and prevents adverse "spill-over" effects on domestic prices is greatly to be welcomed. Only time will tell whether the compromise agreement can deliver all this, but it should be given the opportunity to demonstrate whether or not it can. If not, the "sunset" provision will ensure that the issue is swiftly re-visited.

29. The problem area from our perspective remains the legal base. The various arguments are set out fully in the Report. Our position remains the same as hitherto, which position the Government originally shared. Now, however, the Government has changed its view. It is difficult to avoid the suspicion that this has more to do with political calculation than being convinced of the validity of the Commission's position — witness the Minister's remarks during the evidence session, when we were enjoined to think of the end rather than the means.

30. We have no quarrel with that end. However, we remain concerned that, while Article 95 could be used to approximate existing national legislation or to deal with a situation where prospective national legislation was likely to diverge, it cannot properly be used simply to approximate prices, and that the possible consequences for the scope of the Community's regulatory powers on the wider economy of allowing Article 95 to be used as a legal base to regulate prices in the absence of any need for the approximation of national laws in the area have not been fully thought through.

31. We nevertheless acknowledge that this is a question of law which, ultimately, would be for the European Court of Justice to determine, should the measure be challenged, for example by one or more of the mobile phone operators. For our part, having ventilated the issue fully and recognising that there are respectable arguments against our view on the legal base, we are content for the Minister to participate in the political agreement that will be reached at the Council meeting, on the understanding that the regulation endorsed by the Council is not significantly different from the one enclosed with her letter, which is produced as the Annex of this Report.

32. We now clear the draft Regulation on this basis.


1   See headnote. Back

2   Oral Evidence given by Rt. Hon Margaret Hodge MP, Minister for Industry and the Regions, 28 February 2007, HC 366-i. Back

3   Q25. Back

4   Case C-61/04 United Kingdom v European Parliament and Council Judgment of 6 December 2005. Back

5   Case C-217/04 United Kingdom v European Parliament and Council Judgment of 2 May 2006. Back

6   Case C-376/98 Germany v European Parliament and Council 2000 [ECR] I-8419. Back

7   ECJ Case 66/04 - United Kingdom v Parliament and Council [2005]. Back

8   ECJ Case 217/04 - United Kingdom v Parliament and Council [2006].  Back


 
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