Select Committee on European Scrutiny Twenty-Sixth Report


5 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)

Legal base
Document originated29 March 2007
Deposited in Parliament3 April 2007
DepartmentTrade and Industry
Basis of considerationMinister's letter of 8 June 2007
Previous Committee ReportHC 41-xxi (2006-07), para 11 (9 May 2007)
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared

Background

5.1 This Communication, which we considered on 9 May, is the twelfth report on the overall market for electronic communications in the EU, and the third on the new regulatory framework introduced in 2003.

5.2 The 2003 legislative package consisted of six Directives and a Decision:

—  Framework Directive: general principles, objectives and procedures;

—  Authorisation Directive: replaces individual licences by general authorisations to provide communications services;

—  Access and Interconnection Directive: sets out rules for a multi-carrier marketplace, ensuring access to networks and services, interoperability, and so on;

—  Universal Service Directive: guarantees basic rights for consumers and minimum levels of availability and affordability;

—  e-Privacy or Data Protection Directive: covers protection of privacy and personal data communicated over public networks;

—  Directive on Competition: consolidates previous liberalisation directives; and

—  Radio Spectrum Decision: sets the principles and coordination procedures essential for the development of a coherent EU radio spectrum policy.

5.3 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

5.4 In preparing the Report, Commission officials visit each Member State to interview Government officials, regulators (Ofcom in the UK), industry players (e.g. BT, C&W, Orange, Vodafone) and consumer groups. 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. It is fully outlined in our previous Report.

5.5 As we noted in our previous Report, the documents contain a lot of good news — e.g., investment in the sector again 5% higher, the fourth year-on-year increase and the value of the sector up nearly 25% in three years. There also continued to be much to commend in the UK's performance and approach. But even though the UK was one (at sixth) of 6 Member States who exceeded it, we felt that 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 than in the US, Japan and Korea.

5.6 In her accompanying Explanatory Memorandum, the Minister of State for Industry and the Regions (Margaret Hodge) noted the German approach to this latter concern — a regulatory "holiday" to encourage Deutsche Telekom to build a higher-speed broadband network — and the Commission's, and her own, unhappiness with it (the Commission having started legal proceedings against Germany which, she said, were likely to lead to a case at the European Court). But she did 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.

5.7 Given that this Annual Report sets the scene, in part, for the Commission's proposals for amending the legislation, which are expected in the summer, we reported it to the House. In clearing it, we also asked the Minister to 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.[15]

The Minister's letter

5.8 The Minister responds in her 8 June as follows:

BROADBAND AVAILABILITY, TAKE-UP RATES AND NEXT GENERATION BROADBAND

"The 12th Implementation Report states that take-up rates of the best performing EU countries (which includes the UK) are growing faster than "other places such as Japan and Korea". Recent research by Ofcom[16] has shown that at the end of last year 50% of adults in the UK live in households connected to broadband, up from 39% the previous year, which is excellent progress.

"Access to internet services is not restricted to those who have broadband at home. UK Online Centres, libraries, mobile devices, other public access points and access at work are alternatives for those who cannot, or choose not, to have access to broadband at home.

"While I am content that, given the current trend of UK take-up and broadband availability, we should be on track to meet Lisbon ICT targets, I am not complacent. I continue to monitor progress, with a focus on the impact of higher bandwidth broadband on UK and EU competitiveness and digital inclusion.

GERMAN APPROACH TO REGULATION OF NEXT GENERATION BROADBAND INFRASTRUCTURE

"The Commission has started legal proceedings against Germany on the basis that new German telecoms legislation is incompatible with EU law. The legislation could have the effect of allowing the German incumbent telecoms operator, Deutsche Telekom (DT), to be free of regulated access to its higher bandwidth broadband infrastructure (using technology called "VDSL+"). The upgrade would be to DT's monopoly "access" network (between exchanges and premises), a part of the network that is prohibitively expensive to replicate nationally by another operator (hence the monopoly nature of this local access network).

"This could mean that competitors to DT wanting to offer higher speed services to their customers would only be able to buy broadband services from DT at retail rates, thus removing any hope of a profit margin or that they could offer their own retail prices that could compete with DT. Competition, consumer choice and prices could suffer if access to DT's monopoly next generation access network was not effectively regulated from day one. DT argues that it cannot afford to invest in new infrastructure without the security of monopoly supply, for at least a few years. It will be the regulator and not the German government that decides whether and how access to DT's upgraded monopoly network will be regulated.

UK APPROACH

"In my view, effective regulation of wholesale access to monopoly networks is key to ensuring that we continue to benefit from competition. In the UK, the Openreach model (independent management and accountability of BT's monopoly local network) has led to a significant increase in investment in network and services by BT's competitors, increasing choice and further lowering prices for consumers. BT has accepted that if it were to upgrade its monopoly local network, access to it would be regulated by Ofcom from day one.

"Ofcom has launched a public debate on the future of broadband regulation via a discussion paper and seminars. The aim of which is to determine how best to regulate future markets by encouraging investment and promoting competition. I do not believe, as some EU incumbent operators claim, that competition and investment conflict with each other. I will continue to work with the Commission to ensure that the revised regulatory framework (to be negotiated from autumn 2007) continues to build on the remarkable progress of the original framework and does not take us backwards, as freedom from access regulation of monopoly infrastructure would do".

Conclusion

5.9 We are grateful to the Minister for this helpful exposition. The challenge nonetheless remains: even if the UK is doing well on the take-up front, if only six Member States have surpassed the 20% broadband take-up threshold, and overall broadband speeds are lower than in Europe's main competitors, both will have to improve if the Lisbon targets are to be met.

5.10 As to the "how", we fully endorse her approach, which we hope to see reflected in whatever proposals the Commission brings forward later this year with respect to revising the regulatory framework.


15   See headnote. Back

16   The Communications market: Broadband 2006. Digital progress report. http://www.ofcom.org.uk/research/cm/broadband_rpt/ Back


 
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