1 European Electronic
Communications Markets
| (30523)
8169/09
COM(09) 140
+ ADDs 1-4
| Commission Communication: Progress Report on the Single European Electronic Communications Markets 2008 (14th Report)
Commission Staff Working Documents
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| Legal base | — |
| Document originated | 24 March 2009
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| Deposited in Parliament | 3 April 2009
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| Department | Business, Enterprise and Regulatory Reform
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| Basis of consideration | EM of 21 April 2009
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| Previous Committee Report | None; but see (29586) 7979/08: HC 16-xxi (2007-08), chapter 10 (14 May 2008); also see (29173): HC 19-xiv (2008-09) et al., chapter 1 (22 April 2009)
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| To be discussed in 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
1.1 The EU regulatory framework agreed in 2002 consists of
the following instruments:
1. Framework Directive setting out the main principles,
objectives and procedures for an EU regulatory policy regarding
the provision of electronic communications services and networks.
2. Access and Interconnection Directive
stipulating procedures and principles for imposing pro-competitive
obligations regarding access to and interconnection of networks
on operators with significant market power.
3. Authorisation Directive
introducing a system of general authorisation, instead of individual
or class licences, to facilitate entry in the market and reduce
administrative burdens on operators.
4. Universal Service Directive
requiring a minimum level of availability and affordability of
basic electronic communications services and guaranteeing a set
of basic rights for users and consumers of electronic communications
services.
5. Privacy and Electronic Communications Directive
setting out rules for the protection of privacy and of personal
data processed in relation to communications over public communication
networks.
1.2 In addition, the Radio Spectrum Decision
establishes principles and procedures for the development and
implementation of an internal and external EU radio spectrum policy.
1.3 The Framework also establishes a number of
committees and policy groups to manage and implement the new system:
1. Communications Committee:
which advises on implementation issues;
2. European Regulators Group:
to facilitate consistent application of the regime;
3. Radio Spectrum Policy Group:
to enable Member States, the Commission and stakeholders to coordinate
the use of radio spectrum;
4. Radio Spectrum Committee:
to deal with technical issues around harmonisation of radio frequency
allocation across Europe.
The Commission Communication
1.4 This Report brings together the Commission's
annual research on communications markets across the EU and its
assessment of how well each Member State has implemented the EU
regulatory framework. It covers the period up to 1 October 2008
in terms of the data used and up to 31 December 2008 for the regulatory
situation.[1]
1.5 In preparing the Report, Commission officials
visit each Member State to interview Government officials, regulators
(Ofcom and the Information Commissioner's Office in the UK), industry
players (e.g. BT, Mobile Broadband Group, UK Competitive Telecommunications
Association, Federation of Communication Services) and consumer
groups (Consumer Focus).
1.6 The accompanying Commission Staff Working
Papers review the state of EU electronic communications services
markets (fixed, mobile and broadband), and look at the regulatory
environment, consumer interests and spectrum management, in detail,
including a detailed annex on national markets and regulatory
performance of each Member State, including some 130 tables.
1.7 This copious documentation is helpfully summarised
by the Minister for Communications, Technology and Broadcasting
at the Department for Business, Enterprise and Regulatory Reform
(Lord Carter of Barnes) in his 21 April 2009 Explanatory Memorandum
as follows:
MARKET DEVELOPMENTS
"Despite the economic difficulties the EU telecoms
sector continued to grow in 2008 at a faster rate than the economy
as a whole (1.3% in real terms compared 1% growth in GDP for whole
economy) Indeed the sector is withstanding the sharp deterioration
in the economic climate relatively better than other sectors thanks
partly due to the stability of cash flow for most operators. As
prices continue to fall overall it contributes to a dampening
effect on inflation and significant benefits to users and consumers.
The EU Roaming regulation has contributed to a decrease in roaming
prices of around 60% — and 2009 should see the extension
of this regulation to Short Message Service (SMS) and data roaming
services.
"Despite consumer gains the full potential of
a competitive market is still impeded by ineffective and inconsistent
implementation of regulation. For example, approaches to Next
Generation Access (NGA) are fragmented and regulatory methods
for setting mobile termination rates remain diverse. The Commission
hopes its intervention will rectify this during the course of
2009 (not least through the review of the EU Electronic Communications
Framework).
"In 2008 telecom sector revenue accounted for
over 52% of the ICT sector as a whole. Confirmed National Regulatory
Authority (NRA) data for 2007 showed the figure reached €357
billion (£332 bn) or 2.9% of GDP. In the same year investment
increased again by 1.5% (thus making it the sixth year in a row
where investment rose) and latest figures suggest that will [be]
a continuing situation through 2008 — albeit with a flattening
trend as a consequence of the financial crisis.
"Traditional fixed voice telephony revenue continues
to fall (5% decline in revenue levels, same as 2007) and reinforcing
the trend of the last couple of years. This continues to be caused
by the switch to mobile and broadband services whilst prices are
generally seen to be stabilising after a period of fall. Fixed
incumbents market share across Europe is also stabilising now,
but there has been a considerable increase in direct access from
alternative providers (5% between July 2007 and July 2008 to 18.6%
of the market).
"The mobile market remains the most dynamic
part of the electronic communications sector due to increasing
call volumes and the take off of mobile broadband. Mobile penetration
continues to soar and has now reached 119%, (year on year growth
of 7%) i.e. there are significantly more mobile phones than people
in the EU. This compares with 87% for USA and 84% for Japan in
2007. In general mobile prices fell (mainly through a decrease
in prices for mobile voice services and domestic SMS) —
but lower operator revenues were partially offset by increased
volume. In the UK the mobile price per minute of voice communication
remains slightly above the European average (at 0.19 cents/17.7p
compared to 0.14 cents/13p. The use of 3G services is also increasing
to an estimated 91.3 million users at the end of 2008.
"12.25% of the European population now subscribe
to bundled offers, which is an increase of 33.3% on last year.
Voice over Internet Protocol (VoIP) continues to replace traditional
fixed line telephony. The managed VoIP market share has almost
doubled to 8.33% of the EU Market.
"Fixed broadband penetration continued to grow
in 2008 with 14 million new lines added. The top EU countries
remain world leaders in broadband penetration with 9 MS ahead
of the USA (UK is 5th in Europe behind Denmark, Netherlands, Sweden
and Finland) and the EU is catching up with Japan and Australia.
Mobile broadband is also taking off (13% of the overall penetration)
— although the number of broadband connections using only
a dedicated card/modem/key is significantly lower (2.8% penetration).
"Digital subscriber line (DSL) remains the main
broadband technology in the EU but alternative technologies (fibre
and wireless) are gaining ground. High growth of unbundled local
loop-based products continues and now represents 69.3% of all
DSL lines used by alternative suppliers. Wholesale access prices
are decreasing and ¾ of broadband lines in the UK are of
2 mega bits per second (Mbps) or faster.
"The gap between the best and worst-performing
countries in [ ] Europe is narrowing, even though the difference
remains significant (26.3% between the worst-performing country,
Slovakia and the best, Denmark.)
EU REGULATORY ENVIRONMENT
"The Commission remains concerned about the
independence of NRAs, and how this may be compromised in markets
where MS still have control over operators. The Commission has
had to launch infringement proceedings against Lithuania, Latvia
and Luxembourg, and refer Poland to the Court of European Justice.
It is additionally examining the circumstances of the dismissal
of the head of the Slovakian NRA.
"As it did last year the Commission remains
concerned about the resources available to NRAs, but is now generally
speaking content that NRAs have the legislative powers they need
to undertake their responsibilities under the regulatory framework.
It continues to feel that systematic appeals and lengthy procedures
continue to undermine legal certainty and effective implementation
of the framework in a number of MS. The Court of Justice has provided
clarification on the types of undertakings or users eligible to
appeal the decisions of NRAs which will broaden the number of
eligible parties in some MS and will increase legal protection
by improving the standing of competitors.
"The Commission recognises that significant
progress has been made with the second round of market analyses
(and in some cases the third round, a positive move forward over
last year) — although Bulgaria, Romania and Poland need
to complete some first round analyses.
"In reporting progress on market remedies the
Commission draws attention to markets looking to follow the UK
lead on functional separation, where some MS have considered the
possibility, some commenced initial stages and Sweden has adopted
a law to provide the legal basis for such.
"The Commission will continue to support and
work with NRAs to enhance predictability and improve certainty
in the market place, and consequently has identified the following
as inconsistent approached to market remedies. In some MS problems
such as a lack of, or delay in, implementation of the remedies
imposed, in appropriate technical or economic conditions for the
available access products, or inconsistency between the conditions
for different access products led to low take up of these products
or made in difficult for alternative operators to compete. Approaches
to setting price control obligations for wholesale broadband access
vary significantly across MS and some NRAs are also facing a major
challenge regarding the regulatory treatment of bundled offers
to guarantee that operators remain in a position to compete.
"How to address the specific issues of NGAs
remains a regulatory challenge and while many NRAs have started
to reflect on regulatory treatment of NGAs and to adopt appropriate
measures, some others are only at a very early stage of their
discussions, which is creating uncertainty for operators as well
as a lack of consistency across MS. Some NRAs withdrew obligations
imposed in the wholesale broadband access market by defining different
geographic markets (ourselves included).
"On spectrum, the Commission radio spectrum
harmonisation decisions adopted up until 2007 have been implemented
in most MS, except for the decision on harmonised availability
of information regarding spectrum use within the community. This
is again subject to the proposals being considered in the telecoms
framework review.
"In November 2008, the Commission proposed to
update and simplify the GSM directive (subject to an EM on Council
Document 16155/08) to allow the introduction of new mobile services
in the 900 MHz band. Several MS took concrete regulatory action
to allow the use of 900MHz and 1800MHz bands for services relying
on technologies other than GSM.
"At the EU level the European Parliament and
the Council adopted a decision on the selection and authorisation
of systems providing mobile satellite services (MSS), aimed at
creating a single market for pan-European MSS.
"Greater efforts appear to be required in order
to ensure the implementation of the Commission's spectrum harmonisation
decisions. Separately, while certain MS (including UK) have seized
the opportunity presented by the digital dividend to allow the
deployment of innovative services several others are intending
to keep all or most of the digital dividend for broadcasting applications.
Accordingly, in 2009 the Commission will prepare the required
measures to reserve and coordinate these bands at an EU level.
CONSUMER INTERESTS
"The Commission makes passing comments on several
issues relating to the state-of-play of universal service, including
tariff transparency and the availability of price comparison (often
web based) services and data and similarly information relating
to broadband speeds and services.
"Review of the Universal Services Directive
(as part of the Electronic Communications Framework Review) nears
completion but the Commission draws attention to the initiative
taken in several markets in taking steps to ensure customers are
granted safeguards over broadband speed delivery and codes of
practice have been introduced (voluntary agreements) laying down
clear requirements on broadband speeds.
"As previously, the Commission takes issue with
the lack of established directory enquiry services for fixed and
mobile users.
"While number portability is now available throughout
Europe for mobile and fixed users (except Bulgaria), the Commission
raises concerns over the time taken to do this both for fixed
and mobile lines and the cost associated with it. It has recognised
a specific commitment in the UK (along with five other MS) to
do something about this timing issue.
"In its report the Commission is positive about
the continuing increased awareness of the European emergency number
(112) across MSs — although the UK remains the only one
where mobile roaming for emergency calls to 112 is not yet in
place. Technical trials are about to take place in the UK and
this should be followed up by the availability of emergency roaming
for domestic callers to 112 by the end of this year (2009). The
UK participated in the inaugural celebrations on 11th February
of Europe's first 112 Day and is committed to increasing awareness
of the number.
"The Commission remains concerned about breaches
of confidentiality and security in MS and concludes that e-Privacy
remains a challenge, particularly over the Internet, despite cooperation
initiatives on enforcement. Along with security breaches, the
Commission remains concerned about what it calls "controversial
internet marketing strategies" in MS (including the UK).
GENERAL CONCLUSIONS
"In 2008 the telecoms sector continued to grow
and is showing good resilience in the present difficult economic
situation. Despite improved competition and the take up of new
technologies, there is evidence of a lack of consistency in regulatory
approaches both to the removal of persistent "bottle necks"
and to the rollout of fibre across MS.
"The Commission concludes that in an increasingly
challenging environment it is crucial to ensure effective implementation
and consistent regulatory approaches (which are the key aims of
the ongoing review of the regulatory framework which is reaching
a Second Reading deal in the European legislative process). The
completion of the review will bring the single market closer to
implementation, give legal certainty to market players and deliver
increased consumer benefits.
1.8 The Minister then summarises what the Communication
has to say about the chapter on the UK, as follows:
"The total turnover of the UK telecoms sector
was €56.7 billion (£52.8bn) as at 31 December 2007,
revenue from fixed services was about €30.25 billion (£28.2bn)
and mobile about €26.45 billion (£24.6bn). The total
value of tangible assets in the telecoms sector is €8.93
billion (£8.31bn) for 2007. The fixed incumbent's market
share in the fixed telephony market slightly increased during
2007 both by retail value and volume of traffic and stood respectively
at 58% and 56% in December 2007. It nevertheless remains one of
the lowest market shares for an incumbent in the EU. Charges for
call termination on the incumbent's fixed network are the lowest
in the EU in all three categories (local, single transit and double
transit) and are on average two to three times lower than the
respective EU averages.
"In 2008 32.05% of the UK population used unbundled
services which is the highest percentage in the EU. Specifically
17.31% of the population had subscribed to double play and 12.18%
to triple play packages (that is the bundling of broadband, voice
and television). Bundles are made attractive by offering discounted
prices, commonly free broadband, but can also mean that customers
are tied into longer contracts.
"UK broadband penetration rose to 28.4% in January
2009 compared to 25.7% in January 2008, which constitutes a growth
of 2.7%, and which itself is close to the EU average (2.8%), but
a slow down of the 4% of the previous year. DSL coverage increased
from 99.5% to 99.6% in 2007 with the DSL rural gap with national
coverage also falling to 3.5%. Local Loop Unbundling (LLU) continued
to progress in 2008 with approximately 5.5 million LLU lines in
January 2009. The fixed incumbent's share of the retail broadband
market decreased slightly (25.4% from 25.8%) and is the lowest
for a fixed incumbent in the EU.
"UK mobile penetration rate increased slightly
to reach 121.9% in July 2008 and take up of 3G progressed to reach1.5
million users or 17% of all mobile subscribers. The leading mobile
operator's market share was 25%, which was the lowest for a leading
mobile operator in Europe. The four established MNOs continue
to have market share within a few percentage points of each other
while the fifth, the new entrant was the largest operator in terms
of 3G subscribers. The average consumer price for mobile services
was €19.76 (£18.39) per month which is close to the
EU average, although price increases have been reported for, particularly,
pre-paid mobiles.
"In August Ofcom launched a public consultation
on the assessment of the mobile sector outlining the regulatory
challenges in the mobile market. Key issues such as termination
rates and mobile "emergency roaming" will be addressed
in this consultation.
"Digital television take up grew by 3.4% to
88.2% in the twelve months to the end of September 2008. This
increase was led by the popularity of free-to-view DTT services
but also by continuing growth in satellite and cable pay services"
REGULATORY ISSUES
"In regulation of the market environment the
Commission welcomed Ofcom's completion in 2008 of the second round
review of the wholesale broadband access market — but reflected
also that whilst Ofcom was one of the first national regulators
to complete all first round reviews some second round reviews
still remained to be completed. The successful completion of the
wholesale broadband access review was the first in the EU to define
sub-national wholesale markets based on levels of consumption,
sustainable market entry and population density and had resulted
in deregulated parts of the national territory.
"The Commission welcomed the introduction of
service level agreements and service level guarantees (SLAs/SLGs)
by Ofcom after voluntary negotiations between the fixed incumbent
and alternative operators failed in 2007. These were generally
well regarded by all parties concerned and would contribute to
non-discriminatory treatment of these alternative providers in
the provision of wholesale line rental (WLR), (LLU) and Ethernet
services. Ofcom stated it expects that SLAs/SLGs for new products
to be consistent with those principles mandated for existing products.
"In a balanced assessment of Ofcom's achievements
the Commission acknowledges Ofcom's work on its policy approach
to NGA networks and several measures to enhance consumer protection
including strengthening regulations against consumer abuses in
the mobile sector, improving information on broadband speeds and
quality of service as well as improving accessibility of alternative
dispute resolution mechanisms. The Commission also make reference
to the annulment by CAT (Competition Appeal Tribunal) of Ofcom's
decision regarding number portability, where it criticised the
cost benefit analysis undertaken. They also highlighted Ofcom
determinations in disputes concerning mobile termination rates
(MTR) and how it had exercised its dispute resolution powers on
that occasion.
"Additionally the Commission reflected operators'
concerns on Ofcom's dispute resolution capability and noted that
some disputes were not resolved within the four month time limit
with exceptional circumstances invoked for the extension. This
was not to take away from the thoroughness of Ofcom's consultation
procedures before making decisions though. It is worth reporting
though that Ofcom responded with several counter comments on the
Commission draft paragraph on 'Decision Making' (they had won
as many appeals as they had lost, most decisions were within the
four month limit, etc) and much of the original text had been
changed.
"In the UK most broadcasting multiplex licences
expire in 2010 or 2014 (renewable for a further 12 years). Ofcom
has already consulted on the earlier ones (2010) and has determined
that they can be renewed on existing terms. Ofcom continued to
work in 2008 on access to premium rate content and issued another
consultation in September on the distribution on premium rate
content. Ofcom proposes to make the dominant broadcaster provide
wholesale designated premium channels on regulated terms.
"In spectrum management Ofcom assigned rights
to use frequencies in the 10 GHz and 40GHz bands and in the 'L'
band (1452-1492 MHz) which the assignee plans to use for mobile
TV services. During 2008, Ofcom continued preparations for auctioning
a part of the digital dividend. A specific consultation of on
the auctioning of cleared spectrum took place in June-August of
2008 concerning 550-630 MHz and 790 -854 MHz bands.
CONSUMER INTEREST
"A voluntary code of practice in the mobile
sector helped reduce the number of disputes. Ofcom have looked
to build on this and launched a consultation in March 2008 which
proposed new obligations on sales and marketing practices. Similarly
on broadband Ofcom published a new voluntary code on broadband
speeds. 43 Internet Service Providers (ISPs), covering 90% of
broadband customers, had signed up to this code by December 2008
— providing customers with an estimate of the maximum speed
their line can support. The could only applies to fixed rather
than mobile broadband, where quality of service issues are also
relevant, particularly the instability of transmission speeds
depending on traffic.
"Decisions regarding the regulation of calls
to non-geographic numbers, which are generally charged at higher
rates and are not included in the common consumer packages have
yet to be taken which means that numbers like "0870"
and "0871" which are popular with businesses remain
something of a concern on relation to consumer protection. A further
Ofcom consultation has been published.
"In March Ofcom launched a consultation on the
future regulatory treatment of directory information services
and on the same day issued a final determination in disputes between
two directory service providers and the fixed incumbent which
obliges the fixed incumbent to make available its comprehensive
telephone subscriber database and should ensure that directory
information is provided on a fair, reasonable and cost orientated
basis.
"In December 2007, Ofcom decided that VoIP services
which provides access to ordinary telephone numbers must as from
8th September also ensure access to emergency telephone numbers
and provide caller location to the extent feasibly technical.
In July 2008 Ofcom launched a consultation to review alternative
dispute resolution and complaints handling procedures. Ofcom proposes
to adopt a single Complaints Code of Practice for all providers
to replace the existing codes for each individual provider, setting
minimum standards for complaints handling. In addition providers
will be obliged to notify their customers about the availability
of alternative disputes resolution.
"The Commission reflected on the positive progress
made in the UK on implementation of the 116 range of numbers for
harmonised, pan-European numbers of social value. We shall be
assessing five robust bids shortly.
"The major contention on data protection during
2008 was in relation to behavioural advertising technology, known
commonly as 'phorm'.[2]
The European Commission reported a large number of complaints
when the fixed incumbent announced its plans to use the technology
and it became known it had used it in initial trials in 2006 and
2007 without obtaining user consent. Complaints to the EU reflected
a view that the Information Commissioner's Office was 'not sufficiently
resolute in dealing with complaints about past trials'. In light
of the complaints received in 2008 the Commission sent two formal
requests to the UK authorities requesting clarifications regarding
the UK legal framework on e-Privacy and its enforcement in the
phorm cases. The Commission will continue to monitor the application
of the relevant EU law provisions for this case."
The Government's view
1.9 The Minister says that, it being a Commission
Communication, there are no direct policy implications, but "it
is generally seen (at least by the Commission) as significant
in determining possible future policy and legislation in the field
of telecommunications." As such, the Minister says that "it
has come too late to have any real affect on the 2008 Review of
the Electronic Communications Framework (which is being agreed
in a second reading deal agreement this month).[3]
But, the Minister says, "it may have some affect on the final
draft of the Next Generation Access (NRA) Recommendation which
is soon to be published by the European Commission [which] is
important as it sets out the overall policy and regulatory approach
that National Regulatory Authorities should adopt when considering
the roll out of new high speed broadband networks."
1.10 So far as the UK is concerned, the Minister
says that the report "confirms that for the most part there
are no major problems in implementation of the Electronic Communications
Framework in the UK and that the checks and balances of the appeals
process seem to be working well."
1.11 The Minister then notes that in the report
the Commission committed to "continue to monitor the application
of the relevant EU law provisions" in relation to e-privacy
and phorm. He continues as follows:
"On Tuesday 14 April the European Commission
wrote to the UK, initiating the first stage of infraction proceedings
over our implementation of aspects of the Directive on Privacy
and Electronic Communications (2002/20/EC) and the Data protection
Directive. The areas of EU law at issue were implemented by the
Regulation of Investigatory Powers Act (RIPA) in the UK. The Home
Office is responsible for this legislation although BERR has overall
responsibility for the e-Privacy Directive. The UK has two months
to respond to the letter. We have two options; to either admit
we are in breach of our responsibilities and say we will amend
the relevant legislation or to defend our implementation of the
Directive on some or all of the points raised in the Commission's
letter. A first meeting between BERR and Home office and Ministry
of Justice lawyers has been fixed to discuss this."
1.12 Finally, the Minister says that, although
the current Presidency is not proposing to discuss the Communication
further in Council, "it is possible that the Swedish Presidency
may propose Council Conclusions for their Council in December
2009."
Conclusion
1.13 Although the Communication raises no
questions in and of itself, we are reporting it to the House because
of the importance of the matters it covers and, in particular,
because of the dispute between the Commission and the Government
concerning electronic privacy and data protection.
1.14 For the same reason we are also forwarding
it to the Business, Enterprise and Regulatory Reform Committee.
1.15 We ask the Minister to let us know which
of the two options he refers to above the Government chooses,
and to explain why. In the meantime, we shall retain the document
under scrutiny.
1 For consideration of the 2007 Report, see (29586)
7979/08: HC 16-xxi (2007-08), chapter 10 (14 May 2008). Back
2 According to Wikipedia, "Phorm, formerly known
as 121Media, is a Delaware, United States-based digital technology
company known for its advertising software. Founded in 2002, the
company originally distributed programs that were considered spyware,
from which they made millions of dollars in revenue. It has since
stopped distributing those programs after complaints from groups
in the United States and Canada, and announced it was talking
with several United Kingdom Internet service providers (ISPs)
to deliver targeted advertising based on the websites that users
visit. The company's proposed advertising system, called Webwise,
is a behavioral targeting service (similar to NebuAd or Front Porch)
that uses deep packet inspection to examine pages. Phorm says
the data collected will be anonymous and will not be used to identify
users, and that their service would even include protection against
phishing (fraudulent collection of users' personal information).
Still, World Wide Web creator Sir Tim Berners-Lee and others have
spoken out against Phorm for tracking users' browsing habits,
and the ISP BT Group has been criticised for running secret trials
of the service." See http://en.wikipedia.org/wiki/Phorm for
further information. Back
3
See (29173): HC 19-xvi (2008-09) et al., chapter 1 (22 April 2009)
for our latest consideration of the 2008 Review. Back
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