Documents considered by the Committee on 6 May 2009 - European Scrutiny Committee Contents


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

Legal base
Document originated24 March 2009
Deposited in Parliament3 April 2009
DepartmentBusiness, Enterprise and Regulatory Reform
Basis of considerationEM of 21 April 2009
Previous Committee ReportNone; 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)
To be discussed in Council
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information requested

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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