House of Commons - European Scrutiny Committee

European Scrutiny Committee Contents

29 European Electronic Communications Markets

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COM(10) 253

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Commission Communication: Progress Report on the Single European Electronic Communications Markets 2009

Commission Staff Working Documents

Legal base —

Document originated 25 May 2010

Document deposited 2 June 2010

Department Business, Innovation and Skills

Basis of consideration EM of 16 June 2010

Previous Committee Report None; but see (30523) 8169/09: HC 5-ii (2009-10), chapter 7 (25 November 2009) and HC 19-xvi (2008-09), chapter 1 (6 May 2009)

To be discussed in Council To be determined

Committee's assessment Politically important

Committee's decision Cleared

Background

29.1 The EU regulatory framework agreed in 2002 consists of the:

— Framework Directive setting out the main principles, objectives and procedures for an EU regulatory policy regarding the provision of electronic communications services and networks;

— 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;

— 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;

— 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;

— 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.

29.2 In addition, the Radio Spectrum Decision established principles and procedures for the development and implementation of an internal and external EU radio spectrum policy.

29.3 The Framework also established 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 facilitate consistent application of the regime;

— Radio Spectrum Policy Group: to enable Member States, the Commission and stakeholders to coordinate the use of radio spectrum;

— Radio Spectrum Committee: to deal with technical issues around harmonisation of radio frequency allocation across Europe.

29.4 In this fast-developing sector, it was decided in 2007 that the regulatory framework needed to be revised, with a view to ensuring that it continued to serve the best interests of consumers and industry in today's marketplace. An agreement on the EU Telecoms Reform was reached by the European Parliament and Council of Ministers on 4 November 2009, after two years of discussion during the legislative process. It consists of:

— the "Better Regulation" Directive;[117]

— the "Citizens' Rights Directive;[118] and

— the Regulation establishing the BEREC and the Office.[119]

29.5 The Commission says that BEREC (Body of European Regulators of Electronic Communications) will replace "the loose cooperation between national regulators that exists today in the European Regulators Group with a better structured, more efficient approach". It explains that BEREC decisions "will be taken, as a rule, by majority of heads of the 27 national telecoms regulators". A decision on the seat of BEREC still needs to be taken by the Governments of the 27 Member States.[120]

29.6 The new rules now need to be transposed into national laws of the 27 Member States by May 2011. The main elements of the reform package are at Annex 1 of this chapter of our Report.

The Commission Communication

29.7 This Report sets out the Commission's annual research on communications markets across the EU and its assessment of how well each Member State has implemented the regulatory framework in 2009. Commission officials visit each Member State to interview Government officials, national regulatory authorities (NRA — Ofcom in the UK), and industry and consumer representatives. It includes a detailed annex on national markets and the regulatory performance of each Member State. Substantial Commission Staff Working Papers accompany the Communication.[121]

29.8 In his Explanatory Memorandum of 16 June 2010, the Minister for Culture, Communications and Creative Industries Department for Business, Innovation and Skills/Department for Culture, Media and Sport (Ed Vaizey) says that the Commission has undertaken a lower key launch of the report this year because of the simultaneous publication of the new "Digital Agenda for Europe.[122]The Minister observes that the report acknowledges the benefits the European consumer has derived from the existing EU Framework (including increasingly affordable electronic communications) but raises some concerns over the independence of NRAs and the range of diverse regulatory approaches in national markets, "which deliver some significant differences in wholesale and retail prices in the sector". He notes that Member States are currently implementing the changes to the existing Framework ahead of an implementation deadline of 25 May 2011, and the report's conclusion "that consumers and retailers are still faced with 27 different markets and are not able to take advantage of the economic potential of a single market"

29.9 The Minister then helpfully summarises the extensive documentation as follows:

MARKET BREAKDOWN

"The communication reports zero growth in the EU telecoms market in 2009, in the context of a 4.2% contraction in the overall EU economy. This is attributed to the economic climate, cost cutting plans and reduced investment across the EU (other than on maintaining fixed networks). It also notes that investment in next generation access (NGA) is still limited. In 2008 (latest figures) revenues from electronic communications amounted to € 351 billion[123] (£298 bn — about half of the ICT sector overall).

"Fixed voice telephony and broadband accounted for 43% of the market revenues, mobile voice and data communications for 47%, while the remaining 10% came from pay TV services. Mobile voice services experienced close to 2% decline, fixed voice telephony services fell by 6.3%. Fixed and mobile broadband services continued to show strong growth. Fixed broadband grew by 5.6% and mobile data by 9.3% in 2009. The growth in fixed broadband, however, is not yet sufficient to compensate for decline in fixed voice revenues.

"For the UK the report estimates the value of the market in 2009 at 'about €50 billion'; down from €56.7 billion (or £42.4 bn down from £50.1bn, last year). It estimates the total value of tangible assets in the sector in the UK at about €8.1 bn (£6.7bn) where it had been put at €8.93 bn (£7.4 bn ) previously — noting, according to operators, the value of their assets were declining in 2009. Both the uncertainty and the fall can be attributed to economic circumstances. By contrast, last year the Commission reported on the resilience of the telecoms sector."

EU COMPARISONS

29.10 The Report focuses on 7 areas of comparison:

— broadband penetration;

— mobile broadband penetration;

— mobile termination rates;

— fixed termination rates;

— mobile price per minute of voice;

— time taken for mobile number portability; and

— time taken for fixed number portability.

29.11 The Minister says:

"The UK rates above average in all of these except for mobile voice price per minute, where we are mid-table.

"Specifically in the UK the report observes that;

prices fell for consumers but households also reduced spend on communications services,
the use of mobile services rose, including the use of mobile Internet,
fixed broadband penetration also still grew in 2009, although at a slower rate than previously,
BT remained the largest retail operator, although its market share continued to decrease as a consequence of the growth in Local Loop Unbundling (LLU) and Wholesale Line Rental (WLR) uptake by alternative operators. In particular, the incumbent's share of retail fixed voice calls by volume of calls fell to under 50% for the first time at the end of 2008."

FIXED BROADBAND

"The report takes a specific look at broadband developments and notes that the EU fixed broadband market continued to show positive growth in 2009, although at lower rates than in previous years. In January 2010 the total number of fixed broadband lines in the EU reached 123.7 million, growing by 9.3% over one year. Nevertheless, with 10.2 million new fixed broadband lines, representing 28,199 net additions per day, the growth rate was 24.5% lower than a year earlier and the lowest in the last five years.

"The EU average fixed broadband penetration rate was 24.8%, growing by two percentage points since January 2009. Broadband penetration in the UK is at 29.8% — 7th highest and above the EU average. This figure may seem low compared to those quoted domestically as Ofcom uses a different methodology for market penetration — connections per household, rather than per head which show a penetration rate at 65% for January 2009. The rate of growth in take up in the UK is slowing though.

"As of January 2010, the UK had one of the largest shares in the EU (78.4%) of fixed broadband lines offering speeds in the 2 to 10 Mbps range, which is currently the most common bandwidth in the EU representing 60.6% of all fixed broadband lines. The share of low-speed lines below 2Mbps was just 1.8%, one of the lowest shares.

"The report concludes that the EU is falling behind globally when it comes to NGA with lines based in fibre to premises representing only 1.8% to 5%of all fixed broadband lines. Two thirds of fixed broadband lines in the EU offered download speeds between 2 and 10 Mbps and the relative share of high speed lines has been increasing. As a consequence of speed upgrades and flat rate bundled offers, retail broadband prices declined, although less than in the previous year.

"The Commission notes on mobile broadband that while voice communication still accounts for more than 80% of overall mobile revenues in Europe, its share in terms of traffic has been declining in comparison to data traffic, which puts great pressure on network capacity. In the UK 6.7% of mobile revenue comes from mobile internet use (above average for the EU and 8th highest ratio in Europe) At the time all five UK Mobile Network Operators (MNOs) reported progress in mobile broadband. However, with higher usage there is also increasing customer dissatisfaction with the quality of service due to capacity problems.

"In the UK mobile market more generally penetration rates continued to rise in 2009 to reach 126.2%, higher than the EU average of 121.9%. Mobile users took advantage of the tariffs on offer, resulting in an increase in volumes of calls made as consumers replaced calls from fixed lines with their inclusive mobile calls. Revenue per subscriber decreased at the same time retail prices per unit fell — annual average revenue per mobile user went from €317 (£269) in 2007 to €307 (£260.5) in 2008, which is below EU average of €323 (£274.1) in 2008. According to Ofcom, for the first time in 2009 personal use of mobile phones was more prevalent than use of fixed lines.

"The Commission also reports a major consolidation of alternative providers in the broadband sector (Carphone Warehouse's purchase of Tiscali now sees three fixed broadband providers in the UK market with a market share above 20%). More significantly it also reports the start of merger proceedings in September 2009 when the overseas owners Deutsche Telekom and France Telecom announced their intention to combine T-Mobile UK and Orange UK in a 50:50 joint venture. The new entity's market share will be well ahead of that of the two current mobile market leaders. This joint venture has now been cleared for merger by the Commission.

"There were some 30 mobile virtual network operators (MVNOs) in the UK with a total 10 — 15% market share.

"More generally the Commission notes the ambitious UK Government involvement in the telecoms area through provisions of what has since become the Digital Economy Act (2010) with far-reaching proposals concerning modernisation of spectrum, a commitment to ensure universal broadband availability and promotion of next generation networks (NGN)."[124]

EU REGULATORY ENVIRONMENT

29.12 The Minister notes that, as reported last year, the Commission remains concerned about the independence of NRAs:

"Several infringement proceedings initiated last year have been successfully halted, but action has been taken when the Commission has identified a perceived lack of effective structural separation of regulatory functions from ownership and control of telecom operators or the lack of clear and transparent criteria for dismissals of the National Regulatory Authority (NRA) chairpersons.

"The Commission again raises concerns over the limited resources of some NRAs and, in particular, the potential impact that ineffective appeals procedures can have. The Commission references the revised Framework which requires that NRAs must have financial and human resources to carry out the tasks assigned to them. Implementation of new articles 13a and 13b (FWD) which cover security and resilience in relation to electronic communications networks and services are likely to place additional burdens on NRAs.

"In relation to Ofcom, the Commission comments on the significant increase in both the number of dispute resolution procedures and appeals against Ofcom's decisions in the Competition Appeal Tribunal (CAT). The latter, in particular, put a strain on resources. The Commission notes that delays in decisions were reported in the case of market analysis of leased lines, which created uncertainty for operators using the regulated wholesale products as a consequence.

"Lengthy and resource consuming appeal proceedings were reported to present a challenge to legal certainty in Belgium, Greece, Luxembourg, Poland, Portugal, Sweden and the UK.

"The Commission observes differences between MS in terms of progress on periodic market analysis and remedies.[125] Some NRAs have been particularly advanced in their market reviews and were able to impose regulatory obligations tailored to next generation networks (NGN). Almost all NRAs have imposed regulatory measures following their analyses of broadband markets covering wholesale (physical) network infrastructure access at a fixed location (market 4/2007);[126] and wholesale broadband access (market 5/2007). In the UK the Commission acknowledges that deregulation has occurred within identified geographic areas.

"Separately, the report also notes that the UK regulator, Ofcom, took a large number of decisions regarding, in particular, market reviews, spectrum management and consumer issues but also had to cope with a strong surge in the numbers of disputes and appeals against its decisions. Market players continued to look to Ofcom to set out the details of the approach to regulation of next generation access (NGA) networks, building on the NGA statement published in March 2009.

"In order to foster a consistent approach by NRAs to the imposition of regulatory obligations after analyses of broadband markets, and to provide legal certainty to operators investing in NGA, the Commission intends to adopt a recommendation on 'Regulated access to NGA'. The recommendation, expected in September 2010, will come at a time when many NRAs have set out their regulatory approach in their most recent market analyses.

"Ofcom's approach to market analysis has been to conduct the national and Community consultations in parallel. This means that, in cases where Ofcom re-consults on a modified proposal, it also launches a new Community consultation. The Commission therefore continues to urge Ofcom to systematically carry out the national consultation before the Community consultation in order to avoid unnecessary double notifications.

"As a result of its thorough consultations Ofcom may sometimes need to change its final decisions from those set out in draft measures. While such flexibility was appreciated by some operators, it was also challenged by others (in particular, in the CAT in 2009). This occurred in relation to the range of price controls it consulted on local loop unbundling, and the appeal was based on the inability to respond a fixed price proposal.

"The report comments positively on a number of developments in relation to the BT's Undertakings in the context of its functional separation. These include Ofcom reviewing the deadlines for completing BT's systems separation and making several amendments to those Undertakings concerned with the roll-out of NGA networks. It also noted that the details of regulation in this area are yet to come with the expected new analysis of the wholesale broadband and physical access markets. The UK strongly argued for the introduction of functional separation in the revised Framework.

"Mobile termination rates (MTRs) on average fell by 18.4% in 2009 but remain high in comparison to fixed interconnection rate terminal rates across Europe. UK Mobile termination rates are the 6th lowest in Europe and remain below the EU average. On the UK specifically, the report describes the final Ofcom decisions regarding current MTR which should deliver a target average charge in 2010/2011 of 4p per minute (down from 5.1ppm) and 4.3ppm for new entrants (down from 5.9ppm).

"In the UK chapter within the Commission working documents the reports references Ofcom's consultation in May 2009 which assessed six possible options for the future regulation of mobile call termination in the UK after 2011. These range from deregulation to 'bill and keep' and including also the currently applied cost accounting methodology as well as the methodology proposed in the Commission Recommendation on termination rates. Ofcom are currently undertaking a market review, the closing date for which is 23 June 2010.[127]

"On spectrum management, the Commission notes the need for coordinated action to open up the digital dividend spectrum to different services across Europe, creating an opportunity particularly for wireless broadband network operators to gain valuable radio spectrum.

"The report notes proposals in the Digital Britain White Paper proposing that the 900 MHz band will stay with the two MNOs currently holding rights of use for this frequency band and set out measures for rebalancing spectrum holdings. Following consultation and on the basis of recommendations from the independent spectrum broker, it is proposed to direct Ofcom to conduct a combined auction of the 800MHz digital dividend spectrum and the 2.6GHz spectrum to be completed before end 2010.

"During the course of 2009 the UK notified the implementation of Commission radio spectrum decisions adopted in 2008: 2008/294/EC, 2008/411/EC, Decision 2008/673/EC amending decision 2005/928/EC, Decision 2008/432/EC amending Decision 2006/771/EC and 2008/671/EC. In addition, UK notified the implementation of two further decisions adopted in 2009: Decision 2009/381/EC and Decision 2009/343/EC.

"The Commission working documents provide further detailed analysis of Ofcom's work on persistent "not spots"; the Court of Appeal upholding Ofcom's appeal against the CAT on GSM gateway licensing (rather than have any specific meaning the abbreviation "GSM gateway" is now commonly used for equipment which enables the routing of voice calls to mobile subscribers by establishing a mobile to mobile call from fixed apparatus); and Ofcom's remedy imposed on BT in relation to call origination and call termination services."

CONSUMER INTERESTS

"The report notes most broadband speeds are above 2 Mbps in Europe and prices have continued to fall, though not as fast as previously. Users have increasingly been receiving faster internet services for the same prices.

"The roaming regulation has significantly lowered roaming charges and improved tariff transparency for mobile phone users within the EU. The average price per minute of mobile communications declined from €0.14 (£0.12.) in 2007 to €0.13 (£0.11) in 2008. The mobile price per minute of voice in the UK is the 12th highest and same as the EU average at €0.13 but falling faster than average. The Commission feels strongly though that these Europe-wide differences cannot be explained by market characteristics alone thereby indicating that there is, as yet, no single market.

"On fixed lines, the Commission notes an increase in charges against a downward trend over the past decade. The UK has the lowest fixed termination rates in Europe. The Commission also reports positively on price transparency in the UK.

"In the UK there was a decline in fixed voice volumes, partly explained by fixed to mobile substitution. According to the Office of the Telecoms Adjudicator (OTA), at the end of 2009 there were 6.03 million Wholesale Line Rental (WLR) lines and 3.73 m Carrier pre-Selection CPS telephone numbers (compared to 5.32 m WLR lines and 4.16 m telephone numbers using CPS a year ago).

"BT's market share in the fixed telephony market continued to decline (54.7% in December 2008 by retail call revenue compared to 57.5% in December 2007) and 47.1% by volume of calls (compared to 51.4% a year ago). By both indicators, this is the lowest market share for an incumbent in the EU.

"On universal service, the Commission notes two trends. First, several MS carried out new designation procedures for some or all elements of existing universal service obligations (USO). Second, MS increasingly considered including broadband services under universal service obligations. Several MS have relaxed obligations relating to services delivered by the market or considered to be of declining significance.

"On universal service matters in the UK the Commission points to Court of Appeal decision overturning the CAT on Universal Service Condition (USC) 7. USC7 currently obliges the fixed incumbent to make available its comprehensive telephone subscriber database to alternative directory service providers on fair, reasonable and cost-oriented terms. Although the Court of Appeal concluded that USC7 was prohibited by the Universal Service Directive (USD) and other directives, it considered it necessary to obtain a preliminary ruling from the European Court of Justice.

"The Commission addresses a new issue raised through re-drafting of text in Art 8.4(g) (FWD), whereby NRA's must promote 'the ability of end-users to access and distribute information or run applications and services of their choice' and Art 21.3(d) (Universal Service Directive, USD) 'Transparency of information' obliges communications providers (CPs) to provide information to end users 'on any procedures put in place by the provider to measure and shape traffic'. Although not directly referenced in texts this can relate to net neutrality. The Commission notes that net neutrality does not seem to be an issue in the UK but does observe that net neutrality has become an issue in some MS through mobile operators either preventing access or applying differentiated pricing strategies to 'Voice over Internet Protocol' (VoIP) services. In other MS, legislative initiatives to protect intellectual property (IP) rights sparked a debate on how to strike a balance between end-users' rights and the need to safeguard the legitimate interests of IP rights owners. The Commission will, in line with its Declaration to the European Parliament, keep developments under close scrutiny.

"Additionally the report mentions provisions taken forward in the Digital Economy Act (2010) providing for copyright owners to notify internet operators of suspected copyright infringements. The Commission advises that sanctions must remain consistent with new rights for users provided in the revised framework.

"The Commission reports that number porting is now available in all MS. Timing and the level of charges are important factors affecting the porting of numbers. Significant reductions in time limits were introduced in some MS or were planned. The average porting times for mobile and fixed numbers in October 2009 was 4.1 days and 6.5 days compared with 8.5 and 7.5 days in October 2008, respectively.

"In the UK the time taken in days for mobile number portability is 2 days (against a Framework target of 2 days). For fixed porting the time taken, against the same target was 4 days. The Commission observes that improvement is needed as the revised framework requires that porting be carried out within one day. This raises potential issues in the UK where for historical reasons we operate a donor-led number porting trigger (for mobile) rather than the recipient-led number porting regime that most other MS use.

"The report mentions the CAT judgement of 2008 which overturned Ofcom's attempt to implement a recipient-led and near-instant process for porting mobile numbers as well as direct call routing supported by a central database to all ported numbers (fixed or mobile). Within the period of this report Ofcom issued two new consultation documents on number portability. The first document proposed four options for changing the mobile porting process, including donor-led and recipient-led options and either a one-day or two-hour process. The second consultation sets out proposals for introducing direct routing for mobile voice calls to ported mobile numbers.

"The Commission also points to the European-wide emergency number, 112, noting the inaugural European 112 Day (11th February 2009) announced in a tri-partite declaration by the Commission, the European Parliament and the Council, but also noting the decline in rates of improvement of 112 awareness. Currently, only one in four EU citizens is aware that they can call 112 across the EU — and in the UK only 8% of the public are aware of the number.

"The Commission has previously criticised the UK with regard to the European emergency service number 112, but on this occasion the Commission reports two noteworthy developments. In October 2009 it became possible for the UK mobile users to call the emergency service numbers 112 and 999 from another network if their own network is unavailable and an alternative provider has coverage. In September 2009, an emergency SMS trial was started. Since publication of the Commission's report, the Government's 999/112 Liaison Committee has reported the SMS trial as a resounding success and we are moving to full implementation.

"The final paragraph on EU market developments contains the most critical references to the UK. The Commission states that national rules on e-privacy should be fit for purpose in the new digital economy. The Commission launched an infringement proceeding against the UK on transposing EU rules on confidentiality of communications provided in the e-Privacy Directive 2002/58/EC and the Data Protection Directive 95/46/EC. That action related to user consent, lack of sanctions in the case of infringements and absence of an independent authority to supervise interception activities.

"The Commission reports that a recent study on actions to deal with spam, spyware and malicious software confirms the need for the legislative changes contained in the revised framework. These changes include clearer and more consistent enforcement rules and dissuasive sanctions, better cross-border cooperation, and adequate resources for the NRA in charge of protecting citizens' online privacy.

"On harmonised numbers for services of social value (116 numbers) the Commission reports the good progress that the UK has made in relation to the first three identified numbers."

29.13 The Commission concludes that to move closer to a true single market, it is vital to step up efforts to address the issues identified in the Report, and says that, in line with the Digital Agenda and the measures it outlines on spectrum, universal service, the regulatory treatment of NGAs and privacy, the Commission will also take a number of targeted measures, to:

— address the divergences in regulatory approaches and the lack of timely and effective enforcement of remedies;

— lay solid foundations for a correct and timely implementation of the revised regulatory framework; and

— ensure an effectively functioning Body of European Regulators for Electronic Communications (BEREC).[128]

The Government's view

29.14 The Minister goes on to welcome the Report and the "recognition of UK progress and successes." He considers it "a useful comparative tool for understanding the market and regulatory developments across the EU in the field of electronic communications", noting that both his department and Ofcom support this annual process by providing data and input.

29.15 The Minister also notes that, while the Report has no immediate legislative implications, it is generally seen as significant in determining possible future policy and legislation in the field of telecoms. He says that the latest round of policy negotiations were concluded in November 2009, and that the NGA Recommendation, which sets out the overall policy and regulatory approach that NRAs should adopt when considering the roll out of new high speed broadband networks, is to be adopted in September 2010.[129]

29.16 He further notes that "HMG has responded to the second stage of reasoned opinion on the infringement proceedings on e-Privacy and the proceedings have not been progressed further."[130]

29.17 The Minister concludes by noting that the Report was presented at the 31 May 2010 Telecoms Council.

Conclusion

29.18 Two aspects of this extensive analysis are particularly eye-catching. First, the Commission's previous initiative — i2010[131] — notwithstanding, the degree to which a single internal market for this product is lacking illustrates the extent of the challenge at the outset for its successor, "A Digital Agenda for Europe".

29.19 Secondly, it is notable that, the number of actual and virtual operators notwithstanding, the mobile price per minute of voice in the UK is 12^th highest and no better than the EU average.

29.20 There is also much in the Report about Next Generation Networks and access thereto, and particularly the prospective NGA Recommendation. When it emerges, we ask that the Minister deposits it with his views thereon.

29.21 In the meantime, we clear the Communication, which (like our predecessors) we are reporting to the House because of the widespread interest in both the domestic and European telecoms market.

Annex 1: Main elements of telecoms reform[132]

"The 12 most prominent reforms in the new package of rules for Europe's telecoms networks and services, as proposed by the European Commission in November 2007, and agreed between the negotiators of the European Parliament, the Council of Telecoms Ministers and the Commission on 5 November 2009 are:

1. A right of European consumers to change, in 1 working day, fixed or mobile operator while keeping their old phone number. Currently in the EU it takes on average 8.5 days for a mobile number and 7.5 days for a fixed number to be changed, with some customers facing a two to three week wait. In the future, consumers will be able to do this in 1 working day. In addition, under the new rules, the maximum initial duration of a contract signed by a consumer with an operator will be no longer than 24 months. Operators must also offer consumers the possibility of agreeing to a contract with a maximum duration of 12 months.

2. Better consumer information: Under the new telecoms rules, consumers will receive better information ensuring they understand what services they subscribe to and, in particular, what they can or cannot do with those communications services. Consumer contracts must specify, among other things, information on the minimum service quality levels, as well as on compensation and refunds if these levels are not met, subscriber's options to be listed in telephone directories and clear information on the qualifying criteria for promotional offers.

3. Protecting citizens' rights relating to internet access by a new internet freedom provision: Following the strong request of the European Parliament, and after long negotiations on this point, the new telecoms rules, in a new Internet freedom provision, now explicitly state that any measures taken by Member States regarding access to or use of services and applications through telecoms networks must respect the fundamental rights and freedoms of citizens, as they are guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and in general principles of EU law. Such measures must also be appropriate, proportionate and necessary within a democratic society. In particular, they must respect the presumption of innocence and the right to privacy. With regard to any measures of Member States taken on their Internet access (e.g. to fight child pornography or other illegal activities), citizens in the EU are entitled to a prior fair and impartial procedure, including the right to be heard, and they have a right to an effective and timely judicial review.

4. New guarantees for an open and more "neutral" net: The new telecoms rules will ensure that European consumers have an ever greater choice of competing broadband service providers. Internet service providers have powerful tools at their disposal that allow them to differentiate between the various data transmissions on the internet, such as voice or 'peer-to-peer' communication. Even though traffic management may allow premium high-quality services (such as IPTV) to develop and can help ensure secure communications, the same techniques may also be used to degrade the quality of other services to unacceptably low levels or to strengthen dominant positions on the market. That is why, under the new EU rules, national telecoms authorities will have the powers to set minimum quality levels for network transmission services so as to promote "net neutrality" and "net freedoms" for European citizens. In addition, thanks to new transparency requirements, consumers must be informed — before signing a contract — about the nature of the service to which they are subscribing, including traffic management techniques and their impact on service quality, as well as any other limitations (such as bandwidth caps or available connection speed).

The Commission also made a political commitment to keep the neutrality of the internet under close scrutiny and to use its existing powers as well as new instruments available under the reform package to report regularly on the state of play in net neutrality to the European Parliament and the Council of Ministers.

5. Consumer protection against personal data breaches and spam: European citizens' privacy is a priority of the new telecoms rules. Names, email addresses and bank account information of the customers of telecoms and internet service providers, and especially the data about every phone call and internet session, need to be kept safe from accidentally or deliberately ending up in the wrong hands. Operators must respond to the responsibility that comes with processing and storing this information. Therefore, the new rules introduce mandatory notifications for personal data breaches — the first law of its kind in Europe. This means that communications providers will be obliged to inform the authorities and their customers about security breaches affecting their personal data. This will increase the incentives for better protection of personal data by providers of communications networks and services. In addition, the rules concerning privacy and data protection are strengthened, e.g. on the use of "cookies" and similar devices. Internet users will be better informed about cookies and about what happens to their personal data, and they will find it easier to exercise control over their personal information in practice. Furthermore, internet service providers will also gain the right to protect their business and their customers through legal action against spammers.

6. Better access to emergency services, 112: The new telecoms rules will ensure that European citizens gain better access to emergency services by extending the access requirements from traditional telephony to new technologies, strengthening operators' obligation to pass information about caller location to emergency authorities, and by improving general awareness of the European emergency number '112'. In addition, provisions on access to telecoms services for Europeans with disabilities have been strengthened so that they can benefit from the same usability of services as other citizens, but by different means. For the first time, the EU's telecoms rules will include a provision on the availability of terminal equipment offering the requisite services and functions for users with disabilities.

7. National telecoms regulators will gain greater independence: The new telecoms rules reinforce national telecoms regulators' independence by eliminating political interference in their day-to-day duties and by adding protection against arbitrary dismissal for the heads of national regulators.

8. A new European Telecoms Authority that will help ensure fair competition and more consistency of regulation on the telecoms markets. The reform creates a very important tool for making a single European telecoms market a reality: the new European Telecoms Authority "BEREC" (Body of European Regulators for Electronic Communications) that will replace the loose cooperation behind closed doors that exists today in the "European Regulators Group" with a more transparent and more efficient approach. BEREC decisions will be taken, as a rule, by majority of the heads of the 27 national telecoms regulators: by a simple majority when BEREC gives opinions in the context of the Commission's analysis of remedies notified by national regulators, and by a two thirds majority in other cases. Such BEREC decisions will be prepared by an independent supranational Office with expert staff. BEREC will also advise, support and complement the independent work of national telecoms regulators, especially when it comes to regulatory decisions with a cross-border relevance. A decision on the seat of BEREC still needs to be taken by the Governments of the 27 Member States.

9. A new Commission say on the competition remedies for the telecoms markets: The new EU telecoms rules will give the European Commission the power to oversee regulatory remedies proposed by national regulators (e.g. on the conditions of access to the network of a dominant operator; or on fixed or mobile termination rates). The objective is to avoid inconsistent regulation that could distort competition in the single telecoms market. When the Commission, in close cooperation with BEREC, considers that a draft remedy notified by a national regulator would create a barrier to the single market, the Commission may issue a recommendation that requires the national regulator to amend or withdraw its planned remedy.

The new rules also enable the Commission to adopt further harmonisation measures in the form of recommendations or (binding) decisions if divergences in the regulatory approaches of national regulators, including to remedies, persist across the EU in the longer term, e.g. on broadband access conditions or on mobile termination rates.

10. Functional separation as a means to overcome competition problems: National telecoms regulators will gain the additional tool of being able to oblige telecoms operators to separate communication networks from their service branches, as a last-resort remedy. This new remedy has been advocated since 2007 by the European Commission and by the 27 national regulators. Functional separation can rapidly improve competition in markets while maintaining incentives for investment in new networks. Functional separation has been implemented in the UK since January 2006 where it triggered a surge in broadband connections (from 100.000 unbundled lines in December 2005 to 5.5 million 3 years later). The new EU rules on functional separation will add legal certainty for countries currently moving towards different forms of separation (Poland, Italy), while ensuring overall consistency for the benefit of the single market, effective competition and consumer choice.

11. Accelerating broadband access for all Europeans: Currently, in rural areas of the EU only an average of 70% of the population can have access to a broadband network connection. The reform will help in overcoming this "digital divide" by better managing radio spectrum and by making it effectively available for wireless broadband services in regions where building a new fibre infrastructure is too costly; and by allowing Member States to expand universal service provisions beyond narrow-band internet access.

The reform in particular puts a much stronger emphasis on technology and service flexibility in spectrum use, making it easier for operators to introduce innovative technologies and services. This increased flexibility will bring important economic gains and has the potential to generate an estimated additional 0.1% of GDP per annum. In particular, it will allow the "digital dividend", the radio spectrum freed as a result of the switchover from analogue to digital TV, to work for the economic recovery as also stressed in the Commission's recent Communication on transforming the digital dividend into social benefits and economic growth.

12. Encouraging competition and investment in next generation access networks: The new rules bring legal certainty for investment in next generation access (NGA) networks. These networks, based on new optical fibre and wireless network technologies, are replacing less efficient traditional copper-wire networks and will allow high-speed internet connections. The reform of the telecoms rules reaffirms the importance of competition in this new sector while at the same time preserving incentives to invest by taking into account the risks involved in allowing access to NGA networks and allowing for various cooperative arrangements between investors and access-seeking operators. In this way, the new rules will also ensure telecoms operators receive a fair return on their investments. On the basis of the new rules, the Commission plans to issue a recommendation for the regulation of access to NGA networks in the first half of 2010, taking into account the results of public consultations in 2008 and 2009. The rules governing the sharing of network elements, such as ducts or in-building wiring, between operators are also updated by the reform. Besides improving competition and services for businesses and consumers, this will also help lower the overall financial costs for operators of deploying NGA networks."

117 Directive 2009/140/EC of the European Parliament and of the Council of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services. See OJ 2009 L337. Back

118 Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009 amending Directive 2002/22/EC on universal service and users' rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws. See OJ 2009 L 337. Back

119 Regulation (EC) No 1211/2009 of the European Parliament and of the Council of 25 November 2009 establishing the Body of European Regulators for Electronic Communications (BEREC) and the Office. See OJ 2009 L337. Back

120 See http://berec.europa.eu/ for full information on BEREC. Back

121 For consideration of the 2009 Report, see (30523) 8169/09: HC 19-xvi (2008-09), chapter 1 (6 May 2009). Back

122 "Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - A Digital Agenda for Europe" (COM (2010) 2020) is dealt with in chapter ?? of this Report [CROSS REF TO CHAPTER ON 31638]. Back

123 ( £/€ conversation rate used throughout this EM is £1= € 1.1784). Back

124 The general idea behind Next Generation Networks (NGN) is that one network transports all information and services (voice, data, and media such as video) by encapsulating these into packets, as on the Internet. The International Telecommunications Union thus defines NGN) as "a packet-based network able to provide Telecommunication Services to users and able to make use of multiple broadband, QoS-enabled transport technologies and in which service-related functions are independent of the underlying transport-related technologies. It enables unfettered access for users to networks and to competing service providers and services of their choice. It supports generalised mobility which will allow consistent and ubiquitous provision of services to users." See http://www.itu.int/en/pages/default.aspx for further information. Back

125 In this footnote, the Minister notes that these findings are further developed in the latest Commission Report on market analysis and remedies , which we consider elsewhere in this Report [CROSS REF TO 31679]. Back

126 Markets defined by 2007/879/EC, Commission Recommendation of 17th December 2007, on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services - the "Framework Directive" (FWD). Back

127 http://www.ofcom.org.uk/consult/condocs/wmctr/summary.pdf. Back

128 The European Regulators Group for electronic communications networks and services was set up by the Commission to provide a suitable mechanism for encouraging cooperation and coordination between national regulatory authorities and the Commission, in order to promote the development of the internal market for electronic communications networks and services. Building on this experience, the Body of European Regulators for Electronic Communications (BEREC) and its support Office were created within the recently approved reform of the EU Telecom rules to improve the consistency of implementation of the EU regulatory framework. The first meetings of the Board of Regulators of BEREC and the Management Committee of the Office were held in Brussels on 28 January 2010. See http://berec.europa.eu/Default.htm for further information on BEREC. Back