Reducing the cost of deploying high-speed electronic communications networks: Reasoned Opinion - European Scrutiny Committee Contents


1   Reducing the cost of deploying high-speed electronic communications networks

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COM(13) 147

Draft Council Regulation on measures to reduce the cost of deploying high-speed electronic communications networks

Legal baseArticle 114 TFEU; QMV; ordinary legislative procedure
Document originated26 March 2013
Deposited in Parliament3 April 2013
DepartmentCulture, Media and Sport
Basis of considerationEM of 22 April 2013
Previous Committee ReportNone
Discussion in CouncilEarly June
Committee's assessmentLegally and politically important
Committee's decisionNot cleared; recommended for a Floor of the House debate on the Reasoned Opinion before 31 May.

Background

1.1  The Digital Agenda for Europe (DAE) is a flagship initiative under the Europe 2020 Strategy aimed at delivering sustainable economic and social benefits from a digital single market based on fast and ultra-fast Internet and interoperable applications.

1.2  It identified in particular the need to lower the costs of broadband deployment in the entire Union territory, including by achieving proper planning and coordination and by reducing administrative burdens.[1]

1.3  The March 2012 European Council called for action at the Union level to provide better broadband coverage, including by reducing the cost of high-speed broadband infrastructure.[2]

The draft Council Regulation

1.4  With reference to the DAE, the Commission notes in its Explanatory Memorandum two specific targets:

—  by 2013, basic broadband for all Europeans;

—  by 2020,

  • access to speeds of above 30 Mbps for all Europeans; and
  • subscription of internet connection above 100 Mbps for 50% or more of European households;

and says that these goals will only be achieved if the infrastructure deployment costs are lowered across the EU.

1.5  The Commission notes that: EU telecommunications services and infrastructures are still highly fragmented along national borders; the untapped Single Market potential corresponds to a yearly amount of 0.9% GDP, or 110 billion; and a significant fraction of this untapped potential can be found at the level of network infrastructures. Different regulatory approaches to network roll-out increase the cost of access to national markets, prevent the exploitation of economies of scale at services and equipment level and hinder the development of innovative services which could emerge on very high-speed networks running in a seamless fashion across borders. The deployment of access networks often involves provisions and procedures administered at local level; such measures, including local secondary legislation may indirectly affect the freedom to provide services and justify Union intervention.

1.6  In Spring 2012, the Commission invited interested parties to give their views on five sets of questions, covering the entire chain of network deployment, from the planning phase to the connection of end-users: it says that a majority of respondents confirmed existing inefficiencies and bottlenecks as well as the potential for cost reduction and the need for action. The Commission also established an Internet discussion platform for "crowd sourcing" ideas of interested parties; and has, it says, maintained regular contacts with major stakeholders, both public and private, across the sectors concerned.

1.7  The Commission's extensive impact assessment focused in particular on the costs and benefits incurred by direct stakeholders, the expected effects on network investment and broadband rollout, and broader macro-economic analysis of effects on consumer welfare, growth, competitiveness, and the Single Market. Of the four options examined, it concluded that a Council Regulation was the best, "given its effectiveness towards the identified objects, costs-benefits analysis, efficiency and coherence of exploiting the cost reduction potential with general EU policy objectives, in accordance with proportionality and subsidiarity principles".

1.8   Against this background, the objectives of the proposed Regulation are to reduce the cost and enhance the efficiency of deploying high-speed electronic communications infrastructure by scaling up existing best practices across the EU. It seeks to address four main problem areas:

i)  inefficiencies or bottlenecks concerning the use of existing physical infrastructure (such as, for example, ducts, conduits, manholes, cabinets, poles, masts, antennae, towers and other supporting constructions);

ii)  bottlenecks related to co-deployment;

iii)  inefficiencies regarding administrative permit granting; and

iv)  bottlenecks concerning in-building deployment.

1.9  The Commission explains in its explanatory memorandum that, in order to maximise synergies across networks, the Regulation is addressed not only to electronic communications network providers but to any owner of physical infrastructures, such as electricity, gas, water and sewage, heating and transport services, suitable to host electronic communications network elements.

Structure of the proposal and main rights and obligations

1.10  The Regulation aims to facilitate and incentivise the roll-out of high-speed electronic communications networks by promoting joint use of existing infrastructures and enabling more efficient deployment of new physical infrastructure so that such networks can be rolled out at lower cost. It shall apply to all civil works and physical infrastructure.

1.11  In addition to those contained in the EU regulatory framework for electronic communications,[3] the definitions in Article 2 include "network operator", "physical infrastructure", "high-speed electronic communication network", "civil works", "public sector body", "body governed by public law", "in-building physical infrastructure", high-speed-ready in-building physical infrastructure", "major renovation works" and "permit".

1.12  Member States may maintain or introduce measures in conformity with Union law which contain more detailed provisions than those set out in the Regulation.

1.13  Article 3 establishes a general obligation on network operators to meet reasonable requests for access to existing physical infrastructure(s) as well as planned civil works in relation to the deployment of electronic communications networks, under fair terms and conditions. It includes a right to access a set of minimum information and an obligation on network operators to meet reasonable requests for in-site surveys of specific elements of their physical infrastructure.

1.14  The Regulation envisages a right to negotiate coordination of civil works, and places an obligation on undertakings performing civil works financed by public means to meet reasonable requests for civil works coordination agreements on transparent and non-discriminatory terms.

1.15  Article 6 contains a right to access, by electronic means and via a single information point (which facilitates and coordinates the permit granting process and monitors compliance with deadlines) any information concerning the conditions and procedures applicable to specific civil works as well as a right to submit applications for permits by electronic means via that single information point.

1.16  Article 7 establishes an obligation to equip new buildings, as well as buildings that undergo extensive renovation, with high-speed-ready in-building physical infrastructure, and an obligation to provide new multi-dwelling buildings, as well as old ones that undergo extensive renovation, with a concentration point located in or outside the building.

1.17  Article 8 constitutes a right for electronic communications network providers to terminate their network equipment at the concentration point of buildings, a right for electronic communication operators to negotiate access to any existing high-speed-ready in-building physical infrastructure and, in the absence of high-speed-ready in-house infrastructure, a right to terminate their network equipment in the private premise of the subscriber, provided that it minimises the impact on the private property and at its own costs.

1.18  The Regulation would be reviewed within three years after its entry into force.

Legal issues

1.19  The Commission argues that the use of Article 114 TFEU is justified by the objectives of the proposal, which seek to improve the conditions for the establishment and functioning of the internal market.[4] It cites case law confirming that this article confers on the Union legislature discretion, "depending on the general context and the specific circumstances of the matter to be harmonised, as regards the harmonisation technique most appropriate for achieving the desired result, in particular, in fields that are characterised by complex technical features".[5] The Commission also notes that, based on Article 114 TFEU, the Union has previously legislated, in order to foster local network infrastructure deployment, through unbundling of the local loop.[6]

Subsidiarity

1.20  The envisaged measures build on existing best practice in several Member States (including the UK). They are judged necessary at the level of the Union, by removing barriers to the functioning of the Single Market caused by "the patchwork of rules and administrative practices at national and sub-national levels", which the Commission says: impedes the development and growth of European companies; has a negative impact on European competitiveness; and creates barriers to invest and operate cross-border; and thus obstructs the freedom to provide electronic communications services and networks as guaranteed under existing EU legislation.

1.21  Action at the EU level is also required to:

—  stimulate ubiquitous broadband coverage, which will only be achieved if the infrastructure deployment costs are lowered across the EU;

—  realise the significant untapped potential of cost-reduction and facilitation of broadband rollout, including by scaling up existing best practices across the EU whenever available;

—  streamline the efficient planning and investment processes on a large scale, thus facilitating the development of pan-European operators;

—  ensure equal treatment and non-discrimination of undertakings as well as of investors, in particular concerning the electronic communications sector but also concerning other sectors (e.g. utility companies seeking to make profit from their physical infrastructure, synergies in setting up smart grids).

Proportionality

1.22  The Commission says that, while the proposed measures aim at reducing barriers to access to physical infrastructures, they do not unduly impair ownership rights and preserve commercial negotiation, nor impose any specific business models. The Regulation complements rather than affects on-going national initiatives. It also allows Member States to provide for general exemptions for infrastructures which are technically unsuitable. It seeks to enable commercial co-deployment arrangements, by enabling a better dissemination of information on future civil engineering works. The obligation to equip buildings with high-speed-ready physical infrastructure is limited to new buildings and major renovations necessitating a building permit.

Choice of instrument

1.23  The Commission argues that a directly applicable Regulation, unlike a Directive that requires national transposition, better guarantees the immediate impact needed in order to contribute to the Digital Agenda objectives on broadband availability by 2020; and says that "the considerable advantages of the cost reduction measures, both in terms of economic benefit as in societal advantages, far outweigh any administrative burden".

The Government's view

1.24   The Minister for Culture, Communications and Creative Industries at the Department of Culture, Media and Sport (Mr Edward Vaizey) begins his Explanatory Memorandum of 22 April 2013 by expressing the Government's concerns that the Regulation is not justified in accordance with the subsidiarity principle:

"The measures supported by the Regulation — infrastructure sharing, information provision, street works coordination and in-built broadband equipment in buildings — would all be implemented at a local level. There is little prospect of these measures having a cross-border market effect, as the issues the Regulation seeks to address are not applicable to the core network that crosses Member State borders. The Government believes that the Regulation's intended aim — to support superfast broadband rollout by lowering the cost of civil engineering works — would be best achieved by action at Member State level."

1.25  The Minister continues his comments as follows:

"The Government is committed to achieving the European Digital Agenda targets on broadband, and is supportive of measures at different levels which streamline and lower the cost of superfast broadband deployment. The Government is currently implementing a package of measures in the UK to sweep away red tape around planning, street works, access to land, and power supplies. The proposed Regulation does, in fact, contain a number of elements that reflect current UK priorities to promote broadband rollout, for example encouraging infrastructure sharing between telecoms providers and electricity suppliers, and streamlining the permit scheme process when carrying out street works. Many of the policy objectives behind the Regulation could, in theory, be supported at the EU level if they were proposed in a different way using a different legal instrument.

"We are, however, concerned that the proposed Regulation will not achieve its goals to lower the cost of civil engineering works, but instead place burdens on business, government and regulators, and potentially stifle progress while it is being implemented."

1.26  The Minister then says that his key concern is the use of a Regulation as the vehicle to implement these measures:

"The Regulation would be applicable in all Member States and would enforce a prescriptive approach, no matter what the current policies, regulations and structures are in a particular location. On infrastructure sharing, for example, network operators would be required, not just encouraged, to meet requests from telecoms providers to provide access to their infrastructure. In addition, there is a risk that mandated infrastructure sharing underpinned by law could in fact act as a disincentive to network investment in the most hard-to-reach areas — precisely the places currently lacking in superfast broadband access — because of the risk of 'free riding' on existing infrastructure."

1.27  The Minister then notes concerns regarding some of the specific policy proposals, particularly around the effect of the measures on wayleaves, which he explains as follows:

" — the payments made by utilities companies to landowners to install and maintain equipment on private property. The wayleave regimes in the UK for communications and electricity, for example, are different to some other European countries where landowners do not enjoy rights of compensation for allowing infrastructure. It is unclear how this issue would be resolved if sharing were mandated, without major legislative changes to the regime for electric line wayleaves and the likely increase in burdens on the public and private sectors. Issues around wayleaves and private property rights would also arise when implementing the plans for in-built broadband infrastructure in new buildings.

1.28  More generally, the Minister says:

"While the current drafting of the Regulation advocates a commercially-led approach, the language does not provide any certainty on a number of issues, for example broadband infrastructure in new buildings. Introducing uncertainty into a market where return on investment is already precarious is unlikely to lead to additional investment."

1.29  The Minister then discusses the Commission's Impact Assessment as follows:

"The Commission has produced a detailed impact assessment alongside the proposed Regulation. The impact assessment estimates that savings of 20%-30% on the civil engineering costs of superfast broadband deployment could be achieved by adopting the measures proposed in the Regulation.

"Specifically, the impact assessment identifies for the proposed policy option (see paragraph 6 above) significant capital savings for communications providers thanks to infrastructure sharing, co-deployment and faster rollout. It also cites the potential additional revenues for network operators who share their infrastructure, arguing that this would outweigh costs.

"The Commission's estimate is predicated on assumptions about the level of network deployment that would occur in shared passive infrastructure — namely that 25% of new deployment would occur in shared infrastructure and that 75% of the civil engineering costs would be saved. We will need to understand these assumptions better and in more detail.

"The Government feels that, while infrastructure sharing could potentially lead to some capital expenditure savings, the impact assessment does not fully take into account the knock-on effects of the measure. On the issue of implementation and administrative costs incurred by Member States, for example, the impact assessment acknowledges that they are difficult to quantify and would vary significantly between different Member States; however, it then argues that the costs would be outweighed by the wider capital savings and potential synergies. We will need to understand in more detail what these administrative costs will be and to what extent they would be one-off setup costs, in both the UK and in other Member States.

"The Regulation would require all telecoms companies to make their passive infrastructure available for sharing on request. Ofcom already has the power to require passive infrastructure sharing on specific request, but subject to a proportionality test — i.e. whether the request is objectively justified and would not distort competition. The new Regulation reverses this presumption, in that small telecoms providers would be required to open their infrastructure to larger competitors. Under the Regulation, adverse effect on competition would not be a permitted ground for refused access.

"Other impacts would include increased wayleave payments imposed on network operators whose infrastructure becomes shared by telecoms providers (paragraph 22 above), and the additional burdens around providing network information to the single point of contact in Article 4.

"There is also a risk that co-operation and investment in broadband infrastructure would stall while the legal instrument was being drafted, and that the measures could ultimately disincentivise investment in the hardest to reach areas.

"We have not, as yet, been able canvass the views of the various industries — gas, electricity, water etc. — who would be affected by the Regulation, but we will be seeking their views. When the Government consulted on infrastructure sharing in 2010, industry concerns included responsibility for installation and maintenance, and liability."

1.30  In this regard, the Minister notes that the Commission did consult last year on a series of measures to reduce the cost of communications infrastructure deployment, but not on a proposed Regulation.

1.31  With regard to the Financial Implications, the Minister says:

"The proposal notes that the Regulation would have no impact on the Commission's budget. However, the impact assessment does identify significant costs. In addition to the possible burdens on business outlined above, the measures would also have a financial effect on individual Member States and their national regulatory authorities. In the vast majority of Member States, a new body to oversee dispute resolution and set up and manage the single point of contact for information provision would have to be created, or an existing body (like the national telecoms regulator) greatly expanded. The setup and running costs for such a body could be significant for individual Member States."

1.32  Finally, the Minister notes that the proposal is expected to be formally discussed at the Telecoms Council in early June, with the Commission's ambition being to conclude negotiations by the end of 2013 and for the Regulation to come into force soon afterwards.

Conclusion

1.33   This is clearly a case where, notwithstanding the Commission's ambition, "better right than rapid" should be the guiding principle. The UK consultation has not yet begun. Given this and his many concerns, we are surprised that the Minister says nothing about resisting the Commission's precipitate timetable. And though he says that many of the policy objectives behind the Regulation could, in theory, be supported at the EU level if they were proposed in a different way using a different legal instrument, he proposes no alternative.

1.34  We share the Government's concern that the actions proposed by the Commission raise significant subsidiarity concerns. This is because we consider that the Commission has failed to satisfy both limbs of the subsidiarity test.

1.35  The first limb of the subsidiarity test provides that the EU may only act "if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States".[7] While the Commission accepts that some Member States have adopted measures to reduce the costs of broadband roll-out, it says that these are too few in number, are divergent, are not cross-sectoral and do not address all stages of the roll-out process. Action by Member States alone would not significantly reduce the cost of broadband roll-out nor encourage investment, but hinder the single market.

1.36  We disagree and share the Government's view that the measures supported by the Regulation such as infrastructure sharing and civil works co-ordination would all be implemented at local level and not have transnational market effects. We remain unconvinced that full account has been taken of current and prospective national action on superfast broadband deployment, including actions to meet EU targets. We therefore consider that the proposed measures would be better achieved at national level.

1.37  The second limb of the subsidiarity test requires evidence that action at EU level would be more effective in achieving the draft Regulation's objectives. To meet this test, the Commission principally relies on the 20%-30% savings in the civil engineering costs of superfast broadband which it says will result from the measures. We share the Government's concerns about some of the assumptions on which those estimated savings are based and the failure to take into account consequential effects of the measures. Far from achieving savings, we consider that the proposed Regulation could increase burdens on business. We agree with the Government that burdens on SMEs in particular could increase under the Regulation as small telecoms providers would be required to open up their infrastructure to larger competitors.

1.38  The draft Regulation, in the view of the Commission, is necessary to achieve broadband roll-out targets set out in the Digital Agenda 2010 Communication and the Conclusions of the European Council of 13/14 December 2012.[8] However, we are not persuaded that the European Council contemplated that legislation of this form (a Regulation) or nature would be necessary to reach those targets.

1.39  Moreover, we question the choice of a Regulation as the appropriate legal instrument to achieve the objectives envisaged, since this would impose a prescriptive approach to broadband deployment, no matter what the current policies, regulations and structures are in a particular location. Mandatory infrastructure sharing would increase costs to business and disincentivise broadband roll-out in remote areas. A mandatory regime also risks confusion with existing local requirements and we share the Government's concern about the impact on underlying UK wayleave and private property rights.

1.40  In summary, we believe that the measures proposed should be taken at national level, but that if the Commission persists with EU-level action, the measures should be modified and contained in a Directive rather than a Regulation. We therefore recommend that the House sends the attached Reasoned Opinion to the Presidents of the EU institutions before 31 May 2013, following a debate on the Floor of the House.

1.41  We note that the Government underlines its commitment to achieving the DAE broadband targets and support for measures at different levels which streamline and lower the cost of broadband deployment. Many of those living in rural communities might well take issue with this upbeat picture. We are drawing this chapter of our Report to the attention of our colleagues on the Culture, Media and Sport Committee, not only so that they are aware of the issues raised by the proposed Regulation but also of the Government's positive assessment of its performance in this crucial area.

1.42  In the meantime, we shall retain the document under scrutiny.


1   See http://ec.europa.eu/digital-agenda/ for full background on the Digital Agenda for Europe. Back

2   See the second tiret of para 15 of the Council Conclusions; available at http://register.consilium.europa.eu/pdf/en/12/st00/st00004-re02.en12.pdf. Back

3   Full details available at http://europa.eu/legislation_summaries/information_society/legislative_framework/l24216a_en.htm. Back

4   The European Union is empowered to adopt measures with the aim of establishing or ensuring the functioning of the Internal Market, in accordance with the relevant provisions of the Treaties (Article 26 of the Treaty on the Functioning of the European Union - TFEU). Under Article 114 TFEU, the European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market. See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E114:EN:HTML for the full text of Article 114 TFEU. Back

5   Case C-66/04, para 45, and Case C-217/04, para 43. Back

6   Local loop unbundling (LLU or LLUB) is the regulatory process of allowing multiple telecommunications operators to use connections from the telephone exchange to the customer's premises. The physical wire connection between the local exchange and the customer is known as a "local loop", and is owned by the incumbent local exchange carrier. To increase competition, other providers are granted unbundled access. Back

7   Article 5(3) TEU. Back

8   Conclusions of the European Council, EU CO 205/12 Back


 
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Prepared 13 May 2013