2 The Telecommunications Single Market
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested; drawn to the attention of the Culture, Media and Sport Committee
|
| Document details | (a) Commission Communication on the Telecommunications Single Market (b) Draft Regulation laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent
|
| Legal base | (a) —; (b) Article 114 TFEU; ordinary legislative procedure; QMV
|
| Department | Culture, Media and Sport
|
| Document numbers | (a) (35305), 13562/13, COM(13) 634; (b) (35304), 13555/13 + ADDs 1-2, COM(13) 627
|
Summary and Committee's conclusions
2.1 The Commission Communication sets out measures that the Commission
believes are needed to change the existing regulatory framework
(last revised in 2009); the subsequent legislative package, A
Connected Continent: Building a Telecoms Single Market, was
published on 11 September 2013.
2.2 Over the past 18 months, the focus has now boiled
down to two issues: mobile roaming charges and net
neutrality.[11]
2.3 In the latest of a series of open and very helpful
updates, the Minister for Culture and the Digital Economy (Mr
Edward Vaizey) says, on mobile roaming charges, that:
— whilst
the text does not immediately introduce a "roam like at home"
(RLAH) solution, it "contains a clear indication that this
is the first step on the journey to that ultimate destination";
— whilst it does not contain a commitment
to immediately assess and address any competitive distortions
created by, and within, the current wholesale pricing regime,
"it does contain a longer-term commitment to address same";
— therefore, it "clearly does have
the potential for a RLAH solution to be introduced in the longer
term";
— the combination of an allowance plus
a further reduction in retail roaming charges "represents
a greater level of consumer benefit compared to the current roaming
regime", i.e., "before the introduction of Roaming
3, the average cost of data in the EU was €7.00/MB; under
this proposal, once any allowance is used, it will be €0.05/MB
— "a 99.2% reduction since the introduction of Roaming
3 and a further 75% reduction in data roaming rates compared to
current retail cap".
2.4 The Minister then says:
"However, there is some concern that the absence
of any short-term action on wholesale pricing will limit the finally
agreed size of the allowance as a balance is struck between meeting
consumer expectation and avoiding an excessive impact on the revenues
of operators. My current estimate is that an allowance of the
size proposed by the Presidency — 5 minutes of voice; 5
SMS; and 5 MB data per day for seven days per annum — could
drive a reduction in revenues of UK operators by around 0.45%.
It follows that any increase in allowance size will drive this
upwards."
2.5 In sum, the Minister says:
"The proposal has been met with some level of
support within Council and discussions regarding the size of the
allowance continue."
2.6 On the question of net neutrality, the
Minister says:
"The regulatory text is relatively short —
running to a single definition and two Articles. The single definition
sets out 'internet access service'. Notable by their absence
are specific definitions of 'net neutrality' (the text is, in
effect, an implied definition) and 'specialised services' (a situation
with which I am content)."
2.7 In terms of risks and opportunities, the Minister
says:
"I believe that the lack of specific definitions
of 'net neutrality' and 'specialised services' future-proofs the
regulation by providing sufficient flexibility in the text. Although
there was a push by some Member States, this has been resisted
by the Presidency. This flexibility is supplemented by the principles-based
approach that has been adopted and I support.
"However, the current text sets out the principle
that all traffic should be treated the same, whilst also setting
out what constitutes reasonable traffic management, followed a
series of instances when exceptional traffic management can take
place. Council remains undecided on this point. I am seeking to
have the formulation of this text altered in order to make it
clear which forms of traffic management are acceptable in order
to effectively manage networks — and thus ensure quality
of services for users across a variety of services — and
which forms of traffic management are not considered to be acceptable
and may drive or underlie anticompetitive behaviours.
"A further risk arises from attempting to minimise
the Regulation's impact on the current self-regulatory system
here in the UK. In particular, I am seeking to ensure that the
text will allow the continuation of self-regulatory processes
for blocking of unlawful material. Progress towards this outcome
is well-developed and positive."
2.8 The Minister also says that the matter of Spectrum
Management is currently not being actively considered, in
that "Council remains unanimous in its opposition to the
Commission's proposals and the Presidency have offered no plans
for further discussions on same". He says that there are
both positives and negatives related to this outcome:
"The positive outcome is that we would have
successfully resisted the Commission's plans for creating new
powers over spectrum auctions, along with taking control of wider
management processes that are currently under the aegis of Member
States. However, the negative aspects would be that we would
lose the opportunity to make changes to the current existing governance
structure — through evolving the Radio Spectrum Policy Group
— along with capitalising on associated gains in terms of
sharing of best practise and coordination of spectrum management.
Further, this outcome runs the risk that the Commission will re-propose
similar or same without taking into account Council's current
view and suggestions for change on same under the anticipated
review of the existing Telecoms Framework that is due to begin
later this year."
2.9 The Minister also responds fully and helpfully
to the questions we raised in our most recent Report (see the
"Background" section below).
2.10 We are once again grateful to the Minister
for a further full and open update. We note that he thinks it
more likely that, rather than the Latvian Presidency carrying
out their threat to close down the whole process at the end of
February if the Council has not agreed a text upon which the trilogue
process (with the Commission and the European Parliament) can
begin, negotiations will continue into March. That being so, we
shall need to hear again from the Minister no later than Friday
20 March.
2.11 In the meantime, we shall continue to retain
the documents under scrutiny.
2.12 We are also again drawing this chapter of
our Report to the attention of the Culture, Media and Sport Committee.
Full details of
the documents: (a)
Communication from the Commission to the European Parliament,
the Council, the European Economic and Social Committee and the
Committee of the Regions on the Telecommunications Single Market:
(35305), 13562/13, COM(13) 634; (b) Draft Regulation of
the European Parliament and of the Council laying down measures
concerning the European single market for electronic communications
and to achieve a Connected Continent, and amending Directives
2002/20/EC, 2002/21/EC and 2002/22/EC and Regulations (EC) No.
1211/2009 and (EU) No. 531/2012: (35304), 13555/13 + ADDs
1-2, COM(13) 627.
Background
2.13 Recalling the conclusions of the 2013 Spring
European Council, calling for measures to create a Single Telecoms
Market as early as possible, on 11 September 2013 the Commission
published a legislative package for a Connected Continent:
Building a Telecoms Single Market, which it says is aimed
at building a connected, competitive continent and enabling sustainable
digital jobs and industries; with proposed legislative changes
to several regulations that (the Commission says) would "make
a reality of two key EU Treaty Principles: the freedom to provide
and to consume (digital) services wherever one is in the EU".
2.14 The full background to the Commission Communication
and this draft Regulation is set out in the first of our previous
Reports; likewise the very detailed and helpful analysis of both
documents by the Minister in his Explanatory Memorandum of 10
October 2013.[12]
2.15 Our subsequent Reports embody a number of series
of full and very helpful updates ever since this package was first
deposited.[13] They include,
in September, the Opinion of the Culture, Media and Sport Committee
(CMS), along with Ofcom's submission to that Committee. The CMS
Committee deemed it clear from Ofcom's submission that at least
some of the proposals lack sufficient grounding in terms of evidence,
analysis and consultation, and that much work remained to be done
to achieve outcomes that were proportionate and struck an appropriate
balance between national and wider European interests.[14]
2.16 Since then, this dossier has moved forward intermittently,
prior to and since the 27 November 2014 Telecoms Council. The
Minister wrote on 15 January 2015 to say that, contrary to earlier
expectation, the Latvian Presidency had decided to prioritise
this dossier and published a "road map" proposing that
work over the upcoming three-month period should have a dual focus
on roaming and net neutrality; but also making it
clear that should the Council fail to agree the content of the
proposed Regulation to the extent that trilogues (the Presidency,
the Commission and the European Parliament) can begin within three
months, they would cease all work on the proposal.
2.17 Bearing in mind how this dossier had moved forward,
then marked time, then moved forward in a more limited way over
the past 18 months, we asked the Minister to summarise what his
negotiating brief now was, when he provided his next update.
2.18 We also asked him to explain: what the concept
of arbitrage was in this context, and what "the identified
risk" thereof was[15];
what "the identified risks of not addressing wholesale prices
for, at least, in 3 years" were; and what the inter-relationship
was between retail and wholesale prices.
2.19 We also asked to know what was proposed regarding
the issue of spectrum management.
2.20 We also drew his attention to recent media comment
on this dossier,[16]
which in essence noted that:
— in
April 2014, the European Parliament had voted to eliminate roaming
fees by mid-December 2015, but Member States had yet to set a
date for doing this;
— fees from telecom providers had fallen
significantly in recent years (since 2007, final prices for calling
and texting in other EU countries decreased 80% for consumers,
while data roaming prices fell 91%) but 28% of Europeans still
turned off their mobile phones when they enter another EU country
to avoid roaming fees;
— some high-tech associations and experts
argued that, without roaming fees, prices for domestic phone calls
and mobile internet use would have to increase, and that those
who did not travel much and thus currently profited most from
low fees for domestic calls, would suffer adverse consequences;
— the European Consumer Organisation (BEUC),
on the other hand, considered operators' concerns to be unfounded,
and saw potential economic advantages in an elimination of roaming
fees;
— while the European Parliament favoured
the principle of net neutrality, the German Chancellor had advocated
a more nuanced position.
2.21 We also reminded the Minister that any proposal
to enter into trilogue discussions would need clearing with the
Committee beforehand; likewise "any overall agreement".
In this regard, we would also like his thoughts on how best to
handle scrutiny of the other uncertainties he mentioned concerning
the possibility that, though having been presently dropped, "other
[unspecified] elements of the proposal… may become the subject
of future discussion and consideration under the trilogue process".
2.22 In the meantime, we continued to retain the
documents under scrutiny.
2.23 We also again drew this chapter of our Report
to the attention of the Culture, Media and Sport Committee.[17]
The Minister's letter of 17 February 2015
2.24 The Minister says that he is responding to a
series of queries from the Scrutiny Committees of both Houses,
but begins with an analysis of each of the texts, before responding
to those queries. He also notes that the Article numbers that
he uses in his letter apply to the original regulatory proposal
i.e. the "Connect Continent" Regulation rather than
existing regulation.
2.25 He then continues as follows:
ANALYSIS OF THE NET NEUTRALITY TEXT
"The regulatory text is relatively short —
running to a single definition and two Articles. The single definition
sets out 'internet access service'. Notable by their absence are
specific definitions of 'net neutrality' (the text is, in effect,
an implied definition) and 'specialised services' (a situation
with which I am content)".
"In summary
"Article 23 sets out:
· "the
provisions that safeguard internet management - Art 23(1-2); and
· "the
conditions under which traffic management is permitted - Art 23
(3-5).
"Article 24 sets out:
· "the
obligations placed on National Regulatory Authorities (NRAs) -
Ofcom in the UK's instance - to monitor compliance with the provisions
in Article 23;
· "an
obligation on service providers to make traffic management practises
known to NRAs on request; and
· "an
obligation on the Body of European Regulators of Electronic Communications
(BEREC) to lay down guidance for NRAs in pursuit of these new
obligations within 6 months of the Regulation being adopted".[18]
2.26 The Minister then says that "this text
and its formulation provide a number of opportunities and risks",
to which he turns as follows:
"I believe that the lack of specific definitions
of 'net neutrality' and 'specialised services' future-proofs the
regulation by providing sufficient flexibility in the text. Although
there was a push by some Member States, this has been resisted
by the Presidency. This flexibility is supplemented by the principles-based
approach that has been adopted and [which] I support.
"However, the current text sets out the principle
that all traffic should be treated the same, whilst also setting
out what constitutes reasonable traffic management, followed a
series of instances when exceptional traffic management can take
place. Council remains undecided on this point. I am seeking to
have the formulation of this text altered in order to make it
clear which forms of traffic management are acceptable in order
to effectively manage networks — and thus ensure quality
of services for users across a variety of services — and
which forms of traffic management are not considered to be acceptable
and may drive or underlie anticompetitive behaviours.
"A further risk arises from attempting to minimise
the Regulation's impact on the current self-regulatory system
here in the UK. In particular, I am seeking to ensure that the
text will allow the continuation of self-regulatory processes
for blocking of unlawful material. Progress towards this outcome
is well-developed and positive".
ANALYSIS OF THE ROAMING TEXT
2.27 The Minister says:
"Like the net neutrality text, it is relatively
brief and manifests the principles that were set out in the Presidency
Roadmap that was the subject of my previous letter, ie, it sets
out the principle of a roaming allowance plus a reduced retail
price once that allowance has been used, along with a timetable
for long-term action on the wholesale pricing regime.
"In summary, it sets down text that alters the
existing Roaming 3 Regulation (reference number here) as following:
· "Article
37(1) aims to delete the single IMSI solution (also known
as 'separate sale of roaming' or the 'decoupling' solution) as
this is now considered redundant;
· "Article
37(2) sets out:
o "the
introduction of a roaming allowance for consumers with no further
charges associated with the allowance;
o "The
size of the allowance;
o "A
retail surcharge once that allowance has been used;
o "Provides
an opt-out for consumer to choose an alternative roaming offering;
and
o "Places
an obligation on BEREC to report annually regarding the mobile
market and factors affecting the allowance;
· "Article
37(3-4) provides for SMS information to consumers regarding
allowances and costs of roaming (mirroring similar existing provisions
under Roaming 3);
· "Article
37(5) requires NRAs to monitor roaming provisions offered
by operators; and
· "Article
37(6) places an obligation on the Commission to review, report
on, and propose actions as necessary, with regard to reviewing
the current wholesale pricing regime with the aim of an eventual
removal of roaming charges. The Commission are charged with doing
so no later than 30 June 2018.
2.28 The Minister then again turns to what he describes
as "a series of opportunities and risks", as follows:
"Whilst the text does not immediately introduce
a 'roam like at home' (RLAH) solution, it contains a clear indication
that this is the first step on the journey to that ultimate destination.
Further, whilst it does not contain a commitment to immediately
assess and address any competitive distortions created by, and
within, the current wholesale pricing regime, it does contain
a longer-term commitment to address same. Therefore, it clearly
does have the potential for a RLAH solution to be introduced in
the longer term. Finally, the combination of an allowance plus
a further reduction in retail roaming charges represents a greater
level of consumer benefit compared to the current roaming regime,
i.e., before the introduction of Roaming 3, the average cost of
data in the EU was €7.00/MB; under this proposal, once any
allowance is used, it will be €0.05/MB — a 99.2% reduction
since the introduction of Roaming 3 and a further 75% reduction
in data roaming rates compared to current retail cap.
"However, there is some concern that the absence
of any short-term action on wholesale pricing will limit the finally
agreed size of the allowance as a balance is struck between meeting
consumer expectation and avoiding an excessive impact on the revenues
of operators. My current estimate is that an allowance of the
size proposed by the Presidency — 5 minutes of voice; 5
SMS; and 5 MB data per day for seven days per annum — could
drive a reduction in revenues of UK operators by around 0.45%.
It follows that any increase in allowance size will drive this
upwards.
"The proposal has been met with some level of
support within Council and discussions regarding the size of the
allowance continue.
RESPONSE TO QUERIES
2.29 The Minister then turns to the questions raised
by ourselves and our House of Lord's counterparts, which he combines
in a single response thus:
Current negotiating Brief
"I can confirm that my priority remains an outcome
that sets down a clear timetable that results in the eventual
cessation of mobile roaming charges, thus creating significant
gains for consumers. A second ranking priority is to ensure that
any regulation on net neutrality is principles-based as well as
attempting to meet the requirements I detail above. I also continue
to seek the inclusion of the consumer protection element if at
all possible, along with a commitment to review the current market
in wholesale access products. Finally, I continue to resist any
changes to spectrum management that result in the transfer of
existing to, or creation of new powers for the Commission.
Roaming - arbitrage, wholesale price risks, retail/wholesale
price relationship and extra costs for consumers.
"The risk of arbitrage, in this instance, is
related to the concept of 'permanent roaming'. This will theoretically
arise if the situation arises that there would be a sufficiently
large roaming allowance that would drive the purchase of pre-pay
(Pay As You Go — PAYG) SIMs from a Member States with low
domestic retail charges. These are then sold onwards in Member
States where domestic rates are much higher ie consumers would
use the roaming allowance associated with a non-domestic SIM rather
than use a domestic SIM. This risk is specifically associated
with data, where the higher associated wholesale rates accentuate
the exposure of MNOs operating in Member States with lower domestic
pricing regimes. However, this risk can be managed through some
mechanisms eg requiring a PAYG SIM to be used its 'home' market
for a minimum period before roaming is enabled, at the request
of the user. Working Group is actively considering these.
"The issue of wholesale risks are driven by
the lack of overall harmonisation of data wholesale prices across
the EU28 and that the current wholesale cap (set by Roaming 3)
of €0.05/MB. The cap is considered to be around at least
twice cost, and as much as ten times cost in some extreme examples.
As a general model, northern Member States tend to be net buyers
of wholesale roaming services from the southern States, mainly
as a result of tourist movement in the Summer. However, it is
generally the southern Member States that have higher wholesale
rates and so there is a net flow of cash from north to south.
This flow would then be amplified under any 'roam like at home'
or allowance mechanism, as their introduction would drive more
consumers to engage with roaming services.
"With regard to the relationship between retail
and wholesale roaming prices, it is complex and arguably shows
a lack of competition. As such, both are currently regulated
(capped) by the third Roaming Regulation but operators are free
to vary prices below those caps. This happens infrequently.
"Finally, with regard to any extra costs to
consumer following the introduction of a roaming solution. This
'water-bed' effect is difficult to calculate as it is subject
to a number of complex variables. However, if an allowance of
the size proposed by the Presidency is introduced without any
accompanying reduction of wholesale, and based on the assumption
that operators fully pass on the costs (as lost revenue) to consumer
— considered unlikely given the high level of competition
in the UK domestic market — one could anticipate an increase
in the order of £1.00 to £2.00 per annum, dependent
on specific mobile provision, i.e., those on post-pay with handsets
included would be towards the higher end; SIM-only and pre-pay
towards the lower".
Spectrum management
"The matter of spectrum management is currently
not being actively considered, in that Council remains unanimous
in its opposition to the Commission's proposals and the Presidency
have offered no plans for further discussions on same. Whilst
there were some signals from the Commission in the early stages
of the current Presidency that they would seek to include this
element into trialogue discussions, it is unclear whether the
Commission would be willing to stall or even risk jeopardising
an overall agreement by insisting on this course of action. There
are both positives and negatives related to this outcome. The
positive outcome is that we would have successfully resisted the
Commission's plans for creating new powers over spectrum auctions,
along with taking control of wider management processes that are
currently under the aegis of Member States. However, the negative
aspects would be that we would lose the opportunity to make changes
to the current existing governance structure — through evolving
the Radio Spectrum Policy Group[19]
— along with capitalising on associated gains in terms of
sharing of best practise and coordination of spectrum management.
Further, this outcome runs the risk that the Commission will
re-propose similar or same without taking into account Council's
current view and suggestions for change on same under the anticipated
review of the existing Telecoms Framework that is due to begin
later this year.
2.30 Finally, with regard to the implications for
the scrutiny process, the Minister says that:
— once
it becomes apparent that Council is beginning to settle on a final
text, he will write to request that scrutiny reserve be lifted.
At that point, he says that he will:
"be able to determine with better accuracy than
currently which elements are within the proposed overall agreement
moving forward; which may be subject to pressure from Commission
and the Parliament for inclusion; and which are almost certainly
not to be included. As such, my letter will be drafted on that
basis i.e. making it clear under which formulation I would be
content to accept each of the elements that will then go forward
to constitute the overall agreed package. I trust that you are
content with this proposed strategy";
— though
the Latvian Presidency "have injected some much needed momentum
into discussions within Council" and "recently reiterated
its ambition to derive a text to move into trialogue by end-February",
and though it is "feasible" that an agreement within
Council can be achieved within that timetable:
"it remains that fact that the current timetable
is challenging and there is a clear risk that no overall agreement
will be reached within Council. However, if no such agreement
is reached, there are currently no plans on how the elements of
the Connect Continent proposal will be handled either singly or
collectively moving forward. Further, the Presidency have clearly
signalled they will cease all work on this package should that
situation arise. That said, I believe that there is a higher risk
of slippage in terms of negotiations and deadline, with a positive
outcome than complete failure of Council reaching an agreement".
Previous Committee Reports
Thirtieth Report HC 219-xxix (2104-15), chapter 3
(21 January 2015); Twenty-seventh Report HC 219-xxvi (2014-15),
chapter 3 (17 December 2014); Twentieth Report HC 219-xix (2014-15),
chapter 1 (19 November 2014); Thirteenth Report HC 219-xiii (2014-15),
chapter 11 (15 October 2014); Ninth Report HC 219-ix (2014-15),
chapter 9 (3 September 2014); Eighth Report HC 219-viii (2014-15),
chapter 5 (16 July 2014); First Report HC 219-i (2014-15), chapter
5 (4 June 2014); Thirty-fourth Report HC 83-xxxi (2013-14), chapter
2 (5 February 2014); Twenty-eighth Report HC 83-xxv (2013-14),
chapter 4 (18 December 2013); and Eighteenth Report HC 83-xvii
(2013-14), chapter 2 (16 October 2013).
11 Net neutrality is the principle that Internet service providers
and governments should treat all data on the Internet equally,
not discriminating or charging differentially by user, content,
site, platform, application, type of attached equipment, and modes
of communication. Proponents often see net neutrality as an important
component of an open internet, where policies such as equal treatment
of data and open web standards allow those on the internet to
easily communicate and conduct business without interference from
a third party. Back
12
See Eighteenth Report HC 83-xvii (2013-14), chapter 2 (16 October
2013). Back
13
See list of previous Reports at the end of this Chapter. Back
14
See "Background" in Twenty-seventh Report HC 219-xxvi
(2014-15), chapter 3 (17 December 2014) for summary and Ninth
Report HC 219-ix (2014-15), chapter 9 (3 September 2014) for full
information. Back
15
Arbitrage is normally regarded as the practice of taking a positive
expected return from overvalued or undervalued securities in an
inefficient market without any incremental risk and zero additional
investments. It consists of trading in two assets - with at least
one being mispriced, i.e., if its current price diverges from
the price predicted by a mathematical model that, essentially,
looks at discounted future cash flows. The theory was first proposed
by the economist Stephen Ross in 1976. Back
16
See European Voice: 20 January 2015. Back
17
See Thirtieth Report HC 219-xxix (2104-15), chapter 3 (21 January
2015). Back
18
BEREC replaced the European Regulators' Group (ERG) in January
2010, following the adoption of the BEREC regulation in November
2009 (this being part of the major revamping of the telecoms regulatory
framework in that year). The ERG, which was set up as part of
the original 2002 framework, was simply a network of EU NRAs (national
regulatory authorities; in the UK, Ofcom), but had no formal role
in the regulatory framework. The Commission originally proposed
to replace it with a new EU agency - a Community body, called
the European Electronic Communications Market Authority (EECMA).
The previous Government had misgivings from the outset: essentially,
that it was not at all clear how the ECMA would operate; that
it would be seeking to involve itself unnecessarily and unhelpfully
in areas that were the preserve of national authorities, particularly
spectrum management; and that the Commission would be much better
employed in ensuring that the established system - based on a
strong and independent NRAs which is encouraged by its government
to get on with the job of promoting competition, new services
and a better deal for consumers, in which the UK took the lead
- was implemented effectively in those Member States who were
either dragging their feet or being obstructive. This view prevailed.
As a result, the Body of European Regulators for Electronic Communications
(BEREC) replaced the ERG. It is supported by a small European
agency called the BEREC Office, situated in Riga. Back
19
The high-level advisory group assisting the Commission in developing
radio spectrum policy for the EU, which has hitherto played a
pivotal role in driving harmonisation of the technical aspects
of spectrum management in EU. Back
| 
