Documents considered by the Committee on 18 March 2015 - European Scrutiny Contents


9 The Telecommunications Single Market

Committee's assessment Legally and politically important
Committee's decisionNot 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
DepartmentCulture, 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

9.1 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.

9.2 Over the past 18 months, this dossier has moved forward intermittently. The focus has now boiled down to two issues: mobile roaming charges and net neutrality.[13] The Latvian Presidency then decided to prioritise this dossier, with this dual focus, 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.

9.3 In the most recent of a series of open and very helpful updates, the Minister for Culture and the Digital Economy (Mr Edward Vaizey) said on mobile roaming charges, that:

—  whilst the text did 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 did 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".

9.4 The Minister then said:

"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."

9.5 In sum, the Minister said:

"The proposal has been met with some level of support within Council and discussions regarding the size of the allowance continue."

9.6 On the question of net neutrality, the Minister said:

"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)."

9.7 In terms of risks and opportunities, the Minister said:

"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."

9.8 The Minister also said that the matter of Spectrum Management was 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 said that there were both positives and negatives related to this outcome. On the one hand, 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, had been successfully resisted. On the other, it had been necessary to forego 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; and the Commission could revive its proposal, without taking into account Council's current view and suggestions for change, via the anticipated review of the existing Telecoms Framework that is due to begin later this year.

9.9 The Minister also responded fully and helpfully to the questions we raised in what was then our most recent Report.

Our assessment

9.10 We were once again grateful to the Minister for a further full and open update. We noted that he believed it more likely that, rather than carry 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) could begin, negotiations would continue into March. That being so, we said that we should need to hear again from the Minister no later than Friday 20 March.

9.11 In the meantime, we continued to retain the documents under scrutiny.

9.12 We also again drew this chapter of our Report to the attention of the Culture, Media and Sport Committee.[14]

9.13 On 4 March 2015, the Council announced that, following Member State agreement on 4 March 2015 at COREPER,[15] the Latvian presidency of the Council now had a mandate to start negotiations with the European Parliament on new rules to cut mobile phone roaming fees and safeguard open internet access. The mandate covers EU-wide rules on open internet, safeguarding end-users' rights and ensuring non-discriminatory treatment in the provision of internet access services; and changes to the current roaming regulation (known as Roaming III), representing an intermediate step towards phasing out roaming fees. The other parts of the original Commission proposal on the telecommunications single market ("Connected Continent") have been left out by common decision of the Council. The regulation would apply from 30 June 2016 (see paragraph 9.25 below for details).

9.14 The Minister now confirms this situation. He says that the text on roaming has been largely stable since his last update; the main components being the introduction of a roaming allowance — the size of which remains unspecified and will be subject to development during Trialogue — and a commitment to review the current wholesale price and take action if found necessary. He describes the matter of wholesale pricing as having played a pivotal role in preventing a full "roam like at home" solution being adopted in the short-term but says that "this commitment retains the potential for the adoption of such an action in the longer term". Here and now, his intention is to focus future efforts on "ensuring that that any allowance results in a meaningful and tangible benefit to consumers, whilst striving to ensure this is balanced against revenue impacts for operators". The proposal also envisages a further reduction in retail data roaming charges, and a modification of the current "SMS alert" mechanisms for consumers when "roaming".

9.15 The current net neutrality text "remains principles-based and "technology and service neutral", and retains sufficient flexibility for it to be regarded as future-proof and to provide adequate space for future innovation with regard to emerging and new digital services. However, were the current text to come into effect, it would have a negative impact on the current child online protection regime in operation within the UK, namely the matter of "default on" filters for mobile devices and home broadband, and potentially the filtering of public WiFi services. As such, "this formulation is a clear breach of a UK Red Line and was therefore sufficient for UK to vote against the text at the recent Coreper meeting". Both the Presidency and the Commission have indicated their willingness to continue to work with his officials on this section of the text "to fully mitigate this negative impact in advance of Trialogue commencing". The Minister therefore intends to "monitor this situation as it develops over the next month or so", but notes that "it may be necessary for the UK to vote negatively again at the appropriate time should UK be unsuccessful in its attempt to garner such a change" (see paragraphs 9.26-9.31 below for details).

9.16 Given these uncertainties, the current timetable and the imminent dissolution, the Minister recognises that the final formulation of the text will not be known until after Parliament dissolves and the last meeting of the Committee has taken place. Therefore, he says:

"the existing scrutiny reserve will necessarily remain in place as negotiations reach their conclusion and the point of decision on accepting that outcome, or otherwise, is reached. As such, it is my intention to write again upon conclusion, noting the final outcome and setting down any relevant points".

9.17 Elsewhere in this Report we consider a related draft Directive on Network Information Security that, as here, is about to enter the trilogue process on the basis of a much reduced text that contains a number of important uncertainties. Somewhat oddly, in that instance, the Minister asks the Committee to clear the proposal from scrutiny (the revised text of which has, of course, not been deposited for scrutiny, any more than this revised text has). In that instance, we have rejected the Minister's request and have continued to retain the document under scrutiny.[16] In this instance, however, the Minister has, of course, come to the right conclusion.

9.18 Here, as in that other instance, we again thank the Minister for his and his officials' openness that has characterised his approach to this difficult dossier, and which we likewise regard as worthy of wider study by the Cabinet Office and scrutiny teams across Whitehall.

9.19 By early summer we hope that there will be not only a new Government but also a new Committee. We recognise that, in the circumstances, it is nonetheless likely that he may well be unable to submit the final text of the draft Directive to the next Committee for scrutiny prior to a formal vote in Council. And even if there is one but not the other, the new Committee will be interested in the final outcome. We therefore expect the Minister, or his successor, to deposit any final text along with a fresh Explanatory Memorandum, outlining its provisions in detail, and explaining why he (or she) voted as he (or she) did at the end of the day.

9.20 In the meantime, we shall continue to retain the documents under scrutiny.

9.21 We also again draw these developments 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

9.22 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".

9.23 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.[17]

9.24 Our subsequent Reports embody a number of series of full and very helpful updates ever since this package was first deposited.[18] 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.[19]

9.25 On 4 March 2015, the Council issued the following press release:

"The Latvian presidency of the Council now has a mandate to start negotiations with the European Parliament on new rules to cut mobile phone roaming fees and safeguard open internet access. The mandate was agreed by member states at the Permanent Representatives Committee on 4 March 2015.

"COUNCIL'S NEGOTIATING STANCE

"The mandate to negotiate the new regulation covers

·  "EU-wide rules on open internet, safeguarding end-users' rights and ensuring non-discriminatory treatment in the provision of internet access services

·  "changes to the current roaming regulation (known as Roaming III), representing an intermediate step towards phasing out roaming fees.

"The other parts of the original Commission proposal on the telecommunications single market ("Connected Continent") have been left out by common decision of the Council.

"The regulation would apply from 30 June 2016.

"ROAMING REFORM

"The Council stance sets up a new pricing mechanism, which will make it much cheaper to use your mobile phone when travelling abroad in the EU. Within certain limits to be determined, consumers could make and receive calls, send SMSs and use data services without paying anything extra on top of the domestic fee. Once this basic roaming allowance is used up, the operator may charge a fee, but this fee will be much lower than current charges. In the case of calls made, SMSs sent and data used, the roaming fee could not in any case be higher than the maximum wholesale rate that operators pay for using the networks of other member states. For calls received, the maximum surcharge will be the weighted average of maximum mobile termination rates across the EU.

"As the next step, the Commission will be asked to assess by mid-2018 what further measures may be needed with a view to phasing out roaming charges. If so, the Commission will propose new laws to address the situation.

"Roaming III regulation

"PROTECTING OPEN INTERNET

"The draft regulation is to enshrine the principle of end-users' right to access and distribute content of their choice on the internet. It also sets out to ensure that companies that provide internet access treat traffic in a non-discriminatory manner.

"It sets common rules on traffic management, so that the internet can continue to function, grow and innovate without becoming congested. Blocking or slowing down specific content or applications will be prohibited, with only a limited number of exceptions and only for as long as it is necessary. For instance, customers may request their operator to block spam. Blocking could also be necessary to prevent cyber-attacks through rapidly spreading malware.

"As regards services other than those providing internet access, agreements on services requiring a specific level of quality will be allowed, but operators will have to ensure the quality of internet access services.

"National regulatory authorities will play a key role in ensuring that telecom companies and operators respect the rules on open internet. For this, they will receive guidance from the Body of European Regulators BEREC.[20]

"HOW WILL THIS BECOME A LAW?

"The presidency will negotiate the terms of the regulation with the European Parliament on behalf of the Council. In order to be adopted, the legal act must be approved by both institutions. The Parliament adopted its position (first-reading amendments) in April 2014."[21]

The Minister's letter of 11 March 2015

9.26 The Minister provides a further update on progress and next stages before Parliament prorogues, and an analysis of the current text before it enters the trialogue process (and also responds to the queries regarding the provisions on roaming raised by our counterparts in the Lords in their 25 February 2015 letter to him).

9.27 The Minister confirms that the Presidency now has a mandate to commence with informal Trialogues, noting that the dates of the first three Trialogue meetings (towards the end of March, with the second and third in April) have yet to be confirmed; but assuming that the latter two will take place after Easter, and thus after the last Committee meeting (which he deals with below).

9.28 The Minister also confirms that text adopted by Coreper retains elements covering mobile roaming and net neutrality alone.

MOBILE ROAMING

9.29 He continues as follows:

    "The text on roaming has been largely stable since my last update letter and the main components are:

·  "The introduction of a roaming allowance - the size of which remains unspecified and will be subject to development during Trialogue. I understand that the Presidency continues to support an allowance totalling: 35 minutes of voice calls; 35 SMS; and 35 MB of data (spread over seven days per year). It remains my ambition for the allowance to be greater than is proposed, especially for data, and I will continue to monitor this aspect as discussions continue;

·  "A commitment to review the current wholesale price and take action if found necessary. The matter of wholesale pricing played a pivotal role in preventing a full 'roam like at home' solution being adopted in the short-term but this commitment retains the potential for the adoption of such an action in the longer term;

·  "A further reduction in retail data roaming charges. This would permit operators to charge a surcharge over their domestic tariffs, equivalent to no more than the current wholesale rate i.e. €0.05/minute for voice; €0.02 per SMS; and €0.05/MB for data. This represents a significant cut in roaming charges for consumers once they have used their allowance. It is also coupled with a mechanism that would further reduce the cost of incoming voice calls;

·  "A modification of the current 'SMS alert' mechanisms for consumers. Under the current provision contained within the third Roaming Regulation, consumers receive SMS messages with regard to the cost of roaming. This has been extended to make them aware of such charges, as well as allowances when roaming.

    "I believe it is worth noting that this outcome is regarded by all as a staging-post to the eventual introduction of a full 'roam like at home' solution following the review of the wholesale prices. As such, I am content that the roaming text in its current form meets HMG's negotiating objectives and it is my intention to focus future efforts on ensuring that that any allowance results in a meaningful and tangible benefit to consumers, whilst striving to ensure this is balanced against revenue impacts for operators."

NET NEUTRALITY

9.30 The Minister confirms that the current net neutrality text "remains principles-based and "technology and service neutral".

9.31 He continues as follows:

"The main components are:

·  "Provisions that ensure that end-users are able to access content of their choice whilst allowing operators to reach commercial and technical agreements with regard to matters such as price, volume and speed that do not breach this overarching end-user right;

·  "Clarifies conditions under which permissible traffic management may take place; and

·  "Clarifies existing powers for national regulatory authorities as to when they may intervene if they believe that the requirements of the Regulation and those already within the existing Telecoms Framework are being breached.

"Further, I believe it also retains sufficient flexibility for it to be regarded as future-proof and so allows adequate space for future innovation with regard to emerging and new digital services. UK was also successful in ensuring that any negative impacts on the current UK regime with regard to the Internet Watch Foundation and the prevention of access to child abuse images were mitigated.

"However, the current text, if coming into effect, contains a negative impact on the current child online protection regime in operation within the UK, namely the matter of 'default on' filters for mobile devices and home broadband, and potentially the filtering of public WiFi services. As such, this formulation is a clear breach of a UK Red Line and was therefore sufficient for UK to vote against the text at the recent Coreper meeting.

"Both the Presidency and the Commission have indicated that they are willing to continue to work with my officials to further work on this section of the text to fully mitigate this negative impact in advance of Trialogue commencing. I intend to monitor this situation as it develops over the next month or so. However, it should be borne in mind that it may be necessary for the UK to vote negatively again at the appropriate time should UK be unsuccessful in its attempt to garner such a change."

CURRENT TIMETABLE

"Given the current timetable for the progression of the proposal, it is clear that the final formulation of the text will not be known until after Parliament dissolves and the last meeting of your committee has taken place. Therefore, the existing scrutiny reserve will necessarily remain in place as negotiations reach their conclusion and the point of decision on accepting that outcome, or otherwise, is reached. As such, it is my intention to write again upon conclusion, noting the final outcome and setting down any relevant points."

9.32 Finally, the Minister responds to the two questions raised by our counterparts in the Lords:

"The first question asked whether a potential increase in domestic prices of £1-2 when set against an annual roaming allowance of: 35 minutes; 35 SMS; and 35 MB of data per annum, provided value for money for consumers. When considering this issue, I believe it worth bearing in mind that should operators fully pass on costs in this potential 'water-bed' effect, that this would be indicative of a complete lack of competition in the UK domestic market. I do not believe that this is the case and so this figure represents a theoretical maximum. Under the current regime, if a consumer were to roam, and assuming they don't subscribe to the current market offerings covering roaming, the total maximum cost of roaming at that level would be €15.75; around £11.40 at current exchange rates. This cost can be expected to drop to €4.20, or £3.04, if the new proposed regime is adopted. Further, given that UK consumers used 1.7bn MB of data while roaming in 2013, this price drop has the potential to represent a significant benefit to consumers. As such, it could be considered to represent value for money for those consumers who engage with roaming services.

"The second question asks whether the telecommunications industry could absorb the impact on revenue that this change may bring about. This is a highly subjective matter and difficult to offer an absolute response. However, given that data roaming prices have previously seen to be highly elastic, a potential outcome may see any drop in revenue offset by increased volumes and thus associated revenue increases, as consumers begin to engage more widely in roaming services. Further, as consumption increases, further revenue may be generated by consumption of other digital services offered by the operators and the telecommunications industry more widely. Furthermore, UK operators will see any potential revenue loss partially offset by increased wholesale revenue from incoming EU visitors. Finally, this measure is seen as one that will drive further integration of the telecom single market and this may also provide other wider benefits to both consumers and the industry that would be offset against any predicted revenue decreases."

Previous Committee Reports

Thirty-fourth Report HC 219-xxxiii (2104-15), chapter 2 (25 February 2015), 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).


13   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

14   Thirty-fourth Report HC 219-xxxiii (2104-15), chapter 2 (25 February 2015). Back

15   COREPER, from French Comité des représentants permanents, is the Committee of Permanent Representatives in the European Union, made up of the head or deputy head of mission from the EU member states in Brussels. Its job is to prepare the agenda for the ministerial Council meetings; it may also take some procedural decisions. It oversees and coordinates the work of some 250 committees and working parties made up of civil servants from the member states who work on issues at the technical level to be discussed later by COREPER and the Council. It is chaired by the Presidency of the Council of the European Union. There are in fact two committees: COREPER I consists of deputy heads of mission and deals largely with social and economic issues; COREPER II consists of heads of mission (Ambassador Extraordinary and Plenipotentiary) and deals largely with political, financial and foreign policy issues. Back

16   (34685), 6342/13 at chapter 5 of this Report. Back

17   Eighteenth Report HC 83-xvii (2013-14), chapter 2 (16 October 2013). Back

18   List of previous Reports at the end of this Chapter. Back

19   Twenty-seventh Report HC 219-xxvi (2014-15), chapter 3 (17 December 2014) and Ninth Report HC 219-ix (2014-15), chapter 9 (3 September 2014). Back

20   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

21   Press Release. Back


 
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Prepared 27 March 2015