Legally and politically important
(a) Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Culture, Media and Sport Committee
(b) Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Culture, Media and Sport Committee
(a) Proposal for a Directive on establishing the European Electronic Communications Code (Recast);
(b) Proposal for a Regulation establishing the Body of European Regulators for Electronic Communications;
(a) Article 114 TFEU; ordinary legislative procedure; QMV;
(b) Article 114 TFEU; ordinary legislative procedure; QMV;
Culture, Media and Sport
(a) (38106), 12252/16 + ADDs 1–3, COM(16) 590;
(b) (38107), 12257/16 + ADDs 1–4, COM(16) 591.
2.1The Commission’s Connectivity (Telecoms) Package—introduced by the overarching Communication considered at chapter 11 of this Report—aims to improve internet connectivity in the EU as part of its wider Digital Single Market Strategy.
2.2This chapter considers the legislative proposals of the Connectivity (Telecoms) Package, which propose reforms to the EU’s telecoms regulatory framework.
2.3Document (a)—a draft Directive to establish a European Electronic Communications Code—consolidates and recasts four existing Directives on electronic communications (the Framework Directive, Authorisation Directive, Access Directive and Universal Service Directive) into a single document (the “Code”). The Commission proposes substantive amendments to existing rules, including:
2.4Document (b) complements document (a) by establishing the Body of European Regulators of Electronic Communications (BEREC) as an EU agency to reflect its increased mandate and objectives set out in the Code (the “BEREC Regulation”).
2.5Taken together, documents (a) and (b) are intended to:
2.6The Minister of State for Digital and Culture (Matthew Hancock MP) is generally supportive of initiatives to promote competition, innovation and future private investment, particularly around very high capacity networks.
2.7The Minister notes that the Department for Culture, Media and Sport (DCMS) has “yet to secure write round approval for our negotiating proposition, and the complexity and far-reaching intent of the proposals [means] we cannot, at this stage, give an absolutely definitive cost-benefit analysis of all the proposed revisions or the different impacts of varying our negotiating position”, but hopes to have “secured approval for our negotiating position ahead of [the Transport, Telecommunications and Energy (TTE)] Council” on 2 December.
2.8The Minister outlines initial concerns in relation to:
2.9The Minister also notes the following Brexit implications of the proposals:
“There is every likelihood the Code, including BEREC’s role in maintaining and enforcing it, will remain influential when the UK leaves the EU as, depending on the exit agreement, the Code will continue to apply to EEA countries and/or continue to place regulatory conditions on companies who continue to trade within Europe. It is in our interests to negotiate a Code, and the role for BEREC within it, that best delivers on Britain’s interests.”
2.10We note that the Government is still assessing the Code and BEREC Regulation, engaging in ad hoc stakeholder consultations (rather than a public consultation), and seeking an agreed Whitehall-wide approach to the negotiations.
2.11As a consequence, the Explanatory Memoranda on these proposals—which form the legislative core of the proposed extensive package reforming EU telecoms law—do not clearly set out the Government’s position on the wide range of initiatives or actions proposed, what its key negotiating objectives are and whether it has any red lines.
2.12Furthermore, the Government does not provide the supporting evidence or analysis to substantiate its ‘subsidiarity concerns’ on certain aspects of the proposals. For example, in relation to spectrum management: under what circumstances is assignment best addressed at a local level rather than at an EU level, particularly given the potential for cross-border interference?; to what extent is the Government’s concerns shared by industry stakeholders, which appear to be supportive of a more coordinated approach to improve certainty for investments and opportunities to develop new wireless and mobile technologies throughout the EU or enable cross-border bids?
2.13We therefore ask the Government to clarify the issues set out below.
2.14The Government indicates that it is consulting extensively with stakeholders on these proposals in drawing up an agreed negotiating position. In view of the concerns it has raised in relation to the Code and BEREC Regulation, we ask the Minister to provide:
2.15This legislative package represents a substantive overhaul of telecoms law, which will impact the UK while a Member of the EU and after its withdrawal.
2.16We ask the Minister to provide:
2.17Pending the further information requested, we hold both proposals under scrutiny and draw our conclusions to the attention of the Business, Energy and Industrial Strategy Committee and the Culture, Media and Sport Committee in view of their recent inquiries on the Digital Economy and UK Connectivity, and to the House in view of the Digital Economy Bill.
(a) Proposal for a Directive on establishing the European Electronic Communications Code (Recast): (38106), 12252/16 + ADDs 1–3, COM(16) 590; (b) Proposal for a Regulation establishing the Body of European Regulators for Electronic Communications: (38107), 12257/16 + ADDs 1–4, COM(16) 591.
2.18The 2002 EU Regulatory Framework for Electronic Communications Services (the “EU Telecoms Framework”) aimed to promote competition, improve the functioning of the Internal Market for electronic communications, and benefit consumers and users. It encompassed the following Directives:
2.19The Telecoms Framework was revised in 2009 by a new legislative package consisting of:
2.20In 2013, the Commission presented proposals for further reform of the EU telecoms regulatory framework as part of its original ‘Connected Continent’ package. However, several elements of the proposals were abandoned due to Member State opposition, including on spectrum management given concerns over the impact of the proposals on Member States’ revenue raising activities (e.g. auctions); only roaming and open internet/net neutrality elements of this package were retained and adopted in 2015.
2.21In its 2015 Digital Single Market Strategy, the Commission announced its intention to review all existing telecoms legislation and present proposals for an overhaul of the telecoms framework in 2016, focusing on:
2.22In September 2015, the Commission ran public consultations on the evaluation and review of the regulatory framework for electronic communications networks and services and on needs for internet speed and quality by 2020. It found that regulatory consistency under the current EU Telecoms Framework had been achieved to a limited extent, affecting the operations of cross-border providers, reducing the predictability for operators and their investors, and impacting end-user outcomes.
2.23On spectrum management for example, the Commission has consistently argued that there is a need for more harmonisation in this area to eliminate the obstacles to market entry that arise as a result of divergent practices in Member States, to create the economies of scale that are central to the Digital Single Market, and to ensure that key spectrum bands are made available in a timely way so that next generation technologies can thrive within the EU. On the other side of the argument, a majority of Member States have always argued that, while closer coordination may be merited, national markets differ significantly from one another.
2.24The Code proposes revisions to the existing EU Telecoms Framework. Its overarching aim is to harmonise regulation of electronic communication services (ESCs) across all Member States, with a view to:
2.25Key substantive amendments to the existing EU Framework are summarised below.
2.26The Commission proposes to significantly strengthen BEREC’s current role—one of coordination between Member States’ NRAs.
2.27Key changes to the current governance arrangements include:
2.28The Minister sets out the Government’s position on each of the legislative proposals, and provides an update on 2 November to cover the Government’s Impact Assessment on documents (a) and (b) and an update on the timetable for negotiations. The detail is set out for ease of reference below.
2.29The Minister sets out the policy implications of the proposed Regulation as follows:
“The Government’s Industrial Strategy aims to limit the uncertainty associated with our exit from the EU and to ensure our new relationship with the EU works for business. To this end we will play our full part in negotiations on the new Code. The current Electronic Communications Framework is adopted into the EEA agreement. Obviously there will be issues around the applicability of any newly agreed code when negotiations are completed. If we remain in the EEA then it will apply. If not we will have a degree of discretion about what we retain, but generally the UK considers the Framework to have worked well and UK companies continuing to operate within the EU may will be subject to some extent to the rules, depending on the exit package agreed.
“The Commission has advanced high-level objectives with a strong focus on incentives for next-generation network deployment and some simplification of regulation. The proposals are clearly intended to promote investment in very high-capacity networks, while maintaining competition in networks and services. It is reassuring that, in the end, the Commission has not framed this as a choice between investment and competition.
“A new objective requires NRAs to promote access to, and take-up of, very high capacity data connectivity, for both fixed and mobile services. This complements the existing objectives on the promotion of competition, the development of the internal market and the promotion of the interests of EU citizens, which have been streamlined.
“The scope of the Framework has been extended by amending the definition of ECS to incorporate certain OTT services, although only limited parts of the Framework apply to those services (primarily certain end-user rights and security provisions) and a distinction is made between OTT services that rely on phone numbers and those that do not. We will need to undertake more analysis to examine exactly whether the revised definitions give rise to unintended consequences, such as capturing services unnecessarily or deterring innovation. While the Commission’s intention is ostensibly to extend only a limited set of regulatory obligations on a narrowly defined class of OTT services, they might have inadvertently over-reached (picking up social networks, dating apps, etc.).
“The government set out the UK’s position on the Framework in its December 2015 response to the Commission’s consultation. The response noted that the Framework has largely been successful in achieving its aims, but that it must be made more flexible, future-proof and deregulatory where possible. Our initial review of the proposals has identified the following key policy implications of the Commission’s proposals.
“Network Access Regulation
“Fundamentally based on the text of the previous Access Directive (2002/19/EC) the draft provisions on network access aim to harmonise the way in which Member States regulate access to, and interconnection of, electronic communications networks and associated facilities. A fundamental principle is the provision of access to incumbent networks and the rules on which that is based; targeted at ensuring competition over legacy, formerly monopoly infrastructure. It also continues to cover how NRAs might intervene with explicit reference to the availability of functional (if not structural) separation as a market remedy. The option of functional separation, and implicitly structural separation, remains as a remedy of last resort.
“The current regime of significant market power (SMP) will remain in place, however the proposals introduce new regulatory tools for NRAs to encourage investment. NRAs’ symmetric regulation powers (i.e. those not dependent on an SMP finding) for access to non-replicable assets such as in-house wiring and cables will be clarified and increased. The Commission also proposes loosening of the regulatory obligations on network incumbents with SMP status, conditional on good faith co-investment offers where the incumbent invests in very high capacity networks. We intend to seek evidence from the Commission that this proposal will be an effective incentive for investment.
“The proposals do not clarify how the new Code will address non-competitive oligopolies, a market structure that could in theory develop in geographic areas of the UK. BT currently has SMP access obligations placed on it in the UK. This has enabled and encouraged competition at retail level.
“The proposals for promoting investment, innovation and competition are broadly in line with the general thrust of the conclusions and proposals of Ofcom’s Digital Communications Review (DCR).
“In the new proposals there is an evident slant towards promoting investment in fibre to the premises (FTTP) networks, subject to certain conditions. Commission proposals also state increased take up as an aim, but this seems to be expected to be an outcome from making higher quality, competitively priced infrastructure available, there are no specific actions designed to drive take-up. Other elements of the Commission’s Connectivity Package may drive take-up, but we are less certain than the Commission that this will be automatically achieved by the new Code.
“Proposals for the Code continue to outline how NRAs might intervene in regulated markets over competition or consumer detriment. We are concerned about proposals to introduce a new “double lock” mechanism enabling the Commission to veto remedies if BEREC agrees with Commission concerns on remedies proposed by NRAs. There is little evidence to suggest this is justified; rather the contrary, available evidence suggests current procedures work. NRAs, as required, already take the utmost account of BEREC opinions while this proposal goes an unnecessary step further and raises the prospect of BEREC opinions becoming legally binding and risks undermining national competence.
“In a success borne out of UK lobbying the Commission proposes extension of the market review period, from every three to every five years, providing more regulatory certainty in the sector, and reducing the administrative burden on Ofcom and the industry.
“In an attempt to geographically target aspects of access regulation, the Commission has advanced proposals requiring NRAs to survey the state of broadband networks and investment plans across their national territory, to enable them to better take geographic specificities into account in market analyses every three years. They must also identify so called ‘digital exclusion areas’ where no operator or public authority has deployed or plans to deploy a very high capacity network. They can publish the designated digital exclusion areas with a view to promoting very high capacity network deployment in these areas. The proposals aim to encourage investment from alternative providers.
“In its submission to Ofcom’s Digital Communications Review (DCR), the Scottish Government argued for recognition that the UK telecoms market is not homogenous and greater granularity is required in terms of regulation. The measure set out [above] would more clearly identify areas of market failure and enable better regulation.
“To facilitate migration from copper to fibre networks, the proposal states that NRAs will be required to monitor operators’ own initiatives for copper switch-off to ensure an adequate and transparent process. NRAs may eventually withdraw access obligations on copper to speed things up subject to a set of conditions.
“It is important that the new tools do not deter planned private sector investment by creating new regulatory uncertainty or as a result of unintended consequences. For example, it is unclear how the new mapping obligation on national regulatory authorities will contribute to investment in networks and whether this is proportionate to the additional administrative burden on the regulator and industry. We will seek stakeholder views on these proposals and clarifications from the Commission.
“Further proposals of less substantial impact, and of less concern, include a series of further access proposals around the effective use of existing civil infrastructure, particularly that of the telecoms incumbent, with a view to facilitating high-speed network deployment; changes in relation to termination rates which could mitigate the risk of termination rate distortion across the EU, though at a cost of some national discretion; NRA powers in relation to price controls to encourage pricing flexibility in support of investment; lighter touch approach to wholesale-only networks; NRAs to support the switching off of legacy networks; and, numbering proposals relating to machine to machine (M2M).
“Radio spectrum is required for key telecommunications services, including Wi-Fi and mobile broadband, to function effectively but is also used for many other purposes including broadcasting, earth observation and scientific research. The Commission’s proposals for spectrum management focus on increased harmonisation at EU level, and focus on facilitating the quickest possible deployment of 5G networks across the EU.
“The Commission is seeking a much greater say in national spectrum decisions, particularly on spectrum awards and licence terms, which raises significant concerns. Combined, the proposals represent a large shift in competence away from Member States and extend Commission powers of oversight and intervention beyond (current) technical harmonisation measures necessary for the effective and efficient use of spectrum for ECS, and into areas that have traditionally been the preserve of Member States, such as assignment, award, competition assessment, licence duration and spectrum utilisation. This is something that most Member States would oppose, on subsidiarity grounds.
“The Commission proposes to promote greater use of licence-exempt spectrum authorisation, having general authorisations as the general rule and individual licences as an exception, including hybrids for 5G in very dense networks. Code proposals aim to tighten up and clarify spectrum-related objectives (particularly related to assignments), consolidating those from the current Framework and Radio Spectrum Policy Programme (RSPP) into one place. Proposals, as they are currently written, should enable Member States to consider socio-economic utility and specific public policy objectives, but not maximise auction revenue.
“The Scottish Government firmly supports measures that would enable MS to give greater weight to socio-economic and policy aims but not maximise auction revenue. In the case of the 3G spectrum auction, the Scottish Government believes there was insufficient consideration given to socio-economic need.
“The document proposes measures for complete harmonisation of spectrum management across the EU, giving much more power to the Commission itself. We can see a rationale for an enhanced role for the Radio Spectrum Policy Group (RSPG), but as an advisory body and not one that sets rules. The Commission recognised that the majority of these changes had been resisted previously when these proposals were trailed but now, publically at least, appears confident that its latest proposals for harmonising mobile spectrum licensing in the EU will win approval. The UK does not support any erosion of Member State competence.
“Enhancing the current RSPG and merging it with BEREC, making national award procedures and main licence conditions subject to mandatory peer review, and strengthening it in order to inform binding technical harmonisation decisions, is an unnecessary level of bureaucracy. We support the idea of enhancing the role of the RSPG as it is best placed to share best practice, but we believe that it should not be able to mandate or set rules. The proposed mandatory peer review process would require Member States to submit their proposed auction design and licence conditions to the scrutiny of BEREC and could undermine Member State competence. It is unclear what the benefit is of combining the RSPG with BEREC, and consider it to be a potential erosion of national competence.
“The Commission proposes to significantly extend the list of factors spectrum authorities are required to take into account and to set out clear parameters for assignment and licence review calendars, licence duration, coverage, trading coverage obligations, “use it or lose it” , trading, caps, reservations, wholesale access conditions, withdrawal of rights where justified to facilitate reallocation and other measures, which would remove further control over all spectrum assignment from Member States and limit Member States’ discretion in their consideration. These are highly likely to meet resistance from many Member States on the grounds of competence and subsidiarity. Setting guidelines on calendars is inappropriate because common dates will not work for all. Member States may currently have different spectrum uses, and could find it difficult and expensive to move spectrum to a different use.
“Tightening and clarifying objectives with regard to spectrum and consolidating the current spectrum rules would be beneficial, to encourage more consistent application by all Member States. An example would be the application within harmonised bands of a minimum term of 25 years licence duration. The UK had put this forward as a potential “win” during the TSM negotiations in 2013, and again supported this idea in the Commission’s public consultation last year, on the basis that it would be consistent with our practice of awarding licences with an indefinite term and a means of encouraging longer term investment.
“Facilitating leasing and trading and a more general use of spectrum sharing could help eliminate wasteful usage of spectrum and spectrum hoarding. Businesses often avoid sharing this for strategic reasons, not legal ones. However, we would have reservations about the Commission imposing a model, potentially another form of strengthening its control. Both leasing and trading are currently possible, and so we do not see the need for the Commission to become more involved.
“Strengthening the applicability of general authorisation in order to promote more licence-exempt spectrum also appears to be unnecessary. The Commission states that this is a measure to support 5G development, but there is potential that spectrum requirements for 5G could be misused as a way of imposing uniformity and Commission control over spectrum management.
“Commission proposals aimed at facilitating rollout of small cells, a re-introduction of the Telecoms Single Market proposals on small cells and public Wi-Fi, suggests Member States should remove barriers in the planning system. This may go beyond the Commission’s competence and is objectionable on subsidiarity grounds. We will discuss this proposal with the Department for Communities and Local Government. The proposals require, rather than empower, NRAs to mandate open access to Wi-Fi.
“In line with proposals expanding the role of BEREC elsewhere, new Code proposals aimed to make national award procedures and main licence conditions subject to mandatory peer review within BEREC. These would result in the issue of an opinion within the national public consultation period which Member States would have to take utmost account of.
“Along with increased roles and responsibilities for BEREC, the Commission proposes “enhancing” RSPG and (“eventually”) merging technical, professional and administrative support functions with the BEREC Office, so that the RSPG “Office” can conduct technical studies as an input to Commission binding technical harmonisation decisions.
“Throughout the proposals on spectrum, there are six new powers to make implementing Acts or measures relating to spectrum, reinforcing our belief that the Commission may be looking to centralise powers over spectrum management. This raises questions on national competence and we are look further into the full implications.
“The Commission positions its proposals on consumer protection as continuing to contribute to ensuring a high level of consumer protection in the field of electronic communications and the retention of equivalent access and choice for disabled end-users. To this end they extend consumer protection measures applying to traditional communications services to some OTT services. The extension of such regulation is theoretically counter-balanced to a degree with a more general deregulatory approach on consumer protection, where appropriate, across those traditional communication services. This has been achieved by proposals to repeal or remove regulation where it overlaps with horizontal rules on consumer protection. Another deregulatory enabler is an evident increased reliance on horizontal consumer protection measures rather than sector-specific regulation within the Code.
“Arguably a greater reliance on horizontal regulation is consistent with the Consumer Rights Directive (2011/83/EU), but we are concerned that such a move would limit HMG and Ofcom’s ability to address consumer issues specific to end users’ capabilities, national circumstances and the nature of communications markets.
“Under Code proposals, end-user rights provisions would be fully harmonised, with minimum scope for “national add-ons”. To pre-empt concerns from consumer organisations the bar will be set high. This may inhibit the UK’s flexibility to respond to UK consumer needs and may require the rolling back of existing UK consumer protections. The Commission rationalises its full harmonisation approach to end-users’ rights by arguing that competition between local providers of electronic communications services that bundle network access with services, and global providers of services over the top of the networks, results in an uneven and sub-optimal level of consumer protection across the EU.
“The Commission has advanced proposals for varying levels of protection depending on the beneficiaries (individual consumers, SMEs, larger business users). These proposals relate to, for example, information provision and quality assurance. The Commission’s rationale for applying “leaner” provision to internet access services only is not clear. This could create a confused landscape for consumers who purchase phone and broadband together, with different levels of information for each. It is also unclear why a consumer would benefit from receiving more information on one rather than the other. Ofcom and others regulators have raised these concerns.
“Of particular interest to consumers who increasingly buy “bundled services” (voice telephony, mobile, broadband and pay TV from one supplier) will be proposed switching rules for the rapidly increasing number of bundles, effectively increasing protections to non-ECS elements of a bundle. These are intended to avoid lock-in effects and involve key sector-specific provisions, such as maximum contract duration and rights to contract termination, which would apply to the entire bundle. As yet, the provision lacks detail (e.g. a bundle is not defined). The Commission is also proposing extending portability obligations relating to (for example) contacts and messaging history when consumers switch between OTT providers. The Government is currently introducing its own measures clarifying legislation around switching which will be consistent with Commission proposals.
“Alongside proposals addressing contracted bundled services, the Commission is proposing that contract information and transparency obligations on service providers will be made leaner, possibly limited to Internet Access Services only (for other services, the horizontal rules in the Consumer Rights Directive would apply).
“The recent initiative to introduce harmonised numbers of social value seems to have been rolled back. The new provisions in the Article relate specifically, and only, to the number 116110 (The Missing Children Hotline) which was the only number specifically prescribed in Commission Decision 2007/116/EC.
“Some OTT services will be brought within the scope of the new Code, together with ECS, under two new definitions. Number-based OTT services (eg Skype, which connects to the public service telephone network (PSTN)) will be placed in the same category as traditional electronic communications services and subject to the same regulation. Non-number-based OTT services (eg Whatsapp) will be treated differently. The directive indicates that regulation such as an obligation to provide emergency calling and interconnection may be applied to non-number-based OTT services where a need is identified.
“We believe the newly revised definitions now capture voice (including VoIP), messaging (including Whatsapp and Facebook messenger), video (e.g. Facetime) and email (e.g. Gmail) but exclude unidirectional services like Twitter. Some definitions are explicitly excluded from aspects of regulation in the code proposals. The Commission have advised that the basis of inclusion/exclusion from provisions follows consideration of whether the service uses public resources (e.g. numbers); whether the service contract includes quality of service commitments; and whether there are public policy interests that justify regulation.
“The UK government’s expressed position has been that creating a ‘level playing field’ for ECS and OTT services should not be the regulatory objective, and this ambition should not be used to assess whether OTT services should be brought in scope of the new Code. Furthermore, we believe it is unrealistic to think that a level playing field can be achieved, as traditional ECS have control of the network they operate over—something which OTT services, by definition, do not. Our response to the Commission’s consultation stated that addressing economic bottlenecks and protecting consumer interests are more appropriate policy objectives, consistent with the rest of the Framework, and we have not seen any evidence that regulation of OTT services is required now or in the near future to achieve these objectives.
“We believe that technological differences must be respected, as there are limitations on the requirements that can be placed on OTT services. OTT services do not have control over the networks they operate on, for example, which traditional ECS do. However, we are pleased to read that the Commission is not considering including online platforms, such as Twitter, in the new definition.
“On access to the emergency call number, number independent services are excluded (subject to the Commission using a power to extend coverage of regulation faced with a threat to effective access to the emergency call system). Applying emergency services 999/112 obligations to non-number dependent OTT services would require imposing standardisation requirements so that emergency packets could be identified and prioritised, which is nearly impossible to do: networks as well as services would need to prioritise IP packets, but this interaction between service and network doesn’t exist with non-number dependent OTT services. Furthermore, there is no globally- (or even EU-) agreed definition of priority/emergency, so this would need regulating, compromising the idea of open internet. We also have concerns over location services and quality of calls.
“Applying switching provisions to number-based OTT services in theory is good for consumers, but in reality seems an unnecessary regulatory measure, as there is no evidence that consumers experience difficulty using different OTT services (‘switching’ could be a misleading term, as it is not necessary to ‘switch’ between OTT services in the same way as consumers switch between ECS providers, only one of which can be used at a time). Furthermore, as mentioned in the Commission’s paper, the imposition of switching obligations could lead to additional costs for innovation and small start-ups.
“Universal Service Obligation
“Code proposals require that individuals have access to an affordable, functional internet provision. At the EU level, broadband would be defined by referring to a functional internet access connection defined on the basis of a minimum list of online services which enable end-users’ participation in civil society, which Member States shall further define at national level.
“We think that introducing a universal service obligation (USO) for broadband is a good idea in the UK, but we would not wish to see Member States’ flexibility to impose a broadband USO removed.
“The Commission has shifted the focus of the USO from provision of networks to affordability of connection, be that voice services or functional Internet access. Functional Internet access is defined as ‘access to a range of services’. The Commission believes that the measures contained in their proposals and other policy levers, such as State Aid, allow Member States to address availability.
“The most important consequence of the new Code proposals is that they remove the industry funding option, so any USO has to be supported through public funding where a disproportionate burden has been identified as applying to the operator subject to USO. These proposals remove the flexibility that Member States currently have to choose how any identified burden should be funded.
“We are concerned that the minimum list of services (which include email, job searching, professional networking and Internet banking) that a USO connection should enable is too narrow, and focuses on the needs of residential end users, and not small business users. This minimum list also provides little flexibility to adapt to changing services and needs. The existing Universal Service Directive provides a safety net for all end users, residential and business end users, and can be used as a tool to achieve social and economic inclusion. The Commission’s proposals seem focused on social inclusion alone.
“The Scottish Government agrees with the UK Government position on opposing the removal of an industry funding option.
“Equally, we agree that the Commission’s proposals do not appear to provide sufficient support for small businesses. SMEs may be more likely to rely on domestic broadband packages than solutions aimed at enterprises, which may be higher in cost.
“The proposed changes also include specifically the removal of redundant universal service obligations such as requirements to ensure the provision of a directory enquiry service and physical directories. Provision of both now becomes a discretionary issue for NRA consideration. The provision of public payphones remains a discretionary issue for NRAs. Ofcom research has shown that telephone directories in particular are still valued (especially amongst more vulnerable members of the community) and the UK put forward a case for NRAs to retain a discretionary power to oblige operators to make directories available. We will need to explore further the potential implications here particularly if the discretion afforded to the NRAs is challenged.
“The proposals introduce greater specificity to the minimal security provision requirements. This is broadly welcomed, however consultation with industry will be required to determine the extent of any additional burdens. The Code introduces a definition of security which is applicable to networks and services and appears uncontroversial covering the key areas of availability, integrity and confidentiality.
“The security provisions are now subject to a revised provision which will allow the Commission to adopt delegated acts, in place of implementing measures. We are keen to understand why the wider power of delegated acts has been utilised in place of implementing measures.
“The security provisions apply to OTT services, so we will need to undertake more analysis to examine exactly how this would operate, including the different requirements to those services that do and do not connect to the public switched telephone network (PSTN).
“With regard to NRAs (Ofcom in the UK), the Commission is proposing to strengthen the independence of NRAs, including through mandating their operational autonomy (e.g. in the implementation of their allocated budget) and through prescriptive provisions on the appointment and minimum terms of office of Board members or equivalent. We anticipate this having a significant impact on some European counterparts, but very little impact on Ofcom.
“The Commission is also proposing to harmonise a minimum set of NRA competences, to ensure that a wider set of functions is subject to the independence obligations. This is intended to address concerns in some Member States about NRAs abilities to discharge their functions where the issues are not significantly grounded in domestic legislation (eg; consumer protection measures) and, again, will have little impact on Ofcom.
“The Commission is proposing to assign a long list of new tasks to BEREC currently an independent network of NRAs operating as advisory panel to the Commission, made up of representatives from NRAs) and, related to that, to convert BEREC into an EU agency. The UK retains concerns over the proposed expansion of BEREC, and any plans to turn it into an EU agency. The Foreign and Commonwealth Office (FCO) position is that any increase in function, role, staff or running costs of EU institutions should be cost-neutral and financed from efficiencies elsewhere. Any change to the status of BEREC should not compromise the status and activity of independent NRAs.
“For example, the Commission proposes a new mechanism be introduced to define harmonised technical specifications and remedies for business access products with a view to simplifying such business for companies operating in more than one Member State, and that such a mechanism fall under the expanded remit of a reinforced BEREC with its new “extensive advisory role”. This is something that BEREC could undertake now under existing procedures.
“The Commission proposals for an expanded role for BEREC include identifying tasks best addressed, according to the proposals, at European level. They also include possibly making BEREC opinions on harmonisation procedures and market remedies binding on the notifying NRA and giving BEREC a role in developing common quality of service metrics and measurement tools for enforcing net neutrality rules (adopted under the TSM Regulation, Regulation (EU) 2015/2120). This sits alongside proposals to potentially strengthen and harmonise the competences of individual NRAs to ensure they cover not only market analysis and dispute resolution, but also consumer protection and authorisation.
“The Commission is also considering broadening the role of the BEREC Office to support both BEREC and the RSPG.”
2.30The subsidiarity implications of the proposed Directive are analysed as follows:
“These proposals are to amend Directives, not Regulations, and so a degree of subsidiarity is maintained. However, the Commission would like to see a full harmonisation of consumer rights regulations for the electronic communications sector, with the intention of bringing significant simplification and lessening the regulatory burden. This would replace the current minimum harmonisation approach, and remove a level of member state competence. The UK and other Member States have concerns about this.
“We are concerned that some of the proposals though not explicitly, represent erosion of Member State competence by the European Commission. The Commission has proposed a so-called “double lock” veto where BEREC, the Body of European Regulators in Electronic Communications, agrees in its opinion with concerns the Commission has raised about proposed market access or price regulating remedies. Many of the proposals around spectrum seek to legislate for harmonisation of spectrum management processes. Even proposals for a chair of BEREC serving four years with a potential extension to eight could give the Commission leverage to propose a permanent chair under BEREC staff, as opposed to a rotating one-year chair undertaken by an active NRA head.”
2.31The Minister sets out the policy implications of the proposal as follows:
“BEREC’s status and constitution
“In its Communication of May 2015, “A Digital Single Market Strategy for Europe”(‘the DSM Strategy’), the Commission signposted an ambitious overhaul of the regulatory framework for electronic communications. This communication, according to the Commission, also pointed out that the “changing market and technological environment in the electronic communications sector make it necessary to strengthen the institutional framework by enhancing the role of BEREC”.
“The functioning of BEREC was reviewed in December 2012 under review provisions in the 2009 Regulation. This review reported a clean bill of health in the way that it functioned and discharged its task in pursuit of Framework implementation, regulatory consistency across Member States, and completing the Single Market. Despite this, the Commission maintains there remains insufficient consistency across Member States’ in relation to implementation of the existing Framework. The UK maintains that any issue here relates to the Commission not properly overseeing the application of regulation, rather than there being a need for a host of new tasks. It might also illustrate the case that NRAs are responding to the specificities of their national markets.
“Fundamental to the Commission’s draft Regulation is the proposal to turn BEREC, incorporating what is currently the BEREC Office (based in Riga, and staffed by about 27 personnel) into a fully fledged agency of the EU. BEREC itself is currently an advisory panel, a board of regulators, drawn from the Chief Executives of the NRAs. The BEREC Office is a Community Body with a legal identity, providing a programme management function, executive support function and an administrative and finance function. NRAs are a significant resource in the discharge of BEREC’s specific roles and outputs and indeed the Commission asserts that “NRAs will continue to do most of the work relating to the implementation of the regulatory framework”. Nonetheless, the UK retains concerns over the proposed expansion of the role of BEREC, and any plans to turn it into an EU agency.
“By adding several extra regulatory functions, including potentially legally binding decisions, into the regulatory process and giving BEREC a legal identity which it does not currently possess, the Commission is looking to exercise a change of status which will give it more influence over BEREC operations. It is unclear how combining the Board of Regulators and the BEREC Office will work. The Board of Regulators and the NRA input into BEREC’s work is currently addressed under the existing Framework where there is an obligation on Member States to ensure that NRAs are adequately resourced to input, in an advisory capacity, to BEREC’s workload.
“Obviously, if BEREC is responsible for potentially legally binding decisions in future it will not be able to work in the more ad hoc way it has until now. The Commission has already advanced outline proposals in its IA for a more than 100%+ increase in the existing BEREC staff complement. Although the IA does not explicitly say this, these staff are likely to come from the Commission which in turn would undermine the neutrality of the contribution from independent national regulators.
“Among the proposed changes to BEREC governance are:
“a (renewable) 4-year term for the BEREC Chair, who is a serving NRA Head—this could be unfeasible given the length of national NRA terms and their inability to commit to govern BEREC for such a long time;
“a permanent executive director, selected from a Commission shortlist, who is the legal representative of BEREC—which risks undermining the Chair’s control of BEREC;
“expert working groups chaired by permanent members of staff of the EU agency, rather than by NRA experts—eroding the link between BEREC outputs and national markets, which is the source of BEREC’s value added input; and
“two Commission voting members of the governing board. We believe all these dilute BEREC’s current neutral advisory status.
“The Commission’s rationale for the change of BEREC status is that it would lead to an enhanced role for BEREC in the field of electronic communications and that, by aiming to align its structure and governance, operation, programming and accountability with the Joint Statement of the European Parliament, the Council and the Commission on decentralised agencies of 19 July 2012 (‘the Common Approach’) they are ensuring that the proposal serves to support Union’s priorities. This provides that all decentralised agencies must follow the same institutional structure.
“While the Common Approach attempts to harmonise the structure and governance of all EU agencies, it does not require all bodies (such as BEREC) to become EU agencies. Indeed, only last year an EU-level decision-making body was established which did not follow the Common Approach (the European Data Protection Board). In any event, the decentralised agency model is traditionally used to outsource tasks from the Commission to an agency (this explains the prescriptive rules in the Common Approach). There is no such outsourcing in the case of BEREC, rather the tasks simply involve the pooling of expertise of individual NRAs. Further, the Foreign and Commonwealth Office (FCO) have advised that the Common Approach is not legally binding.
“According to the proposals, the new agency with a broader mandate, should continue the work of BEREC and continue the pooling of expertise from NRAs. The Commission acknowledges that, given that BEREC’s brand identity is already well established and the not insignificant costs of changing its name, the new agency should retain the name of BEREC.
“In proposals within the draft EU Electronic Communications Code, the Commission is proposing to assign a long list of new tasks to BEREC, which include emerging issues such as addressing regulation in cross border matters such as machine-to-machine (M2M) services or transnational demand for business users, where it feels BEREC has gained experience in ensuring a consistent implementation of the regulatory framework for these emerging technologies and issues. In the past, individual Member States have consulted BEREC, via the Commission, when issues such as these have emerged.
“However, these are also to be augmented with a series of new processes, where additional authority is given to BEREC’s interventions. The Commission’s proposals set out further new tasks, such as:
“playing a greater role in the consultation mechanism for market regulatory remedies;
“providing guidelines for NRAs on geographical surveys;
“developing common approaches to meeting transnational end-user demand
“delivering opinions on draft national measures on assignments of rights of use for radio spectrum (the radio spectrum ‘peer review’), and
“setting up a register on the extraterritorial use of numbers and cross-border arrangements and on providers of electronic communications networks and services.
“As we have reported in the EM accompanying Commission proposals for a draft EU Electronic Communications Code we are particularly concerned about proposals to introduce a new “double lock” mechanism enabling the Commission to veto remedies if BEREC agrees with Commission concerns on remedies proposed by national regulatory authorities. There is little evidence to suggest this is justified. Further, available evidence suggests current procedures work and it is exceptional that NRAs do not take “utmost account of” BEREC opinions on proposed market remedies and intervention. We do not feel this proposal is properly and fully justified, it weakens potential NRAs authority to identify market specific remedies and potentially cedes power to the Commission. During the previous Review, the UK was not the only Member State to express serious reservations about, and to object to powers allowing the Commission to veto remedies.
“However, the Commission has not provided real evidence of a need to change the role of BEREC (and by extension, the role of the Commission). The greater regulatory oversight afforded to BEREC under the Commission’s proposal could be discharged without making any changes to the organisation, if the current rules were consistently applied.
“This risks undermining the healthy and desirable tension between the Commission’s purpose (to pursue its single market vision) and BEREC’s (to ensure that that vision is informed by the realities of the individual national markets, so that the Commission’s initiatives work in practice).
“On finances, the IA accompanying the proposals estimates the proposed changes to result in total costs of around €215m pa (€12m more than the status quo). The IA states that it is likely that this cost would be at least partly compensated by potential cost savings regarding spectrum management and extended market review periods so that the resulting total cost of this set-up would be similar to the status quo. However, this is predicated on the spectrum proposals being adopted and NRAs and Member States being willing to give up the cost saving of reduced market reviews to fund additional BEREC activity.
“On resources, we are concerned that much of the (new) work of BEREC would be carried out by permanent agency staff, not hugely distinguishable from Commission officials (and consequently not drawing on from day-to-day experience regulating national markets). This would represent a shift away from BEREC’s unique selling point of harnessing expertise rooted in national markets.
“The FCO have a clear position that any change to EU institutions should be “cost neutral”, with any anticipated additional expenditure generated from efficiency savings within BEREC itself, rather than taking account of savings to Member States’ administrative costs, such as those noted in paragraph 8.4.1.
“The Electronic Communications Code proposes to harmonise a minimum set of NRA competences, to correspond with BEREC’s revised functions. This is intended to address concerns in some Member States, where certain core functions (e.g. around consumer protection) were “repatriated” into the relevant ministry, thereby undermining the NRA’s ability to regulate effectively and to participate fully in BEREC.
“The Commission proposes “enhancing” Radio Spectrum Policy Group (RSPG) and (“eventually”) merging technical, professional and administrative support functions with the BEREC Office, so that RSPG “Office” can conduct technical studies as an input to Commission binding technical harmonisation decisions. This is an unnecessary level of bureaucracy. We support the idea of enhancing the RSPG as it is best placed to share best practice, but we believe that it should not be able to mandate or set rules. We would also oppose an enhanced role for RSPG that gives more power to the Commission. It is unclear what the benefit is of combining the RSPG with BEREC, and consider it to be a potential erosion of national competence.”
2.32The subsidiarity implications of the proposed Regulation are analysed as follows:
“Currently BEREC operates in an expert and technical advisory capacity to the Commission. We are concerned that some of the proposals though not explicitly, represent erosion of Member State competence by the European Commission. The proposals contained in the draft Directive for the EU Electronic Communications Code and this Regulation is would represent a shift away from BEREC’s unique selling point of harnessing expertise rooted in national markets.”
“The Commission has proposed a so-called “double lock” Commission veto on market remedies where BEREC agrees in its opinion with concerns the Commission has raised about proposed market access or price regulating remedies. Even proposals for a chair of BEREC serving four years with a potential extension to eight, could give the Commission leverage to propose a permanent chair under BEREC staff, as opposed to the current arrangement of a rotating one-year chair undertaken by an active NRA head.”
2.33The Minister provides an initial assessment of the proposal’s financial implications:
“We will need to undertake some more analysis of the proposals before we can comment in full on the financial implications of these proposals. The Commission’s Impact Assessment suggests the BEREC Office currently employs around 27 FTE personnel. These are professional staff supporting the expert work of the NRAs, but also supplying a BEREC administrative function.
“The Impact Assessment includes an estimate of current costs of BEREC work for NRAs, the Commission and the BEREC office at around €203m p.a. The Commission sets out an assumption that under the proposals BEREC would require 60 FTE and NRAs contributions to working groups would increase by 20 FTEs. It is difficult to imagine that the net effect for NRAs of these new tasks would be a decrease in resource requirements.”
2.34The Minister explains who the Government has consulted on both proposals as follows:
“The Commission issued a consultation in September 2015, to which the government and many UK stakeholders responded. The consultation closed in December 2015.
“The government has engaged with the regulator, Ofcom, and UK industry stakeholders at ministerial and official level, in order to formulate its policy positions. The Commission has set a very ambitious timetable for completion of the negotiations (end-2017 and Council Working Groups sessions have already started) so there is insufficient time to run a formal public consultation. We are instead augmenting our routine and regular stakeholder engagement with stakeholder workshops and individual meetings to gather views specifically on the proposals.”
2.35On the expected timetable for negotiations, the Minister notes that the first Council Working Group took place on 22nd September 2016, there will be a high level policy discussion of the proposals at the Transport, Telecommunications and Energy Council on 2 December and the “Commission has set a very ambitious target for conclusion of negotiations under the Estonian Presidency (July–December 2017), which would be followed by a standard eighteen month implementation period.
2.36On the wider Brexit implications of both proposals, the Minister states:
“There is every likelihood the [Electronic Communications] Code will remain influential when the UK leaves the EU as, depending on the exit agreement, the Code will continue to apply to European Economic Area (EEA) countries and/or continue to place regulatory conditions on companies who continue to trade within Europe. It is in our interests to negotiate a Code that best delivers on Britain’s interests.
“The Government’s Industrial Strategy aims to limit the uncertainty associated with our exit from the EU and to ensure our new relationship with the EU works for business. To this end we will play our full part in negotiations on the new Code. The current Electronic Communications Framework is adopted into the EEA agreement. Obviously there will be issues around the applicability of any newly agreed code when negotiations are completed. If we remain in the EEA then it will apply. If not we will have a degree of discretion about what we retain, but generally the UK considers the Framework to have worked well and UK companies continuing to operate within the EU may will be subject to some extent to the rules, depending on the exit package agreed.”
3 BEREC is composed of the heads or nominated high-level representatives of the each Member State NRA with primary responsibility for overseeing the day-to-day operation of the markets for electronic communications networks and services.
4 It would repeal the 2009 BEREC Regulation (EC No 1211/2009).
9 December 2016