Documents considered by the Committee on 25 April 2017 Contents

11Digital Single Market: Connectivity (Telecoms) Package

Committee’s assessment	Legally and politically important
Committee’s decision	Not cleared from scrutiny; scrutiny waiver granted; further information requested
Document details	(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
Legal base	(a) Article 114 TFEU; ordinary legislative procedure; QMV; (b) Article 114 TFEU; ordinary legislative procedure; QMV
Department	Culture, Media and Sport
Document Numbers	(a) (38106), 12252/16 + ADDs 1–3, COM(16) 590; (b) (38107), 12257/16 + ADDs 1–4, COM(16) 591

Summary and Committee’s conclusions

11.1On 14 September 2016, as part of its wider Digital Single Market Strategy, the European Commission adopted a package of measures that seek to consolidate and update the EU Telecoms Framework. The Package aims to improve internet connectivity by setting ambitious targets and incentivising investment in these networks. Key elements of the Package are described at greater length in the Background section of this chapter.

11.2Given the imminent dissolution of Parliament, the Minister of State for Digital and Culture (Matt Hancock) has written to request that the Committee grant a scrutiny waiver which would allow him to vote at a forthcoming meeting of the Transport, Telecommunications and Energy Council meeting on 8–9th June in Luxembourg, at which the Minister anticipates that the Maltese Presidency will look to conclude its term with an agreement on a partial general approach or a progress report on some aspects of the Code.

11.3The Minister’s letter, reproduced at the end of this chapter, provides a summary of the state of play in relation to each of the elements of the package on which a waiver is being sought.

11.4We thank the Minister for his letter in relation to the European Electronic Communications Code (recast). We note that the Maltese Presidency is likely to seek to conclude its term with a partial general approach or a progress report on elements of the Code.

11.5We are also grateful for the Minister’s summary of the state-of-play of Council Working Group negotiations regarding the different elements of the package, and for his account of the Government’s position in relation to those elements, which we understand as follows:

Spectrum—The UK considers that the Commission’s proposals unnecessarily extend Commission powers of intervention in spectrum management procedures. The Government has backing in this from other Member States, and is working on a joint paper with Germany along these lines;
Services—The Government objects to the removal of the ‘industry funding option’ for the Universal Service Obligation (USO), and therefore supports the Presidency’s text which reintroduces full funding flexibility for the USO. The Presidency’s text also reverts to minimum harmonisation of consumer rights for all electronic communications services other than number-independent interpersonal communications services, and the Government continues to call for even greater further Member State flexibility. The Government also continues to lobby for a proportionate approach to regulation of Over The Top services (OTTs), which would only be introduced in the case of consumer harm or proven market failure; and
Access and Investment—The Government opposes the proposed double-lock veto, which would enable the Commission and the Body of European Regulators of Electronic Communications (BEREC) to block regulatory intervention by a national regulatory authority (NRA). The Presidency compromise text removes this proposal. The text on Access is highly technical and still being examined by the Member States, who generally share the UK’s objective of achieving a pro-competition and pro-investment framework. The Government supports greater flexibility to respond to the characteristics of their own national markets with a range of regulatory tools.

11.6The Committee retains the proposals under scrutiny. On the basis of the above information we are willing to grant the Government a waiver to vote in support of a partial General Approach at the Council of Ministers on 8–9 June 2017.

11.7The Committee requests a detailed update on the outcome of this meeting, as well progress in negotiations regarding other elements of the Telecoms Package including proposals for establishing BEREC as an EU agency, not later than 3 July.

Full details of the documents

(a) Proposal for a Directive on establishing the European Electronic Communications Code (Recast); (38106), 12252/16 + ADDs 1–3, COM(16) 590 and (b) Proposal for a Regulation establishing the Body of European Regulators for Electronic Communications.: (38107), 12257/16 + ADDs 1–4, COM(16) 591.

Background

11.8This background briefing covers the Electronic Communications Code and the proposed changes to the BEREC Regulation.

Proposed changes to BEREC

11.9The Body of European Regulators of Electronic Communications (BEREC), is an advisory panel drawn from the Chief Executives of the National Regulatory Authorities (NRAs) in the Member States. The Commission proposes a Regulation to significantly strengthen BEREC’s current role, one of coordination between Member States’ NRAs, in a variety of ways while stopping short of creating an EU-level regulator.

11.10The proposed Regulation would bring the following changes to BEREC:

Legal and management structure

BEREC would be made a body with legal personality;
a new management board would be created by effectively merging the current Board of NRAs and the Commission-resourced Management Committee. A chairperson would be selected from amongst the members of the management board for a four year term. This would be a significant change from the current arrangement of a rotating one-year chair undertaken by an active NRA head;
a permanent executive director would be selected from a Commission shortlist;
expert working groups would be chaired by permanent members of staff rather than NRA experts and the governing board would have two Commission voting members;

New powers

BEREC would be given the power to provide guidance in a number of areas, including cross-border disputes between operators. The exception to this would be if the cross-border dispute was regarding radio spectrum coordination. In this case the Radio Spectrum Policy Group would play an advisory role instead;
BEREC would also have the power to adopt binding decisions on the identification of transnational markets. Where BEREC identified a transnational market, the NRAs concerned would be required to conduct a joint analysis and decide whether to impose regulatory obligations;
a ‘double-lock’ system would be introduced whereby, if BEREC and the Commission agree on a position regarding draft competition remedies proposed by an NRA, the Commission could require the NRA to amend or withdraw the draft measures; and
A peer review system to improve coherence amongst Member States with regard to use of radio spectrum. Under this system, NRAs would present their planned measures regarding spectrum management to BEREC who would then issue a non-binding Reasoned Opinion.

The European Electronic Communications Code (ECC)

11.11The overarching aim of the draft Electronic Communications Code (hereafter, ‘the Code’) is to harmonise regulation of electronic communications services across all EU Member States. It recasts four existing directives (the Framework Directive, the Authorisation Directive, the Access Directive and the Universal Service Directive), and replaces them with one. For the purposes of this note, the amendments brought by the Code to the existing provisions have been divided into the categories of: changes to market access, spectrum management, universal service requirements and consumer protection and ‘over the top’ (OTT) providers.

Access

11.12Provisions for market access are concerned with how National Regulatory Authorities (NRAs) regulate the market power of telecoms companies. Market power can be thought of as the ability to sustain prices above competitive levels and/or restrict output quality below competitive levels.

11.13A cornerstone of the Commission’s telecoms regulatory framework is that where an NRA determines that one or more undertakings have significant market power (SMP) it must impose appropriate regulation on access to electronic communications networks and associated infrastructure in order to ensure a competitive environment. It may also impose remedies such as price controls directly on an SMP.

11.14Rules relating to access in the draft Code largely reinforce the existing regime but make a subtle shift towards promoting investments. A more fundamental change is making the deployment of very high capacity (VHC) networks a core objective. Very High Capacity networks are, in basic terms, those that offer best-in-class broadband speeds.

11.15The key changes in the Code regarding access are:

Proportionality

access regulation for the wholesale market would only be imposed on SMPs when necessary to address retail market failures. The aim of this would be to avoid unnecessary wholesale regulation in the absence of harm to the retail consumer. The obligation on wholesale-only SMPs would be limited to providing wholesale access on fair, reasonable, and non-discriminatory terms. The lighter regulatory regime would not apply to vertically integrated firms, for example BT, which owns infrastructure through its current subsidiary Openreach but also competes for use of this infrastructure to provide downstream retail services;
the maximum period allowed between market analyses would be extended from three to five years. During a market analysis, NRAs must assess the state of the national market and identify SMPs and operators must tell NRAs what their commercial plans are;

VHC networks

a new objective that would require NRAs to promote access to and take-up of very high capacity (VHC) networks;
NRAs would be able to loosen price controls where an SMP has incurred costs related to the deployment and take up of VHC networks. In determining the appropriateness of price controls, an NRA would need to allow the operator a reasonable rate of return on capital employed for VHC network projects;
upgrades to networks that contribute significantly to VHC deployment may be exempted from SMP remedies if the deployment of the new network is open to reasonable co-investment offers from other firms;
NRAs would be required to conduct (and update every three years) a geographical survey of broadband networks to identify ‘digital exclusion areas’ (e.g. any area with no existing or planned VHC network). It is proposed that NRAs be permitted to issue a call for deployment to address the digital exclusion areas, and must ensure that any public funding agencies concerned with the deployment of electronic communications networks consider the results of these surveys; and

Access to infrastructure

NRAs could impose obligations on operators controlling infrastructure to meet reasonable requests for access to, and use of, civil engineering. For example, entries to buildings, wiring, antennae, towers and masts. This would be applied where market analysis indicates that denial of access would hinder the emergence of a sustainable competitive market.

Spectrum Management

11.16The Commission believes that there is currently too much inconsistency in spectrum management across the EU. It affirms that spectrum use is a matter for Member States but proposes a move towards further convergence with the idea that this will maximise how efficiently spectrum is used and support EU-wide targets like 5G deployment.

11.17Under the draft Electronic Communications Code:

there would be a greater preference for general authorisations and shared spectrum use as opposed to individual licences. General authorisations would permit a more flexible use of spectrum by, for example, facilitating leasing and trading;
key aspects of individual spectrum usage rights would be harmonised, including minimum licence duration (25 years), the process for granting and renewing rights, and the conditions for restricting or withdrawing existing rights (in particular, a ‘use it or lose it’ principle);
the consistency of the spectrum assignment would be fostered by a newly created peer review process in which NRAs would present their planned measures regarding radio spectrum to BEREC, the European Commission and other NRAs. BEREC would be assigned with the task of delivering a Reasoned Opinion on the draft measures within one month. This BEREC opinion would be non-binding but NRAs would be called upon to ‘take utmost account of the opinion’; and
the Commission would be able to use an Implementing Measure to set maximum dates by which specified spectrum bands must be released for licensing.

Universal Service Regime and End-User Protection

11.18The draft Code includes universal service obligations currently found in the Universal Service Directive. The Universal Service Obligation (USO) means that basic communications services must be made available to all citizens upon reasonable request and at an affordable price. In the UK, Ofcom has designated BT and Kingston upon Hull to meet this obligation and offer affordable fixed-line phone services.

11.19Amendments to the USO in the draft Code together with end-user protection rules are perhaps the most visible part of the proposed changes for the general public.

Universal service regime

The draft Code would modernise the universal service regime by removing legacy services (e.g. public payphones) from the scope of universal services and require Member States only to ensure that end-users have access to affordable functional internet and voice communications services. The proposal would allow Member States to require special tariff options to be offered to low-income, disabled or special social needs end-users;
The ‘industry funding option’ for the USO would be removed. This means that if meeting the USO was disproportionately burdensome on an operator it would have to be supported through public funding. Currently, NRAs have the flexibility to support a USO through industry funding;

End-user protection

The proposal would limit the maximum initial contract period for electronic communication services of21 to 24 months (although Member States can adopt or maintain a shorter maximum initial commitment period) but allows longer agreements with end users to support network roll-out (e.g. to cover the investment in infrastructure in remote locations); and
Switching would be made easier for end-consumers and switching rules would apply to all elements of a bundled service to avoid lock-in effects. A bundled service is where multiple services are bought together for example, the purchase of bundled telephony, mobile, broadband and pay TV from one supplier.

Over The Top Services

11.20An over the top (OTT) service bypasses traditional operators’ networks to deliver communications over the Internet. A number of well-known OTT-providers, such as WhatsApp and Viber are messaging and ‘voice over Internet Protocol’ (VoIP), applications. In other words, they enable users to message and call each other using the internet, irrespective of network operator.

11.21Recognising the growing importance of over the top (OTT) services, the draft Code amends the definition of ‘electronic communications services’ to include ‘interpersonal communications services’ which are services allowing interactive communication between two or more people. This change in definition captures OTT services.

11.22The draft Code distinguishes between OTT providers according to whether they connect to the public telephone network (number-based) or not (number-independent).

11.23Number-based OTT providers use phone numbers to allow all users to contact each other. For example, some Skype services allow users to call both Skype phones and the ordinary phone network (public switched telephone network). In a similar fashion, someone using an ordinary telephone can call the Skype phone number.

11.24Number-independent OTT providers like WhatsApp do not route communications to the public telephone network or rely on phone numbers to operate (although they may use numbers as identifiers). For a service like WhatsApp, users can only contact other users who have the application and are connected to the internet; it cannot be used to call an ordinary phone number.

11.25The primary changes for OTT platforms under the draft Code are:

Number-based

owing to their similarity to traditional electronic communications services, number-based OTT providers would be largely subject to the same end user-protection rules. These including the requirements to provide contractual information to customers, make switching easier and allow consumers to call emergency services for free; and

Number-independent

number independent OTT providers would be subject to more focused obligations. They would have to make sure that their servers and networks are secure, disabled users have equivalent access to their services and that their users can reach the EU emergency number 112. The last obligation would only apply if there was evidence that it was needed for public safety reasons and that necessary the technical standards were available.

11.26In relation to both number-based and number-independent OTT services, to facilitate switching, the draft Code would permit NRAs to require a degree of technical interoperability between platforms.

The Minister’s letter of 20 April 2017

11.27The day after Parliament voted to call a General Election, the Secretary of State for Digital and Culture (Matt Hancock) writes to the Committee providing an update on the state-of-play of negotiations in Council Working Groups and requesting that the Committee grant the Government a scrutiny waiver to vote in support of a partial General Approach at a meeting on 8–9 June.

11.28The Minister’s letter is reproduced below in its entirety:

“Dear Bill

“Update on: 12252/16—proposals for a revised European Electronic Communications Code (recast) and 12257/16—proposal to establish a new Body of European Regulators for Electronic Communications Regulation

“General Update and request for scrutiny waiver

“In October 2017 (2016) my Department submitted the above explanatory memoranda (EMs) and committed to keeping both Committees updated as negotiations progressed.

“The Council of the European Union has now completed its first read through of the entire European Electronic Communications Code (EECC) and the relevant European Parliament rapporteurs—from the Committee on Industry, Research and Energy (ITRE) and the Committee for the Internal Market and Consumers (IMCO)—have published their draft reports on the Code.

“We are progressing with preparations for the the Transport, Telecommunications and Energy Council meeting on 8/9th June in Luxembourg, at which we anticipate the Maltese Presidency will look to conclude its term with an agreement on a partial general approach or a progress report on some aspects of the Code. As well as writing to update you on the Code’s progress, I am writing to request a scrutiny waiver to enable me to vote in support of any partial general approach at the Council. I am requesting the waiver now, before Parliament is dissolved ahead of the general election. Should the Presidency decide a progress report will be sufficient, the UK will not need to vote. However, a finalised agenda is not likely to be provided until approximately a month before the event.

“There are further Council Working Groups (CWGs) scheduled for 26 April, 11 May and 12 May to prepare for COREPER which will meet to discuss the agenda for Telecoms Council on 17 May, and progress on the Code proposals on 24 May.

“Negotiations so far

“At this relatively early stage of negotiations there are no finalised, definitive agreements that I can bring to your Committee’s attention.

“The co-decision process has continued apace with CWGs taking place up to three times a week. To date, the Presidency’s compromise proposals comply with our position on Universal Service Obligation (USO) funding and opposition to the double-lock veto, which would enable the Commission and BEREC to block regulatory intervention by a national regulatory authority (NRA). The compromise text is also nearer to our preference on returning to minimum harmonisation of end-user rights than we had initially anticipated. We have backing from other Member States on spectrum and are working on a joint paper on this with Germany.

“Policy proposal updates:

“Spectrum: CWGs on Spectrum took place in March. Like the UK, many Member States still consider that the Commission’s proposals unnecessarily extend Commission powers of intervention in spectrum management procedures. The Commission has not provided adequate justification that the proposals are proportionate and necessary for efficient management of Spectrum, nor have they justified removing Member State’s flexibility to respond to the unique characteristics of their national markets, demographics and geographies. We also have concern that the Commission’s proposals are too broad in scope and inappropriately apply interventions designed for mobile broadband services to all other electronic communications services.

“Services: The Presidency published a second compromise draft of the Services text in March which reintroduced full funding flexibility for the USO. We are supportive of this change. Whilst the Presidency’s redrafted text reverts to minimum harmonisation of consumer rights for all electronic communications services other than number-independent interpersonal communications services, we continue to call for further member state flexibility. We continue to lobby for a proportionate approach to regulation of Over The Top services (OTTs), oto be introduced only in the case of consumer harm or proven market failure.

“Access and Investment: The Presidency’s compromise text on Access was published in March. The text is highly technical and the detail of many articles is still being examined in the Council. Member States in general share the UK’s objective of achieving a pro-competition and pro-investment flexible regulatory framework. We welcome the introduction of further discretion to these articles to give Member States flexibility to respond to the unique characteristics of their own national markets with a range of regulatory tools. We also welcome the deletion of the proposed ‘double lock’ veto in Article 33(5), and reinstatement of the existing procedure for improving regulatory consistency in the EU set out in the current framework.

“BEREC: Proposals for the draft Regulation establishing BEREC as an EU agency have not yet been discussed at Council.

“Telecoms Council, 9 June—Waiver Request

“We expect the Maltese Presidency to table a partial general approach or progress report on the Services text of the EECC. This partial general approach may also include elements of the Access and Spectrum text. If this partial general approach meets the UK’s policy position, I would like to ensure we are able to vote in favour. The Presidency is more likely to include the Access and Spectrum elements of the Code in the Telecoms Council agenda in the form of a progress report. The elements included in a progress report would not require a UK vote.

“I am therefore requesting a Scrutiny waiver to allow the UK to vote on a partial general approach. I will update you on the proposed Telecoms Council agenda once more information has been received in May. I will update you on the outcome of the Telecoms Council meeting.

“Yours ever,

“THE RT HON MATT HANCOCK MP”

Previous Committee Reports

Twenty-second Report of Session 2016–17, HC 71-xx, Chapter 2 (7 December 2016).

21 Defined in the draft Code as a service that use electronic communications networks including internet access and interpersonal communications services.

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27 April 2017