Documents considered by the Committee on 13 November 2017 Contents

11Digital Single Market: European Electronic Communications Code

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; scrutiny waiver granted to (b) subject to conditions; further information requested; drawn to the attention of the DCMS Committee

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

Article 114 TFEU; ordinary legislative procedure; QMV

Department

Digital, 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 proposed a Directive to consolidate the EU Telecoms Framework into a European Electronic Communications Code (EECC),87 and a Regulation that would give BEREC (the Body of European Regulators for Electronic Communications) legal personality as well as a number of additional responsibilities.88

11.2This ‘Gigabit Society’ package aims to improve internet connectivity by setting ambitious targets and incentivising investment in these networks. The proposed changes are inevitably wide-ranging and cut across areas including the regulation of undertakings with Significant Market Power (SMP) by National Regulatory Authorities (NRAs) (access); radio spectrum management; the Universal Service Obligation (USO); end-user protection; and regulation of certain types of Over the Top communications service operators such as Skype and WhatsApp. Detail of the effects of the proposed Directive and Regulation is provided in the Background section of this note.

11.3In the Government’s Explanatory Memoranda,89 the Minister of State for Digital (Matt Hancock) indicates that, although the Government supported the objectives of the Commission’s package—to incentivise investment in next generation connectivity, without doing so at the expense of competition—it retains reservations about particular aspects of the Commission’s proposals. The extension of EU competence with regard to the management of radio spectrum, could make it difficult for Member States to maximise revenues from spectrum auctions; the proposed expansion of the role of BEREC, which could erode Member State competence; and the proposed ‘double lock veto’, whereby the Commission could require that draft competition remedies imposed by NRAs such as OFCOM were amended or withdrawn if both BEREC and the Commission agreed on their position regarding the proposed measures.

11.4On 21 August90 following various informal updates from officials, the Minister provided an overview of progress during the summer months, including the Telecoms Council of 9 June and the 17–18 July Informal Telecoms Council, indicating that progress was in line with the Government’s main negotiating objectives.

11.5On 2 October the European Parliament’s Industry, Research and Energy Committee (ITRE) agreed its negotiating mandate on the proposal, which includes a requirement for telecom operators to charge the same amount for international calls as for domestic calls.91 The telecoms sector is reported to have “reacted with fury” to the change, arguing that it undermines the Commission’s proposed attempts to encourage companies to invest in faster telecoms networks in exchange for deregulatory measures.92

11.6The following day, the Minister wrote93 to inform the Committee that the Presidency intended to use the 11 October COREPER I meeting to agree a mandate for trilogue negotiations on EEC, and provided the Committee with a summary of progress in Council Working Groups. The Minister assured the Committee that negotiations regarding the Code “will go to a Council meeting … so that a General Approach can be agreed”. COREPER granted the mandate which is now available online.94

11.7On 2 November the Minister provided a detailed summary of the main changes achieved by the mandate. The Minister’s chief points include the following:

11.8The Minister has previously also indicated, regarding the Universal Service Obligation (USO), that the Council text proposes to reintroduce full funding flexibility, which allows the USO to be funded by an industry cost sharing mechanism, public funding, or a combination of the two.95

11.9In relation to the proposed BEREC Regulation, the Minister states that three Council Working Groups have taken place on BEREC, and that the Presidency has issued a redrafted text which no longer proposes to establish BEREC as an agency of the Commission. The Minister states that the Presidency is expected to seek a General Approach on the BEREC Regulation at Council on 4 December.

11.10We thank the Minister for his regular letters and updates in relation to the proposed Directive establishing a European Electronic Communications Code and the proposed BEREC Regulation. We take note of the various changes the Council’s text makes to the proposed Directive, which appear to be in line with the Government’s position.

11.11In order to continue Parliamentary scrutiny of these files, we request:

11.12We grant the Government a scrutiny waiver to support a General Approach concerning the BEREC Regulation at the relevant meeting of Council (currently expected to be the Telecommunications Council on 4 December), on the condition that the text (i) removes the double-lock veto and (ii) does not make BEREC an agency. We retain the BEREC Regulation under scrutiny.

11.13We thank the Minister for his assurance in his letter of 3 October 2017,97 that, although the Council has agreed a negotiating mandate regarding the Code, negotiations “will go to a Council meeting … so that a General Approach can be agreed” and that the Minister will write to the Committee “prior to the Council in question to request a waiver or clearance”. When the Minister seeks clearance for this General Approach, we ask that he indicate any significant changes between the texts of the mandate agreed by COREPER and the General Approach. We retain the Directive under scrutiny.

Brexit and telecommunications

11.14We also request responses to the following questions:

11.15To allow for a thorough response to these questions, we ask that the Government respond to them by 17 January 2018. In the meantime, we draw this report to the attention of the Digital, Culture, Media and Sport (DCMS) Committee.

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; (b) Proposal for a Regulation establishing the Body of European Regulators for Electronic Communications: (38107), 12257/16 + ADDs 1–4, COM(16) 591.

Background

11.16This background briefing covers the Electronic Communications Code and the proposed changes to the BEREC Regulation.

Proposed changes to BEREC100

11.17The 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.

11.18The proposed Regulation would bring the following changes to BEREC:

Legal and management structure

New powers

The European Electronic Communications Code (ECC)101

11.19The 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

11.20The key changes in the Code regarding access are:

Proportionality

VHC networks

Access to infrastructure

Spectrum Management

11.21The 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.

11.22Under the draft Electronic Communications Code:

Universal Service Regime and End-User Protection

11.23The 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, in Hull, Kingston), to meet this obligation and offer affordable fixed-line telephone services.

11.24Amendments 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

End-user protection

Over The Top Services

11.25An over the top (OTT) service bypasses (or, in another sense, uses) 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 the telecoms network operator.

11.26Recognising the growing importance of over the top 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.

11.27The draft Code distinguishes between OTT providers according to whether they connect to the public telephone network (number-based) or not (number-independent).

11.28Number-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.

11.29Number-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.

11.30The primary changes for OTT platforms under the draft Code are:

Number-based

Number-independent

11.31In 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 21 August 2017102

11.32Following the 17–18 July Informal Telecoms Council in Tallinn, the Minister wrote to the Committee providing an overview of progress over the summer. He states that the Presidency intended to secure a General Approach on the European Electronic Communications Code (EECC) at pace, and was aiming for a General Approach at the December Telecoms Council, or potentially for COREPER to secure a mandate to begin trilogue negotiations before then. The Presidency also intended to reach a General Approach on the BEREC regulation in December.

11.33The Minister also provides a consolidated update regarding the different aspects of the proposed Electronic Communications Code and the proposed BEREC Regulation.

11.34In relation to the radio spectrum aspect of the Code, the Minister emphasises that:

11.35The Minister also provided the following overview of progress in the Working Groups on the following services elements of the Code:

11.36In relation to access and investment, the Minister observed that:

11.37The Minister said that the proposals for a draft Regulation establishing BEREC as an EU agency had not yet been addressed in working groups, with discussions scheduled for September. The Minister said that both Telecoms Councils had clearly indicated that Member States were generally opposed to the BEREC proposal in its current form.

The Minister’s letter of 5 September 2017103

11.38On 5 September 2017 the Minister wrote to the Committee to note that the Estonian Presidency seemed intent on progressing discussions on EEC at pace, and notified the Committee “that the Presidency intends to use the COREPER I meeting on 11 October to agree a General Approach and to attempt to secure a mandate for EECC trilogue negotiations”.

The Minister’s letter of 3 October 2017104

11.39The Minister subsequently wrote to the Committee in advance of the 11 October meeting of COREPER, at which it was previously anticipated that a General Approach would be agreed. He said that a mandate for trilogue negotiations would now be agreed, instead of a General Approach. The reason given was that a mandate would enable the Estonian Presidency to hold two to three trilogues on the EECC before the end of the year.

11.40He added that:

“Later in the year, negotiations will go to a Council meeting (not necessarily Telecoms Council, which is on 4 December) so that a General Approach can be agreed. I will write to you prior to the Council in question to request a waiver or clearance.”

11.41The Minister also provided the following summary of progress in each of the main policy areas in advance of the COREPER meeting:

“Spectrum: Council Working Groups (CWGs) addressing Spectrum resumed on 5 September. The Presidency acknowledged the concerns of the UK, along with many other Member States, that the Commission’s proposals unnecessarily extend Commission powers of intervention in spectrum management procedures. Subsequent iterations of the Council’s compromise text have removed or re-drafted these powers to reflect a position that we are broadly content with. We are continuing to work with other Member States to agree collaborative solutions to any outstanding issues within the text.

“Services: Since Council Working Group discussions resumed there has been some discussion of the Services elements of the EECC. The Presidency supports full harmonisation of consumer rights as set out in the EECC. We do not support this position because full harmonisation would prevent Member States from applying higher standards of consumer protection. The Presidency text improves on the Commission’s text in such a way that should enable the UK to maintain its consumer protection levels, although we are still negotiating the wording to ensure that our concerns are met in full.

“On Over-The-Top services (OTTs), our position remains the same as set out in my August update. We continue to argue for a proportionate approach to regulation which should only exist in the case of consumer harm, proven market failure or in cases where these services exhibit characteristics similar to those of traditional telecommunication services.

“Regarding the Universal Service Obligation (USO), we continue to support the draft of the text, which in March reintroduced full funding flexibility for the USO, which allows the USO to be funded, as currently, by an industry cost sharing mechanism, public funding, or a combination of two. There have been no substantive debates on USO since then.

“Access and Investment: We continue to support the Commission’s vision of affordable, reliable and ubiquitous first class electronic communications networks across the EU in order to meet consumers’ growing demands on connectivity and to boost competitiveness. Its key objective is to encourage the private sector investment in infrastructure required to meet this vision. It also contains a commitment to retain the core principle of competition as a driver of this investment as well as consumer choice.

“A small number of points of detail remain that need to be resolved. DCMS officials are working with like-minded Member States to argue against proposals by the Commission that will not support competitive markets and risk re-creating localised monopolies for national incumbent operators.”

11.42Regarding the BEREC Regulation, the Minister stated that:

“There has been no discussion of the BEREC Regulation in Council thus far, but the Presidency intends to issue a revised text late September and to discuss it at Council Working Groups on 10, 11 and 26 October. The Presidency hopes to be able to reach a General Approach on the BEREC regulation in December at Telecoms Council. As was evident at both Telecoms Councils this summer, a majority of Member States are opposed to making BEREC into an EU agency.”

The Minister’s letter of 2 November 2017105

11.43The Minister informs the Committee that, as anticipated, the Member States supported a COREPER mandate for the Presidency to begin informal trilogues on the EECC with the European Parliament. The first exploratory trilogue was held on 25 October, with a further trilogue scheduled to take place before the end of the year. The Minister states that he expects the file to be adopted by the middle of 2018.

11.44The Minister adds that the Estonian and Bulgarian Presidencies have not yet set out their plans to take the file to vote on a General Approach at Council. He assures the Committee that the EECC file will not receive political agreement from the UK without a vote by Ministers in Council.

11.45The Minister also provides updates regarding different aspects of the proposal, which are summarised below.

Radio spectrum

11.46In relation to radio spectrum, the Minister states that the Commission’s proposals, which sought to extend existing powers of oversight to include areas such as spectrum assignment, award, competition assessment, licence duration and spectrum utilisation, risked hindering NRAs from ensuring the most efficient use of spectrum. However, he states that the Government has now succeeded in:

Services / End-user rights

11.47The Minister states that the Government is satisfied that the final Council text will not reduce current UK consumer protections, and that it has secured the reintroduction of powers enabling NRAs to regulate retail (in addition to wholesale) markets.

Over the top services (OTTs)

11.48As regards the proposed regulation of OTTs, the Minister states that the EECC text adopted by the Council adopts a “service blind” approach, which means that the regulation will only apply where an OTT service displays relevant characteristics. BEREC will undertake regular reviews of this. The Minister adds that services where interpersonal communications are ancillary to a main service are now out of scope of the regulation.

11.49The Minister adds that there is also an instrument allowing for regulatory intervention for any emerging problems with OTTs.

Access and Investment

11.50The Minister states that the Government has worked with other Member States to ensure that the text does not unduly loosen regulatory obligations for investments in new Very High Capacity Network elements that are open to reasonable co-investment. He believes that Article 74 (which introduces provisions to facilitate commercial co-investment in new infrastructures), as amended, now contains sufficient discretion for the NRA to safeguard against negative impact.

11.51The Minister states that he is supportive of Article 72, which clarifies the circumstances in which pricing flexibility can be granted to SMP operators, and that Ofcom already has the power to permit pricing flexibility in the UK. The Presidency text adopted on this Article now includes a requirement for an NRA to take into account the need to promote competition when determining whether or not price control obligations would be appropriate.

11.52The Minister states that the revised Article 22, which requires national regulators 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, and to identify digital exclusion zones, now gives the regulator discretionary rather than mandatory powers to survey industry investment plans. The text includes a requirement for the regulator to consider the impact of the provision of information that is “misleading, erroneous or incomplete” or changed without “objective justification”. Authorities can then impose fines and penalties on operators who deploy networks in “digital exclusion areas” but had not indicated their plan to do so.

BEREC

11.53In relation to the proposed BEREC Regulation, the Minister states that three Council Working Groups have taken place on BEREC, and that the Presidency has issued a redrafted text which no longer proposes to establish BEREC as an agency of the Commission. The institutional and legal status of BEREC remains the same.

11.54The double-lock veto procedure is removed—this would have meant that, if BEREC and the Commission agreed on a position regarding draft competition remedies proposed by an NRA, the Commission could require the NRA to amend or withdraw the draft measures, is removed. (The Minister notes that this is part of the Electronic Communications Code, rather than the BEREC Regulation.)

11.55The Minister states that the Presidency is expected to seek a General Approach at Council on 4 December. He undertakes to write in advance of Council to request a waiver or clearance for the Government to support the text.

Previous Committee Reports

Fortieth Report HC 71–xxxvii (2016–17), chapter 11 (25 April 2017); Twenty-second Report HC 71–xx (2016–17), chapter 2 (7 December 2016).


94 Council of the European Union, New EU telecoms rules—Council ready to launch talks with Parliament 11 October. 2017.

98 DCMS, Letter to Sir William Cash 20 April 2017.

99 House of Commons European Scrutiny Committee, Digital Single Market: Wholesale roaming charges, Thirty-seventh Report HC 71–xxxv 29 March 2017.




20 November 2017