Cleared from scrutiny; drawn to the attention of the Digital, Culture, Media and Sport Select Committee and the Select Committee for Exiting the European Union
(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) (b) Article 114 TFEU; ordinary legislative procedure; QMV
Digital, Culture, Media and Sport
(a) (38106), 12252/16 + ADDs 1–3, COM(16) 590; (b) (38107), 12257/16 + ADDs 1–4, COM(16) 591
9.1Trilogue negotiations have concluded with a provisional political agreement on two legislative proposals which would amend the existing EU regulatory framework for telecommunications and consolidate it in a single document referred to as the European Electronic Communications Code.
9.2The Minister for Digital and the Creative Industries at the Department for Digital, Culture, Media and Sport (Margot James) wrote to the Committee on 16 July 2018 to provide the Committee with an update.
9.3The Minister informs the Committee that the principal change made in trilogues was the introduction of regulated price caps for intra-EU telephone calls. The EU has effectively committed to apply a similar regulatory regime to that which currently applies to mobile roaming charges to all intra-EU (international) calls. The Minister reported that the Council did not support the European Parliament’s proposal to completely abolish surcharges for international calls within the EU, preferring “a more balanced version with low call and text charges” (16p/min and 5p/text). This is not a concern for the Government, which had previously informed the Committee that it recognised “that intra-EU calls can currently be expensive and do not accurately reflect the price of their provision, so consumers in the EEA, including the UK, might benefit from such a proposal”.
9.4In exchange for supporting this European Parliament initiative, the Minister reports that the Council’s negotiators were able to extract significant concessions on a range of other issues on which the negotiators agreed. As a result, the provisional agreement “meets all of the Government’s key negotiating lines”.
9.5The Minister also provides an overview of the key provisions of the agreement:
9.6The Committee was concerned that the Minister’s letter on other aspects of the provisional agreement was insufficiently detailed and wrote to the Minister on 12 September requesting a more detailed response. The Minister responded to the Committee’s request with a further letter on 9 October 2018.
9.7In her response, the Minister notes that the EECC provisions on end-user rights match current UK protections, meaning that levels of consumer protection in the UK will not be affected. The Minister adds that some of the provisions subject to full harmonisation provide flexibility for Member States to go beyond the provisions in order to provide higher levels of consumer protection, and that as full harmonisation of end-user rights is limited to matters explicitly covered in the EECC, Member States can continue to make national provisions relating to other consumer protections.
9.8On regulation of over the top services (OTTs), the EECC has taken a ‘service blind’ approach to the regulation of over-the-top services. That means that there specific categories which determine which aspects of the EECC will apply to an OTT — the key being whether it is ‘number-based’ or ‘number-independent’. If a service connects to the national numbering plan (i.e. an end-user is assigned a direct number as part of the service), it is number based. This was done to give the EECC fluidity, and to ensure that the relevant provisions apply to the right service types. For instance, porting of numbers/switching and contract duration would not be relevant to number-independent services, but would be for number-based OTTs.
9.9On this issue, the Minister states that “number-independent interpersonal communications services” (NIICS) are only in scope of the end-user rights, network security and interoperability provisions of the Code. The Minister reports that NIICS will only be subject to the same regulation as traditional telecoms services (e.g. mobile and landline calling and SMS) where they display the same relevant characteristics. Thus, if an NIICS provides consumers with a contract or offers minimum quality of service, the provisions that set out minimum standards of contract information or quality of service will apply. The network security provisions provide Ofcom with sufficient flexibility to decide on the extent to which NIICS should report on network security breaches, and Ofcom will only be able to impose obligations of interoperability on NIICS that meet a threshold of coverage and user uptake where end-to-end connectivity between end-users is endangered due to a lack of interoperability. The Minister indicates that the approach taken to NIICS is a “proportionate compromise”.
9.10On network access regulation the Minister states that the foundations of the system continue to be based on competition law centred on the concept of significant market power (SMP), and that, in this regard, there has been no significant change from the original proposal and the current Access Directive (2002/19/EC). The Minister states that the current suite of regulatory tools available to Ofcom to impose on operators with SMP remains intact, but with greater emphasis on requiring regulators to remove regulation that is no longer necessary and on encouraging investment in very high capacity networks through infrastructure competition. The Minister states that this approach “corresponds to UK policy objectives”.
9.11Regarding the regulatory incentive provision specific for co-investment in very high capacity networks, according to the Minister the provision now contains sufficient discretion for Ofcom to ensure that they are not forced to remove regulation from the dominant operator where this would be detrimental to competitive markets and consumers. If a proposed co-investment satisfies strict criteria, Ofcom will not be able to impose any additional obligations on the new fibre deployment; however, Ofcom will still be able to “maintain or adapt remedies… in order to address significant competition problems” if those problems cannot be addressed any other way.
9.12On spectrum management—one of those aspects of the original proposal about which the Government was most concerned—the Minister confirms that majority of the new powers for the Commission to introduce implementing acts to restrict Member State flexibility over spectrum management have been removed and that only one new power remains in the final text, which allows the Commission to address cross border interference which may only be used following a request from a directly affected Member State. The Minister indicates that “we are satisfied that the Member State trigger sufficiently mitigates the risk of unnecessary encroachment on Member State competence”.
9.13In her letter of 16 July, the Minister stated that the legal text was being finalised and that the Code was expected to be adopted and to enter the Official Journal in Autumn 2018. The implementation deadline will be Autumn 2020, meaning that the UK will have to transpose the provisions into UK law during the transition period provided for in the draft Withdrawal Agreement (assuming it is concluded).
9.14The Minister has also responded to a number of questions about EU exit in its last report on the Code.
9.15Asked how the level of access in telecommunications markets differs from that provided by the WTO General Agreement on Trade in Services (GATS) as compared to within the EU, the Minister stated that “The rules provided by the WTO should afford a similar level of EU market access for UK telecoms operators, but without requiring full alignment with EU telecoms law”. The Minister cites Paragraph 5(a) of the GATS telecoms annex, which states that each Member shall ensure that any service supplier of any other Member is accorded access to and use of public telecoms networks and services, on reasonable and non-discriminatory terms, and notes that the current EU Framework is based on the same principles as GATS, which seeks to ensure liberalised access by any company that offers telecommunications services within any member (for example providing access to an incumbent’s infrastructure).
9.16Asked to what extent retaining current levels of access to the EU public-sector procurement market is important to BT and other telecoms companies, the Minister acknowledged that “public procurement contracts are important for global telecoms companies, and EU contracts generate annual revenue for UK telecoms companies” and that “It is therefore important for UK telecoms companies to retain the ability to compete and win future bids on a non-discriminatory basis.”
9.17On mobile roaming charges, which the Committee has reported on previously, the Minister stated that “Two operators (Vodafone and Three) have committed publicly to continue surcharge-free roaming in the EU on UK exit”, but also acknowledged that “roaming arrangements are inherently cross-border in nature, and are therefore subject to the sensitivities of the UK’s negotiating position”. The Guidance subsequently issued by the Government on mobile roaming in the event of a No Deal scenario confirms that the Government cannot prevent EU operators from increasing wholesale roaming charges applied to UK operators, and acknowledges that “surcharge-free roaming when you travel to the EU could no longer be guaranteed”. The Government’s guidance states that it would retain various EU provisions related to roaming in domestic law post-exit, but it is clear that the Government does not intend to retain the ban on retail roaming charges in domestic law: “the availability and pricing of mobile roaming in the EU would be a commercial question for the mobile operators”.
9.18The Government also indicates in its No Deal notice that it intends to legislate to limit the total amount of mobile roaming surcharges to a maximum of £45 per monthly billing period “as at present” and to ensure that consumers receive alerts at 80% and 100% usage of any surcharge-free roaming data allowance their operators choose to offer them. It is important to note that the £45 limit monthly mobile roaming surcharge limit to which the Government refers relates very specifically to mobile roaming surcharges which may be levied for a limited set of reasons, such as when a consumer’s usage is defined as “anomalous” or “abusive” by the fair use policy.
9.19Asked whether EU telecoms rules would continue to function if retained or transposed into domestic law post-exit, the Minister stated that the EU regulatory framework for telecommunications is administered at national level and primarily consists of EU directives which are already implemented into UK law, that the EU framework also includes certain directly-applicable EU Regulations and Commission Decisions which the EU (Withdrawal) Act will convert into UK law, and, with the exception of the roaming rules, there are no functions which are directly carried out in the UK by an EU agency and few reciprocal arrangements between the UK and other EU member states. On this basis, the Minister concludes that “UK telecommunications law will therefore largely continue to function after EU-exit”, and that any deficiencies which might arise from EU exit would be corrected through statutory instruments under the EU Withdrawal Act.
9.20We have taken note of the Minister’s detailed summary of the technical agreement which has been reached following trilogue negotiations on the proposal for a Directive establishing the European Electronic Communication Code and the proposal for a Regulation establishing the BEREC, both of which are expected to be adopted by the Council of Ministers during the final months of the Austrian Presidency.
9.21Whereas the Commission’s original proposal sought to radically incentivise investment in next generation infrastructure, the Member States have considerably watered down the deregulatory provisions in the proposal and the revised Code to a large extent consolidates and retains the status quo.
9.22The clearest benefit brought about by the proposed revision is the late-stage addition by the European Parliament of a proposal to introduce regulated price caps for international calls within the EU, which Council negotiators accepted in exchange for the rejection of a wide range of other proposed changes to which the Member States objected. The Government supports this reform on the basis that, much like roaming charges before them, “intra-EU calls can currently be expensive and do not accurately reflect the price of their provision, so consumers in the EEA, including the UK, might benefit from such a proposal”.
9.23The Minister states that the provisional agreement “meets all of the government’s key negotiating lines”. Elements of the original proposals to which the Government objected, including the expansion of the Commission’s powers in relation to spectrum management, the removal of the industry funding option for the Universal Services Obligation, and the transformation of BEREC into an EU agency with significantly enhanced powers, have been removed. Furthermore, the regulatory approaches taken to network access, communications platforms, and end user rights are proportionate and afford Member States’ national regulatory authorities greater discretion than in the Commission’s original text.
9.24On this basis, the Minister seeks clearance of both documents, so that the Government can vote for them when they are adopted in the coming months—potentially at Transport, Telecommunications and Energy Council on 3 December 2018.
9.25On EU exit, we note the Minister’s assessment that the EU regulatory framework for telecommunications is administered at national level and primarily consists of EU directives which are already implemented into UK law, and that, with the exception of the roaming rules, there are no functions which are directly carried out in the UK by an EU agency and few reciprocal arrangements between the UK and other EU member states, and that “UK telecommunications law will therefore largely continue to function after EU-exit”.
9.26The Minister also states that, in terms of market access, the WTO General Agreement on Trade in Services (GATS) should afford “a similar level of EU market access for UK telecoms operators, but without requiring full alignment with EU telecoms law”. However, we note that the Government’s sectoral analysis of the implications of EU exit for telecommunications notes that telecoms chapters of EU trade agreements go beyond GATS to deliver further incremental liberalisation, with the EU-Canada Comprehensive Economic and Trade Agreement (CETA) improving access to the EU market in a number of respects (regulatory transparency; safeguarding against anti-competitive practices; requirement for suppliers to have access to domestic dispute resolution procedures), and states that the EU’s Association Agreements grant EU investors the same regulatory environment in the associated country as in the EU. We also note that the EU’s GATS schedule of commitments on market access in telecommunications specifies a number of limitations from MFN rules for certain EU Member States, including Finland, Portugal, Greece, Ireland and France.
9.27More specific EU exit implications for UK telecommunications businesses and consumers include the following:
The Government’s No Deal guidance on mobile roaming charges implies that it has made a policy decision not to legislate to prevent UK operators from imposing roaming surcharges on consumers, stating that “the availability and pricing of mobile roaming in the EU would be a commercial question for the mobile operators” and that “surcharge-free mobile roaming in the EU may not continue to be standard across every mobile phone package from that point”. We infer that the Government’s reluctance to transpose the EU ban on retail roaming charges (roaming charges applied to consumers) into domestic law is because it cannot use domestic law to retain the EU price caps on the wholesale roaming charges that EU operators can charge UK businesses for using their networks to provide roaming services due to the cross-border nature of the wholesale roaming market. Given that the EU price caps on wholesale roaming charges were specifically intended to make the abolition of roaming charges financially sustainable for operators, imposing a blanket ban on retail roaming charges in the absence of effective caps on wholesale prices would potentially be disruptive for some operators and have competition-distorting effects, with MVNOs and operators which are not part of a large European group and MVNOs being worst hit.
Although the Government’s technical notice states that some mobile operators have already said that they have “no current plans” to change their approach to mobile roaming after the UK leaves the EU, this may not be sustainable in the long term if EU networks increase the wholesale roaming charges they apply to UK networks (and there may be an incentive for them to do so, as more UK consumers holiday in the EU27 than vice-versa, and UK consumers are more inclined to use large amounts of roaming data when abroad than their European counterparts). If this comes to pass, higher operating costs will either have to be absorbed by mobile operators or passed on to consumers in one form or another (for example, higher wholesale roaming charges could be passed on to consumers through higher overall prices, rather than through the reintroduction of roaming charges).
We therefore consider that, post-exit, consumers should consider the roaming policies of their mobile operators extremely carefully before signing new contracts or using roaming services, as (i) there will be potential for roaming charges much higher than those which preceded the EU’s latest regulatory intervention to be applied, and (ii) there may be a return of confusing “roam like at home” commercial offerings where the cost of roaming is effectively priced in to a more expensive product, in contrast to the EU’s “Roam like at Home” regime under which it is a legal requirement for all contracts to allow consumers to use their domestic mobile allowances throughout the EU without incurring surcharges.
9.28We also note that two non-sectorial areas of policy of particular importance to UK telecommunications businesses which provide fixed services in EU Member States are:
9.29We now clear these documents from scrutiny.
(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.
First Report HC 301–i (2017–19)(13 November 2017); Fortieth Report HC 71–xxxvii (2016–17), (25 April 2017); Twenty-second Report HC 71–xx (2016–17), (7 December 2016).
128 Letter from the Minister of State at the Department for Digital, Culture, Media and Sport (Margot James) to the Chair of the European Scrutiny Committee ().
129 This letter will be made available in due course on the following page of DEXEU’s web-site: .
130 Letter from the Minister of State at DCMS (Margot James) to the Chair of the European Scrutiny Committee ().
131 Letter from the Minister of State at the Department for Digital, Culture, Media and Sport (Margot James) to the Chair of the European Scrutiny Committee ().
132 First Report HC 301–i (2017–19), (13 November 2017).
133 Fortieth Report HC 71–xxxvii (2016—17), (25 April 2017).
134 HM Government, Guidance: Mobile roaming if there’s no Brexit deal ().
135 See House of Commons Library, , particularly sections 2.2. and Appendix 1, for further information.
136 Department for Exiting the European Union, Sectoral Report—Telecommunications ().
137 GATS/SC/31/Suppl.3, European Communities and Their Member States, Schedule of Specific Commitments, Supplement 3 ().
138 For background see: House of Commons Library, The abolition of mobile roaming charges and Brexit ().
139 HM Government, Guidance: Mobile roaming if there’s no Brexit deal ().
140 Clifford Chance, Brexit impact on the telecoms industry ().
Published: 30 October 2018