Seventeenth Report of Session 2019-21 Contents

Appendix 1

S.I. 2020/545

Electronic Communications (Universal Service) (Costs) Regulations 2020

1.In its letter dated 17 June 2020, the Committee requested a memorandum in relation to the Electronic Communications (Universal Service) (Costs) Regulations 2020 (the “Regulations”) on the following point:

“Clarify the meaning of “central funds” in regulations 7 and 15.”

2.This memorandum has been prepared by the Office of Communications (“Ofcom”).

3.The requirement to secure a universal service in the UK, and the availability of compensation for the costs incurred in delivering a universal service (in certain circumstances) derive from the Universal Service Directive.1

4.The Universal Service Directive provides that, where it is established that a cost of providing a universal service represents an unfair financial burden on a universal service provider, the universal service provider must be compensated through one of the following mechanisms:2 (i) public funds;3 (ii) an industry fund;4 or (iii) a combination of public and industry funding.

5.In the UK, Ofcom is responsible for calculating the financial burden of providing a particular universal service and determining whether and if so, to what extent, that burden is unfair for the universal service provider. Ofcom must conduct this exercise in accordance with the provisions set out in sections 70 and 71 of the Communications Act 2003 and the provisions of the Regulations.

6.Although the UK legislation does not mention payments from money provided by Parliament, since that is a feature of the system as created by the EU, Ofcom wished to construct a scheme which was open to the possibility of that occurring.

7.The full extent of the public funds (if any) that are committed must be clear before Ofcom can accurately determine whether an industry fund should be set up and, if so, the size of that fund. As such, Regulation 7(3) provides that “Where it appears to OFCOM that central funds are to be committed to compensating the whole or part of the financial burden of complying with one or more of the relevant universal service conditions, OFCOM must postpone the determination of the amount to be collected until such time as the part of the amount to be compensated from central funds is known.

8.Regulation 15 limits the circumstances in which Ofcom can require additional contributions from industry to those in which the alternative source of permissible funding envisaged by the Universal Service Directive (i.e. public funds) will not be available to compensate the universal service provider. This is to ensure that the universal service provider is not over-compensated.

9.We considered that the definition set out in the Interpretation Act 1978 could be used in the context of this statutory instrument. Schedule 1 to that Act provides that “central funds”, in an enactment providing in relation to England and Wales for the payment of costs out of central funds, means money provided by Parliament. We intended the words “central funds” to bear that meaning.

10.While the Regulations do not (and could not) specify that money provided by Parliament shall be used to compensate the costs incurred by a universal service provider in providing a universal service, they do govern the steps which are a necessary pre-cursor to a universal service provider being compensated for its costs in such a manner.

11.If the Committee is concerned that this definition has been improperly applied in this context, Ofcom will undertake to amend the Regulations (for example by replacing the term “central funds” with the term “public funds” defined in the Regulations as “money provided by Parliament”).

Ofcom Legal Team

23 June 2020

1 Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services.

2 Article 13(1) of the Universal Service Directive.

3 Recital 22 of the Universal Service Directive states that public funds should be understood to comprise “funding from general government budgets including other public funding sources such as state lotteries.”

4 Recital 21 to the Universal Service Directive refers to this as “recovering net costs from all users in a transparent fashion by means of levies on undertakings.”

Published: 3 July 2020