European Commission Proposes Reform Of EC Telecoms Rules

Practice note written by Practical Law Company (PLC) IPIT & Communications and Mike Conradi (partner at Kemp Little LLP). This note can also be found on PLC's website at http://www.practicallaw.com/0-378-9543 (registration required).

The European Commission has published its legislative proposals for reform of the EC telecoms rules. The Commission hopes that the proposed changes will improve competition, complete the single market in electronic communications and improve consumer protection. The changes include a reduction in the number of telecoms markets susceptible to ex ante regulation from 18 to seven; increased powers for national regulators; the introduction of a new independent regulatory body, the European Electronic Communications Market Authority; improved security measures and consumer rights; and a remedy of "functional separation". The changes are material and, in some respects, more radical than was contemplated in the consultation that preceded them, and it is likely they will lead to heated debate during the course of the legislative process.

Background

Regulatory framework

Prior to the late 1980s, the telecoms market was characterised by the existence of state monopolies and it was focused on fixed-line services. From the late 1980s, a process of market liberalisation began, and in 2002 the existing EC regulatory framework for telecoms was agreed in the form of a series of directives:

Directive 2002/21/EC on a common regulatory framework for electronic communications networks (ECNs) and electronic communications services (ECSs), known as the Framework Directive, because this creates the framework within which the other directives sit (OJ 2002 L108/33).

Directive 2002/20/EC on the authorisation of electronic communications networks and services, known as the Authorisation Directive. It harmonised and simplified the authorisation regime for ECNs and ECSs by ending the licensing system and instead setting out a minimum set of obligations for operators under general authorisation (OJ 2002 L108/21).

Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, known as the Access Directive. It harmonised the way in which member states regulated access to, and interconnection of, ECNs and associated facilities (OJ 2002 L108/7).

Directive 2002/22/EC on universal service and users' rights relating to electronic communications networks and services, known as the Universal Services Directive. It established rights for end-users and aimed to ensure the availability throughout the EU of good quality publicly available services through effective competition and choice, and to deal with circumstances in which the needs of end-users were not satisfactorily met by the market (OJ 2002 L108/51).

In the UK, these four directives were implemented by the Communications Act 2003.

A fifth directive was implemented in the UK by means of the Privacy and Electronic Communications (EC Directive) Regulations 2003:

Directive 2002/58/EC, concerning the processing of personal data and the protection of privacy in the electronic communications sector, known as the Privacy Directive (OJ 2002 L201/37).

The five directives together are known as the 2003 regime.

The new regulatory regime brought about by these directives was intended (among other things) to remove the previous distinction between different types of telecoms networks and services. The regime is applicable to all forms of communications technology, whether used for broadcasting or telecoms, and reflects the reality of the technological convergence between these two sectors. The focus of the legislation is on markets rather than technologies and was aimed at promoting competition to benefit consumers and users. The regime introduced competition-law-based principles for defining markets and for identifying those operators who have significant market power (SMP).

Article 7 of the Framework Directive provides for a system of review and notification by national regulatory authorities of measures they propose to take in markets subject to ex ante regulation. Markets which are susceptible for ex ante regulation (and which must be reviewed by national regulators) were identified in a Commission Recommendation (OJ 2003 L 114/45). Ex ante regulation may only be imposed following review of markets by national regulators and where it is found that the market is not effectively competitive, and must be removed once the market has become fully effective.

Need for reform

The European Commission has conducted annual reviews of the operation of the state of the electronic communications markets in the EU and the extent of implementation of the EC regulatory framework.

The Commission considers that the liberalisation of the telecoms services markets has largely been successful in opening national markets to competition, stimulating investment in new services and infrastructure, and giving consumers the benefits of greater choice and lower prices.

However, the Commission considers that the full potential of the telecoms sector has not yet been achieved. It cites the fact that there are few transnational or EU-wide communications services, despite the fact that the radio spectrum used widely by this industry is a borderless resource. It sees one of the barriers to cross-border services as being the regulatory inconsistencies between member states - this can result in, for example, huge variation between mobile call termination rates.

There are still a number of former state monopolies in positions of structural dominance due to their inherited (generally state-funded) networks. As at July 2006, only 10% of subscribers in the EU used an alternative provider for direct access to fixed-voice telephony services. The figures are exacerbated by the fact that since 2002, 12 new member states have joined the EU, most still with dominant incumbent operators.

During the summer of 2007, the Commission introduced a regulation on international mobile roaming in the EU. This placed limits on the wholesale and retail tariffs which telecoms providers could charge for calls made and received outside the user's home country. The Commission considers that its need to intervene in this is evidence of the failings of a...