Communicating the Message
Robert Bratby
Colin Long
November 2007 saw the European Commission adopt a suite of proposals to amend the current electronic communications regulatory framework (2007 review). Significant change is proposed in some areas, although it remains to be seen whether some of the more controversial proposals represent bargaining chips that the Commission will trade for implementation in other areas.
A BRIEF OVERVIEW OF THE CURRENT REGULATORY FRAMEWORK FOR ELECTRONIC COMMUNICATIONS
The existing regulatory framework for electronic communications was adopted in 2002, following earlier liberalisation legislation in 1998. This was supposed to be implemented in the member states in 2003. Broadly, the aims were to recognise convergence by covering all delivery platforms, to streamline the market entry process, to bring competition law-style analysis into ex ante regulation and to enable the progressive removal of regulatory rules as markets become competitive.
The Framework Directive set out overarching regulatory objectives. It required that national regulatory authorities (NRAs) are independent and set out what they can and cannot do. In particular, the directive requires NRAs to review certain predefined markets to determine whether one or more operators in that market have significant market power (SMP). The concept of SMP is equivalent to that of dominance under competition law: that is, whether an undertaking can behave in a market to an appreciable extent independently of competitors, customers and consumers.
There were 17 predefined markets set out in a Commission recommendation adopted on 11 February 2003. NRAs can, if national circumstances warrant, define new markets, provided specific criteria are met.
The market review process was far more resource and time-hungry than envisaged for all concerned. In the documents launching the 2007 review, the Commission noted the sheer number of market reviews (334 by January 2006, with the expectation of a rise to 500 by the end of 2006 - an expectation that was met and indeed exceeded, with over 600 notifications received by the Commission by November 2007).
If SMP is found, an NRA must impose one or more of the designated SMP remedies. The SMP remedies are set out in the Access Directive and in the Universal Services Directive. SMP remedies at the "wholesale", or inter-operator, level are: transparency obligations; non-discrimination prohibition; accounting separation requirements; network access obligations; and price control and cost-accounting obligations. To protect end users, SMP remedies can be imposed at the retail level and can include price controls and behavioural requirements such as an obligation not to restrict competition.
The Authorisation Directive removed the NRAs' ability to impose individual licensing requirements on market entrants, unless scarce resources such as spectrum or numbers were concerned, and requires a general authorisation regime to be adopted in each member state. NRAs can only impose obligations on operators if the subject matter is included in the list annexed to the directive: for example, general authorisations can include conditions on service interoperability and access obligations; and spectrum licences can include terms relating to the service designation for the spectrum being licensed. A substantial number of rules are thus imposed outside the SMP framework.
The current directives and recommendations have an in-built review process. Under the Framework Directive, the products and services markets recommendation must be reviewed regularly and the directive itself (and the other directives) must be reviewed periodically. The review process started at the end of 2005, when a "call for inputs" launched the public consultation. In all, 224 responses were received and during 2006/2007, the Commission and the European Regulators Group (ERG) entered into a "regulatory dialogue" to consider mechanisms for reducing inconsistencies and barriers to a single communications market.
2007 REVIEW BACKGROUND
Although the Commission is careful to cite the successes of the current regulatory framework (lower prices and more services being the main ones), it noted the continuing presence of so-called competitive bottlenecks, in particular in the broadband market. The benefits of competition do not appear to have disseminated fully through the market. Nor does the EU-wide framework seem to have encouraged or incentivised the development of pan-European communications services. Such relatively slow development must be seen against a background of rapid technological and market developments (eg, VoIP services, next generation networks).
The devil, as lawyers frequently say, is in the detail. This is seldom truer than for implementation. Here, the devil appears to be in the many different ways the general principles and rules in the existing framework can be implemented. The Commission notes in its communication on the 2007 review that the NRAs' approach to regulation is increasingly divergent. This situation is, according to the Commission, partly responsible for the failure of a true pan-European communications market developing. A related matter is the role of the ERG, which is made up of representatives of the NRAs. This has led to criticism that as the group decides by consensus, its opinions and recommendations reflect the lowest common denominator.
However, discrepancies are, to a certain extent, built into the current system, based as it is on directives which give member states discretion as to how to implement the requirements. In addition, the market review process specifically requires NRAs to consider national circumstances.
Faced with the likelihood of substantial investment in next generation networks and access being required to maintain global competitiveness, the Commission and NRAs are concerned to ensure that regulation itself does not prevent or disincentivise investment or innovation. The Commission has acted quickly to stamp out some recent attempts by incumbents and member states to take a "regulatory holiday" for new and substantial investment, but the Commission and the NRAs are concerned to ensure that such investment is still made.
While the current regulatory framework provides that newly emerging markets are not to be regulated, the Commission notes that new technology itself does not mean a new market is born. This debate can be seen with VoIP services - which look and feel like old-style telephone services - and how they are to be regulated. It can also be seen in the different approaches to investment at EU and at national level and whether investment should be market-led or whether regulation should itself incentivise such investment to ensure it takes place, with or without a business case.
THE 2007 REVIEW PROPOSALS
Three "pillars of better regulation" characterise the reform proposals:
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better regulation for competitive electronic communications;
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completing the single market in electronic communications; and
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connecting with citizens.
Better regulation
The better regulation agenda has swept through the regulatory world, with the objective being on imposing less regulation but in a more focused manner. However, in the real world, better regulation seems always to result in more regulation or even a new regulator.
The deregulatory drive is satisfied by the new recommendation on products and services, which reduces from 17 to seven the number of predefined markets. This recommendation, which came into effect on 13 November 2007, also sets out the criteria to be met by NRAs considering defining a market not included on the new slimline list of markets. The predefined markets include one retail market, reflecting the general approach of focusing regulation where bottlenecks exist, generally at the wholesale level.
The better regulatory drive is also met by adding functional separation to the NRAs' remedies toolkit. This remedy, which has been tried in the UK, albeit under competition law rather than regulation, is intended as a last resort.
In the UK, BT actually offered undertakings providing for structural separation effectively to prevent it being imposed through the market review process and in return for specific deregulatory measures. It has not been completely successful nor will such a bargain be available under the new framework. It remains to be seen whether this remedy will ever need to be imposed.
The proposals tackle simplifying the article 7 market review process and introduce deadlines for completion. The proposed slimline process sits on top of a reduced list of predefined markets, and requires NRAs to work harder to justify retaining regulation or adopting new market definitions as a prelude to regulating.
The Commission also makes a number of proposals for wireless regulation. The underlying aim should be that regulation should be both technology and service neutral, with a more market-led approach, including increased unlicensed usage and the tradability of usage rights. The Commission also proposes a more efficient and coordinated approach to pan-European authorisations.
This is particularly stark regarding the Digital Dividend, that slice of prime spectrum to be released when broadcasting goes fully digital by 2012. The Commission is convinced that only an approach coordinated at EU level will fully unlock the potential of this valuable spectrum.
Here, the Commission is proposing the development of a common coordinated approach. This proposal cuts across some member states' plans for this spectrum. Member states will be required to set aside spectrum for EU-wide services and share spectrum by clustering similar types of services into "common spectrum zones".
Completing the single market
The Commission is proposing to strengthen NRAs' powers of enforcement and to bolster the rules on regulatory independence. The Commission will be able to oversee the remedies proposed by NRAs to ensure a more consistent approach to remedies across the EU. The Commission will also tackle inconsistencies by issuing guidelines on various technical harmonisation measures, such as on costs and number portability. Such guidelines will be adopted in parallel with guidance on how the regulatory framework will apply to fibre in the local access network and potentially other areas, such as sub-national geographical markets. This is something that Ofcom is already looking at in the context of leased lines, and more recently broadband access.
The proposal that appears to have aroused the most anger (at least among regulators) is the creation of a European Telecom Market Authority (ETMA), a body to be created under EU law and combining the expertise of the national regulators with the Commission's single market powers. The ETMA would have three aims: to improve the quality and consistency of regulation; to reinforce cooperation between the NRAs and the Commission; and to provide expertise for regulatory issues arising from pan-European services. It would be made up of a board of national regulators, be managed on a day-to-day basis by an executive director and include a board of appeal. Decisions would be by majority voting.
The new body will subsume the existing European Network and Information Security Agency. The ETMA would include a chief network security officer, who would coordinate the ETMA's security-related activities. This aspect of the proposals meets one of the objectives, which is to enhance the security and reliability of networks. However, it remains to be seen whether this proposal will survive legislative scrutiny.
Connecting with citizens
Here, the Commission proposes the tightening up of consumer protection requirements. While the Commission does consider that technological change has given consumers more choice and better and cheaper services, the perennial issue of transparency remains of concern. Operators will be required to provide more information on terms and conditions and pricing, timing for switching will be cut to one day for porting numbers and access to emergency services will be more efficient. Some of the long-running debate on VoIP is potentially resolved: VoIP services will be required to provide access to emergency services. Further amendments are intended to address concerns about access to services by disabled users.
Member states must ensure that contracts set out details of any limitations on access to or distribution of content over networks or via applications. The Commission will also be able to ensure that NRAs will impose minimum quality requirements, based on standards drawn up at EU level. These amendments are intended to address concerns about what the Commission describes as "net neutrality and freedoms". The net neutrality debate which has raged in the US seems thus to have been addressed in a relatively quiet way, without significant debate, in the EU. It may be that this is due simply to timing: network investment will already have been made by 2009 to 2010, and the access rules sorted out by the market when the measures bite.
Privacy and security is given substantial consideration, with the Commission proposing to require member states to ensure that security breaches are notified to users where their data is lost or damaged, strengthening the mechanisms used to combat spam and ensure network security and clarifying the application of the rules to newer technologies.
Stakeholders will be working through the detail in preparation for providing views to the parliament and council as they debate the changes and their impact over the medium term. As ever in telecoms regulation, it promises to be an interesting time (as the old curse has it).
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The proposals themselves kick off a formal legislative process using the co-decision procedure, which involves a first stage of debate within the parliament and the council. The Commission is aiming to have the measures in place by 2009 and in force by 2010, although this depends on the progress of the measures through the legislative process which, based on prior experience, means the target timetable may be somewhat optimistic.