European Affairs

Summer 2001

 

Industry and Technology
A New Legal Framework for EU Communications Services
Robert Verrue
Director-General, Information Society Directorate-General, European Commission

 

Both the United States and the European Union have come a long way during the last ten years toward creating competitive markets for communications services. Our overall goal remains to have all companies, whether privately or government-owned, competing on a level playing field.

The European Commission continues to monitor closely the implementation of the 1998 telecommunications rules.1 Our latest report shows that Europe is not only capitalizing on its strengths, but also rapidly making good on what I know many in the United States consider our traditional weaknesses - Internet access, leased lines and local access.

Last July, the Commission adopted six proposals for EU legislation that make up the new regulatory framework for electronic communications. The proposals address the technological and market changes that are increasingly overtaking the existing framework.

We have to introduce the benefits of competition into all markets, including the local loop.2 Competition at the local access level throughout the EU will bring to new technologies the same benefits in terms of greater choice, higher quality and lower tariffs that already exist in the international and long-distance telecom markets.

The previous approach of network-specific regulation (for telecom, broadcast, wireless, etc.) creates anomalies in the present era of converging networks and services. This trend towards convergence creates uncertainty - about markets, about what consumers will want, and about which companies will be market players in the light of global mergers and acquisitions.

The European Commission intends to give national regulators a clear set of objectives, a box of regulatory tools, and a set of rules governing intervention in the market. Equipped with these, the new regulatory package will be flexible, technologically neutral3 and durable. At the same time, we aim to provide as much legal certainty as possible to market players so that investment will not be stifled.

The three main objectives are: to benefit the citizen, to promote, sustain and expand an open and competitive market, and to consolidate the EU's internal market. The new package is extremely transparent. The Internet has enabled the proposals to be prepared in an open manner, and the result reflects the widest possible range of views on the subject.

One of the key proposals is a regulatory framework for spectrum4 policy. The proposed decision is the Commission's response to requests from radio spectrum users and from member states to ensure that EU interests are fully taken into account in radio spectrum policy. There are three key elements:

Consultation and co-ordination at political level: The proposed decision would require member states to reinforce consultation at inter-departmental level and with national spectrum users.

A Senior Official Radio Spectrum Policy Group of representatives of the member states will be created to agree political guidance and priorities for upholding common EU interests, for example ensuring efficient "roaming" of service from one member state to another. The group will also consult industries and user representatives who are not based in a single member state but operate throughout the EU.

Legal certainty: There will be closer co-operation with the European Conference of Postal and Telecommunications Administrations (CEPT), which includes groups responsible for spectrum management issues. Further EU measures will be required to ensure that EU countries implement the voluntary measures adopted by the CEPT, which represents 43 European nations.

International co-ordination: It is in the interest of the EU to ensure that radio spectrum usage in Europe is compatible with that in other regions of the world. There will be full co-operation with the CEPT on the representation of EU interests internationally. Steps will also be taken to ensure that those taking business or policy decisions have access to all relevant information on radio spectrum use. One such initiative is the creation of a European database providing information on which frequencies are harmonized in Europe and what these frequencies can be used for.

The spectrum proposal will offer a consultative process to address radio spectrum issues in general, rather than solutions to specific problems. Where needed, legislative action at EU level will be taken to ensure the smooth functioning of the EU internal market in radio services and products.

The cornerstone of the new regulations is a proposed common regulatory framework for all forms of electronic communications networks and electronic communications services.

The framework directive re-defines the notion of significant market power (SMP), which will be used to determine which companies and groups may be subject to regulations in order to guarantee effective competition. A consensus has emerged on the Commission's proposal that the definition of significant market power should be based on the competition law concept of dominance.5

Two issues covered by the framework directive have attracted most comment: the "transparency mechanism" and procedures for market definition and analysis. The transparency mechanism would require national regulators to notify the Commission of draft measures - after consultations at national and European level - and would enable the Commission to require a national regulator to amend or withdraw measures not compatible with EU law.

The directive would also give the Commission sole power to define the product or service markets in which regulators could introduce anticipated obligations to protect competition.

The Commission's proposals seek to counter-balance this decentralization of decision making among national governments with strong co-ordination mechanisms to ensure the consistent application of the rules. The over-riding rationale for a regulatory framework at European level is to ensure a minimum level of harmonization: Similar companies should be subject to similar obligations in similar market circumstances, wherever they operate in the EU.

Another directive simplifies administrative controls on market access for service providers, namely by requiring the use of general authorisations for all electronic communications networks and services. It allows member states to grant individual licences only for numbers and spectrum, and simplifies these procedures. For example, it also ensures that service providers do not face widely divergent licence regimes or fees when they enter each member state.

A proposed universal service and users' rights directive is designed to protect public and consumer interests. It sets out the rights of users and consumers in the field of electronic communications networks and services, including the level of universal service.6

The Directive defines the scope of universal service, the rights of users and the possible measures for financing universal service without distorting competition.

Basically the scope of universal service remains as it is today, but with built-in procedures for reviewing universal service obligations in the light for example of social, commercial and technological developments on a regular basis.

In Europe, the scope of universal service is narrower than in the United States. It covers the provision of a connection to the public telephone network at fixed locations, and access to the public telephone service. Universal service also covers directories and directory enquiry services, public pay phones, and special measures to ensure access and affordability for all sections of society, including disabled users.

A proposed data protection directive updates the current telecommunications data protection directive to ensure it is technologically neutral (i.e. that it does not favour one type of technology over another) and applies in a consistent way to all electronic communications networks and services.

In particular, it addresses privacy issues that arise from the ability of mobile telephone network operators to pinpoint the exact location of the terminal, and hence the user, at all times. The new directive stipulates that location data available to mobile operators may only be used with the consent of the subscriber.

It also prohibits "spam," or unsolicited commercial emails, except when subscribers have "opted in" by indicating that they want to receive such e-mails for direct marketing purposes.

On this issue, I would like to make three points, given the controversy that has surrounded EU-U.S. discussions on data protection.

Firstly, the opt-in for spam in this directive applies to individual consumers. Business-to-business communications are covered by the e-commerce directive, which allows an opt-out regime. Secondly, we see a growing recognition within the industry that opt-in is the more effective tool for consumer marketing. Since the decision to receive spam was made by the consumer, he is more likely to be favourable to the products being advertised.

Thirdly, there is a cost of doing nothing. An independent study undertaken for the Commission estimates that Internet subscribers worldwide are paying a10 billion ($11 billion) a year in connection costs just to receive "junk" e-mails. That may be good for telecommunications companies, but it is not good for consumers.

Throughout the EU, the local access network remains one of the least competitive segments of the liberalized telecommunications market. It is therefore essential to allow new entrants access to these local loops and upgrade them to provide higher speed Internet services.

Among other key provisions, the proposal provides that incumbent operators provide competitors with unbundled access to their local copper loops7 - both on the basis of exclusive use and of shared use - on fair, reasonable and non-discriminatory terms.

At their Stockholm summit meeting in March, EU leaders called for the telecommunications package to be adopted as soon as possible this year. Ideally, if the Council of Ministers and the European Parliament could reach agreement on the legislation at second reading, final adoption could be early next year.

Following adoption at EU level, except for the spectrum decision, member states have 15 months to draw up their own national measures implementing the legislation. The whole package will be applied on the same date in all member states, perhaps during the second quarter of 2003. The spectrum decision will enter into force immediately after its publication in the Official Journal.

The real challenge will be to make the new framework work efficiently. The Commission and national regulators will face a steep learning curve as we implement the legislation. We will rely on industry, as well as consumer and user representatives, to provide feedback, as they already do under the existing framework.

We foresee the need in future for "soft law" measures - industry codes of conduct and other forms of self-regulation and co-regulation - as part of the overall framework for ensuring effective and consistent application of the rules.

I am confident that we shall be able to continue to make the regulatory process transparent and effective. That should create the conditions for the European communications sector to flourish and expand.