Telecoms and Internet regulation review

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The European Union has embarked on a broad review of the telecoms and Internet sector in an attempt to adapt legislation to the latest technological developments. EU institutions reached a broad agreement in April 2009, but a highly political fight over the protection of Internet users’ rights in France has put the entire reform on ice, holding it hostage to an unpredictable horse-trading process.

Background

For decades, the telecommunications sector was in the hands of national monopolies. 

In 1987, the Commission published a Green Paper on the development of the common market for telecommunications services and equipment as a first step towards the introduction of more competition in the telecommunications market, combined with a higher degree of harmonisation. In 1998, telecommunications were in principle liberalised in all countries of the EU. 

As a consequence of technological developments and increasing convergence of access and communication possibilities, EU legislators agreed upon a new regulatory package in 2002.

However, far from being definitive, this framework was born to be modified. The 8-9 June 2006 Telecommunications Council defined the "future challenges for the electronic communications regulatory framework" and pushed for more competition, better allocation and use of the spectrum and swift implementation of the regulatory framework.

Following the Council's indications, the European Commission opened a consultation on 29 June 2006 which ended with the review proposed in November 2007.

Issues

Bill hostage to row over Internet users' rights

The approval of the telecoms package looked set to be a mere formality after the European Parliament and EU member states reached agreement in April on most of the contentious issues contained in the proposed reform (EURACTIV 31/03/09).

However, in a surprise move, the Parliament blocked the package in May by rejecting an earlier compromise with member states over the protection of Internet users' rights. The rejection came in response to a draft French anti-piracy bill, the so-called Hadopi law, which had caused uproar among MEPs and consumer groups. The draft French law had foreseen a 'three-strike' approach whereby consumers who illegally download music or films could see their Internet access cut off after two warnings (EURACTIV 07/05/09).

EU lawmakers overwhelmingly restated their support for an amendment underlining that Internet access cannot be restricted "without prior ruling by the judicial authorities". Member states, led by France in particular, are opposed to this specification, which is seen as potentially detrimental to the measures they are taking to combat online piracy. The Hadopi law in its initial version gave enforcement powers to an administrative body, without involving the judicial authorities.

The row - which is important but relatively marginal in comparison to the scope of the proposed reform - has held the entire package hostage. A conciliation procedure between the two EU institutions will try to resolve outstanding issues and avoid having to reopen the most controversial dossiers (EURACTIV 12/06/09).

The main points of the package, on which a deal has already been sealed, are the following:

  • European regulator  

The Commission planned to establish a new European authority to serve as its main advisor on all European regulatory affairs. EECMA (the European Electronic Communication Market Authority) would have supervised the 27 national regulatory authorities, under the control of the Commission. The body would notably have had the power to block remedies imposed by national regulators if they contradicted European principles

Nevertheless, the proposal has been strongly criticised. In particular, the plan to give the authority power to veto decisions taken by national regulatory authorities has irked the European Regulators Group, whose members are unwilling to give up the right to have the last say in telecoms decisions. 

In two letters sent to Commissioner Reding, the ERG states that regulators neither see the necessity of a new regulator nor an EU veto right on regulatory decisions. In its latest message to the Commission on 6 November 2007, ERG confirmed that it is "not in favour of the creation of either a new Commission veto on remedies or new layers of unnecessary centralism" (see EURACTIV 18/12/07).

The large member states are generally against the establishment of the new body. Britain takes its usual critical approach to new public authorities, considering them to be expensive and unnecessary. France and Spain tend to defend the line of their national incumbents, France Telecom and Telefonica respectively, who do not see the need for a new body able to interfere with their activities. 

Germany has fiercely opposed Commissioner Reding, particularly after the infringement procedure opened in February 2007 against Berlin for the so-called 'regulatory holidays' granted to Deutsche Telekom in the German broadband market. Italy takes a softer stance, but insists upon the new authority being independent from Brussels. 

The Parliament took note of this criticism and by approving the report drafted by Conservative MEP Pilar del Castillo Vera, rejected the Commission's proposal to establish a strong new EU authority for the telecoms sector. Instead, MEPs voted in favour of a less-centralised Body of European Regulators in Telecoms (BERT), which would share veto powers with the Commission. 

After long negotiations with member states, EU institutions reached an agreement in April 2009 on the establishment of a new EU telecoms agency, called BEREC (Body of European Regulators for Electronic Communications). It was agreed that the European Commission would be allowed to issue "binding recommendations" on national regulators, provided that it has support from a majority of BEREC's members (the 27 national regulators). Should such support be lacking, Brussels would merely issue a "recommendation".

  • Functional separation

The Commission proposed giving regulatory authorities the power to split telecommunication operators that own important parts of the network infrastructure into two companies, in charge of operational business and network management respectively. 

The proposal is modelled on the British example where British Telecom was split into BT and Open Reach. The measure stops short of full "ownership unbundling", which is being partially applied in the energy sector.

Nevertheless, the proposal has encountered fierce resistance from many incumbent telecoms operators (see EURACTIV 17/10/07EURACTIV 25/10/07 and EURACTIV 7/11/07). EU telecoms Commissioner Viviane Reding reportedly also had to overcome substantial internal resistance from fellow commissioners to get the proposal through (see 
EURACTIV 26/10/07).

Apart from Britain and a few northern European countries, member states tend to treat the new proposal with caution. Studies published recently have raised numerous concerns about the overall EU policy on access to incumbent networks (see EURACTIV 18/12/07).

In their vote in September 2008, MEPs endorsed the Commission's proposal for functional separation but insisted that such a measure be only "exceptionally" applied, requiring approval by both the EU executive and the European regulatory body. The Council backed this line, underlining that functional separation should be a 'last resort' measure.

  • Spectrum management 

As digital broadcasting is capable of handling spectrum bands much more economically than traditional analogue broadcasting, large proportions of the spectrum hitherto used for television and radio can be re-attributed, a transition branded as the 'digital dividend'.

Radio and television operators point out interference problems that might occur if the services that they are providing need to operate on frequencies neighbouring public senders, but Reding wants to attribute large chunks of the UHF band to new services, such as mobile Internet. 

The Commission also proposes introducing a system for trading radio spectrum. Critics say that this may contradict EU rules on universal service obligations.

The Parliament agreed that management and allocation of the spectrum should be left mainly up to member states, with only some frequencies under European management. This attracted wide support from the broadcasting industry, which considers it easier to get its voice heard by national authorities than by a one-size-fits-all European model. 

The telecoms sector and the cable industry were less happy, with the former lamenting that new mobile phone-based services would not be favoured by the new framework and the latter criticising the extension of 'must-carry' obligations to all audiovisual media services, including satellite and cable. They say this will hinder the development of on-demand services.

  • Next-generation networks

Upgrading the original Commission proposal (which did not contain significant references to new networks), the Parliament put forward a series of measures to spur investment in next-generation optical fibre networks, which are expected to become the backbone of the Internet of the future, offering high-speed, high-definition services.

At the request of French Socialist MEP Catherine Trautmann, who drafted the report on the issue, Parliament voted in favour of infrastructure competition, pushing all operators to build their own networks. 

The move was welcomed by large incumbent companies but criticised by smaller ones over fears that they would be weakened. But the text makes a concession to smaller market entrants by recognising the right of operators without any infrastructure of their own to access existing fibre networks.

The final deal between the Parliament and Council calls for "ensuring access obligation by taking appropriate account of the risk" incurred by the investor. Smaller operators will therefore pay a "risk premium" to access the networks put in place by incumbents. But they will not be forced to participate in initial investments to gain access to the fibres.

  • Privacy, security, copyright and consumer protection

The telecoms review also includes a range of new measures to deal with consumer protection, privacy and security. As mentioned earlier, protection of Internet users' rights is the last obstacle currently preventing the adoption of the telecoms package.

The review also requests that the processing of personal data should not require users' prior consent, a move that will make life easier for anti-hacker operators but keep privacy protection on the Web low.

The issue of whether IP addresses - which are crucial for the identification by service providers of Internet users and through which Web giants can acquire much user information - should be considered as personal data has not been approached in the text.

On the other hand, the review includes the application of a prior consent clause to software that automatically reports back to remote computers, such as cookies, which are installed in users' computers and provide information on their behaviour to the companies that create them, like search engines. With this legislation in place, cookies and other software based on this principle will have to ask users' permission to report back. However, providing a simple button in the browser for the acceptance of cookies should be sufficient, raising doubts as to the effective protection of consumers' privacy.

The package introduces the obligation of notifying a security breach to users, for example, when their online bank account has been used by a non-authorised party. According to Liberal MEP Alexander Alvaro, who drafted a report modifying e-Privacy rules, "making it a duty to report security breaches would be enough to provide internet users with maximum protection".

The review also includes higher transparency requirements for the pricing of electronic services and better contractual information. "Too often, consumers are not told if they will be required to pay significant sums for their handset if they break a contract early or if services such as Skype are blocked on their handsets. All this will now change," explained Conservative MEP Malcolm Harbour, who drafted the report approved in the Parliament plenary.

  • Markets subject to regulation  

The Commission has revised its recommendation on the relevant markets. Eleven of the former eighteen regulated markets will no longer be subject to ex-ante regulation and will thus be made subject to ex-post regulation. In practice, this means that general competition law will apply to those markets. 

The revised list is as follows: 


Retail markets
Access to the public telephone network at a fixed location for residential customers.  Merged 
Access to the public telephone network at a fixed location for non-residential customers 
Publicly available local and/or national telephone services provided at a fixed location for residential customers  Removed 
Publicly available international telephone services provided at a fixed location for residential customer  Removed 
Publicly available local and/or national telephone services provided at a fixed location for non-residential customers  Removed 
Publicly available international telephone services provided at a fixed location for non-residential customers  Removed 
The minimum set of leased lines  Removed 

Wholesale markets
Call origination on the public telephone network provided at a fixed location.  Unchanged 
Call termination on individual public telephone networks provided at a fixed location  Unchanged 
10  Transit services in the fixed public telephone network  Removed 
11  Wholesale unbundled access (including shared access) to metallic loops and subloops for the purpose of providing broadband and voice services  Limitation to metallic loops deleted to include fibre 
12  Wholesale broadband access.  Unchanged 
13  Wholesale terminating segments of leased lines.  Unchanged 
14  Wholesale trunk segments of leased lines  Removed 
15  Access and call origination on public mobile telephone networks  Removed 
16  Voice call termination on individual mobile networks  Unchanged 
17  The wholesale national market for international roaming on public mobile networks  Removed 
18  Broadcasting transmission services, to deliver broadcast content to end users  Removed 

Positions

  • On the Parliament's first-reading vote:

EU Information Society Commissioner Viviane Reding accepted Parliament's changes to her original proposals: "Parliament's vote is good news for European consumers. The European Parliament has voted in favour of a strong and competitive single telecoms market without borders for cross-border services, competition and investment in Europe. This will level the playing field for telecoms operators in Europe, enhance legal certainty, and broaden consumer choice."

Daniel Pataki, chairman of the European Regulators Group, commented: "We welcome the result of the European Parliament's plenary vote. The Parliament has taken a very balanced approach on difficult questions such as the future institutional framework. The members of the European Parliament seem to have come to the same conclusions as the ERG."

BEUC, the European consumers' organisation, commented: "MEPs voted to reinforce consumer rights and competition in telecoms markets across Europe. We hope the Council will follow the same line towards improving and facilitating consumers' daily lives. Many consumers still suffer from problems with their telecom providers: from complicated information to very long-term contracts, not to mention difficulties in switching. Concretely, thanks to today's move, consumers could benefit from more transparent information about tariffs and conditions of contracts."

Regarding spectrum, the European Brodcasters Union (EBU) commented: "Parliament's vote confirms the importance of efficient radio spectrum management for future-oriented national and European media and audiovisual policies. MEPs managed to find a balance between a coordinated EU policy and the respect of general interest objectives, such as cultural diversity and media pluralism."

On the same lines, Ross Biggam, director-general of the ACT, the Association of Commercial Television in Europe, which is a direct competitor of the EBU, said: "The European Parliament has recognised the important role of member states when it comes to regulating the telecommunications market in the future. This relates particularly to the allocation and management of spectrum. Given the heterogeneity of European media markets, we believe that these should remain national."

The European Satellite Operators Association (ESOA) commented: "The Commission's original proposal included a review of existing spectrum rights every five years. That has been changed with the Parliament proposing to delete any revolving reassessment but keeping a mandatory review by the end of 2010. The viability of a satellite operator's business plan depends on a 15-to-20-year business cycle. It therefore relies on certainty over this time and any uncertainty with respect to rights of use of spectrum or access to specific bands could be a deterrent to investment in research and development of new services and applications in this strategic sector."

ETNO, the main association of telecoms operators, instead reacted: "ETNO regrets that the EP has not fully embraced the potential of the digital dividend in order to bridge the digital divide by boosting the development of mobile and wireless services." ETNO Director Michael Bartholomew said: "Functional separation risks resulting in increased costs for access and less investment in new and alternative networks, thereby reducing long-term network competition and limiting consumer choice."

ECTA, which represents alternative telecoms operators, focused its reaction on next-generation networks: "There are few surprises in the Parliament vote. We see a very strong positive signal that the Parliament want to see open access to fibre networks and support the principle of functional separation of dominant firms. However, we fear that they have added to the Commission's proposals a toxic mix of conditions that will undermine national regulatory authorities' ability to open networks and lead to less competition in Europe's telecom markets."

Cable Europe reacted: "Whereas the proposals of the European Parliament are, overall, supportive of infrastructure based competition, cable is disappointed by today's vote in first reading on a measure that mandates all network owners to give third parties access to their ducts."

On Internet security, BSA, representing the software industry, commented: "Some of the amendments adopted today by the Parliament constitute a step forward in providing the much needed legal certainty that will support the deployment of robust and privacy-friendly security products," said Francisco Mingorance, BSA's senior director for public policy.

  • On the Parliament's rejection of the deal with the Council:

"This is a defeat for Nicolas Sarkozy, who can no longer ignore this majority position" when the French National Assembly debates the draft Hadopi law later this month, Daniel Cohn-Bendit, co-leader of the Greens  group in the European Parliament, said at the time.

Malcom Harbour, then a British MEP from the majority centre-right EPP-ED group in the Parliament, criticised the Socialists and Liberals for "manipulating the Parliament in an irresponsible way". "Socialist and Liberal MEPs are putting French politics ahead of the interests of European consumers and the European economy. The amendments they supported have nothing to do with investment or competition, which is at the core of this reform package." 

Viviane Reding, the EU's telecoms commissioner, called on the Council "to assess the situation very carefully, also in the light of the importance of the telecoms reform for the sector and for the recovery of our European economy".

"The Telecoms Council on 12 June should be used for a political discussion on whether agreement on the package is still possible or whether the discussion will have to start again with the new European Parliament in autumn," she said in a statement.

Dutch Liberal MEP Sophie in 't Veld (ALDE) commented: "I am very pleased that the Parliament did not bow to the attempt of the Council to use the back door to insert a rule restricting the access to the Internet. Access to the Internet is very important to a lot of people and only in extreme cases should people be expelled from this vital source of information. I am proud that the Liberals and Democrats have paved the way for a more reasonable approach in the fight against Internet piracy."

Swedish Leftist MEP Eva-Britt Svensson (GUE) said: "I am really happy that the activity focusing on citizens has been successful. It is an important partial victory for citizens' rights on the Internet. But a political debate around the idea that the Internet should be divided into pre-selections, decided by an Internet service provider, is still missing."

Monique Goyens, director-general of BEUC, the European consumers group, stated: "The rejection of the graduated response is an important signal sent to consumers by the European Parliament before the European elections."

Michael Bartholomew, director of ETNO, which represents the main EU telecoms operators, commented: "A blockage of the package is highly regrettable as it leads to additional uncertainty in a sector which is essential for the economic recovery and faces highly risky investment in high-speed broadband networks."

Ilsa Godlovitch, director of regulatory affairs at ECTA, which represents emerging European telecoms groups, said: "The vote in the European Parliament may delay adoption of the package, but it does not remove the need for firm and urgent action by regulators to make sure telecoms markets are competitive."

Timeline

  • 1987: Commission Green Paper on the development of a common market for telecommunications services. 
  • 1998: Deadline for telecoms liberalisation in all EU countries.
  • 2002: EU agrees need for new regulatory package.
  • 8-9 June 2006: Telecoms Council defines future challenges for the sector.
  • 29 June 2006: Commission opens consultation on the review of the telecoms sector.
  • 13 Nov. 2007: Commission presents telecoms 'package' of reforms (EURACTIV 14/11/07).
  • 24 Sep. 2008: European Parliament approves package at first reading after amending it significantly (EURACTIV 25/09/09).
  • 29 Apr. 2009: Parliament and Council seal landmark deal on the main issues of the telecoms package (EURACTIV 30/04/09).
  • 6 May 2009: In a surprise move, MEPs reject the agreement previously reached with the Council and propose a more rigorous text in defence of Internet users' rights (EURACTIV 7/05/09).
  • 12 June 2009: Telecoms ministers reject the Parliament's amendments and agree to start a conciliation procedure later in the year with an unpredictable outcome (EURACTIV 12/06/09).
  • By end of year: Possible final adoption of telecoms package.

Further Reading

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