European Union: E.U. Common Regulatory Framework For Electronic Communications Networks And Services

Last Updated: 29 June 2001
Article by Daniel Preiskel

How Should We Regulate The Convergence Between The Internet And Telecommunications?

This article examines the solution proposed by the European Commission in its '1999 Communications Review', which introduced the key elements of the EC's policy for a new regulatory framework to cover all communications infrastructure and associated services 1.

On 27 April 2000, the EC published a series of working documents2 on the results of a public consultation 3 on the 1999 Communications Review.

Subsequently, on 12 July 2000 the EC published a package of legislative proposals for the overhauling of the European electronic communications regulatory framework by 1 January 2002 4. This package is based on the working documents of 27 April 2000.

The package comprises of the following:

    1. five new harmonisation Directives which entails one framework Directive and four specific Directives;
    2. a Regulation on unbundled access to the local loop;
    3. a Directive on competition in the markets for electronic communications services; and
    4. a Decision on Community radio spectrum policy.

The relevant document in the context of the institutional tasks and rules for National Regulatory Authorities ("NRAs") is the "Proposal for a Directive on a common regulatory framework for electronic communications networks and services"5. This framework Directive sets forth general rules for a harmonised regulatory environment in the European Union ("EU") by defining the duties of NRAs, the management of radio spectrum and numbering resources and a new definition of significant market power. For the purposes of this memorandum I have analysed the framework Directives of 27 April 2000 ("April Working Document") 6 and 12 July 2000 ("July Legislative Proposal").

Consolidation Of The European NRAs

In the 1999 Communications Review, the EC criticised the current regulatory regime, inter alia, for the following reasons:

  1. insufficient independence of NRAs from political intervention;
  2. insufficient co-operation between NRAs and competition authorities;
  3. overlapping functions between different regulatory authorities within a Member State, leading to lack of clarity and delays in decision-making; and
  4. lack of true harmonisation of approach across the EU.

However, the EC concluded that at this stage the creation of a "European Regulatory Authority" is not necessary as it would not provide sufficient added value to justify the likely costs and would lead to duplication of responsibilities (1999 Communication Review Sections 2.5 and 4.8) 7. Hence, existing structures would have to be adapted and improved to address the above criticisms.

Furthermore, the EC proposed a new Communications Group to replace the existing ONP and Licensing committees and a new High Level Communications Group ("HLCG") consisting of individuals from the EC and NRAs 8. The aim of the HLCG would be to help improve the consistent application of Community legislation.

It was reported in the Financial Times on 7 June 2001, that telecoms regulators were planning to form a Pan European telecoms authority amid fears that multi-national companies are "picking off" national regulators through concerted lobbying campaigns. It states that the "super-regulator is likely to have a formal legal status under the umbrella of EU telecoms legislation". It also reports that national regulators and governments are opposed to this and would instead like to formalise an existing ad-hoc discussion group, the Independent Regulators Group ("IRG"). It is believed that at a recent IRG meeting in Dublin attended by Robert Verrue (Director General of the EC's information society directorate), it was agreed that such meetings should be given "a more formal status" and the IRG will aim to ensure that EU law on telecoms is applied in a more consistent way across the EU.) 9

Consolidation Of Different Regulatory Authorities Within A Member States

It was suggested that the April Working Document may require the consolidation of the different regulatory authorities within a Member State. For example, in the UK Oftel may have to consolidate with the Radio Spectrum Authority. This is because it was unclear from the April Working Document how the EC envisaged the apportionment of the NRA duties. Section 3(1) envisages that the duties of the NRA may be apportioned and more than one body can take the role of the NRA. However, Section 3(2) states that the "day to day supervision of the market set out in the measures in the working documents" should be undertaken by a single body" 10. Hence, there is debate as to what this "day to day supervision" entails and why the EC believes it should be assigned to a single body 11.

The July Legislative Proposal attempts to resolve this confusion. The provision of "day to day supervision" of markets by a single body is omitted and Article 3(4) reconfirms that the duties of the NRA may be assigned to more than one body. Additionally, unlike the April Working Document, the July Legislative Proposal expressly obliges Member States to ensure that there is no overlap between the tasks of those authorities. Hence, it can be assumed there is no requirement to consolidate NRAs within a Member State 12.

(It must also be noted that the April Working Document and July Legislative Proposals require Member States to publish the tasks of each body, publish the procedures for consultation and co-operation between those authorities and between those authorities and national authorities such as the competition body. Additionally, both documents require Member States to notify the EC of the tasks assigned to all NRAs under this Directive and Specific Measures and their respective responsibilities. Thus, these requirements indicate the apportionment of NRA duties to more than one body.)

Consultation And Transparency Mechanism

Section 6 of the April Working Document obliges NRAs to communicate "draft" decisions to the EC and other NRAs 13. The decision-making NRA must take comments of the EC and other NRAs into account and for this purpose and as a general rule has to postpone the adoption of the final decision for three month. The EC may refer the draft decision to the HLCG. If a detailed opinion is given by the EC or another NRA then the final decision will be postponed for six months. If the EC announces its intention to propose or adopt Specific Measures to harmonise regulatory practice, the final decision can be postponed for up to twelve months.

This provision has caused great concern to NRAs and Member States because the proposed procedure has the potential of creating considerable delays at a time when the industry needs a fast decision-making body 14. Additionally, the scope of this provision appears to apply to all decisions made by NRAs, including national determinations. National determinations may not require the need of a harmonised European solution and hence, long delays in such instances will be to the detriment of consumers. Furthermore, it must be pointed out that the NRAs are reluctant to surrender their decision-making autonomy to other bodies such as other NRAs and the HLCG. In effect, the April Working Document allows the EC to have the final say on NRA decisions as NRAs would have to seek permission from the EC in advance of adopting the decision.

The July Legislative Proposal has attempted to resolve the concerns mentioned above 15. Article 6 of the July Legislative Proposal states that where NRAs intend to take measures (regarding the management of radio spectrum or market analysis or on access to and interconnection of electronic communications networks and associated facilities), it shall communicate the draft measure to the EC and other NRAs together with a reasoning on which the measure is based. Other NRAs may make comments within a "reasonable period" and the decision-making NRA shall take "utmost account" of the comments and communicate the resulting draft measure to the EC without delay. The measure will take effect one month after the date of communication to the EC unless the EC notifies the decision-making NRA that it has "serious doubts" as to the compatibility of the measure with Community law. In such instances, the measure will not take effect for a further two months in which the EC will take a final decision and if necessary, require the decision-making NRA to amend or withdraw the draft measure. Additionally, in exceptional circumstances measures may be adopted immediately, however the EC will verify the compatibility of the measure with Community law and amend or abolish the measure if necessary.

Thus, the July Legislative Proposal requires the NRAs to provide an explanation (for example, communicate the draft measure together with the reasoning on which it is based) of their decision rather than seek permission in advance to adopt the decision (as required by the April Working Document) 16. This preserves to some degree the ability to make independent decisions for the NRAs. Nonetheless, it must be stressed that the final decision with regard to the adoption of the draft measure (concerning this Directive or the Specific Measures) lies with the EC. It also significantly reduces the potential of long delays as proposed in the April Working Document. For instance, the adoption of the measures are subject to time periods of one month or three months only. Additionally, in exceptional circumstances the measures may be adopted immediately. Furthermore, the scope of this provision is limited to measures concerning this Directive or the Specific Measures. Hence, they do not apply to all NRA decisions as proposed in the April Working Document. However, it must be pointed out that where this provision does not apply there is a risk that NRAs may act in a manner which diverges from common practice in other Member States, thus preventing the greater harmonisation which the new framework seeks to promote.

Significant Market Power ("SMP") And Market Analysis Procedure

  1. SMP
  2. The April Working Document and July Legislative Proposal (Section 13 and Article 13 respectively) redefine what constitutes a SMP 17. Currently, SMP is not based on strict economic analysis but is defined as a 25% share of a market or less than 25% taking into account other competition factors such as barriers to entry, market share and number of competitors. The new proposals redefine SMP on the basis of the competition law concept of dominance. An undertaking will be deemed to have significant market power if, either individually or jointly with others as a result of economic interdependence between them, it enjoys a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers.

  3. Market Analysis Procedure

Section 14 of the April Working Document envisages that the EC in consultation with the HLCG would publish a "Notice" identifying relevant product and services markets as set out in the measures of the working documents justifying ex ante regulatory obligations 18. Only in these markets would the NRAs impose ex ante regulations without prior agreement with the EC. The NRA would have to carry out the market analysis within 2 months. If the NRA determined that the relevant market was competitive then no regulations would be imposed and existing regulations would have to be removed subject to consumer protection and public policy. Additionally, the NRA would have to publish the proposed decision together with its reasoning in accordance with the Consultation and Transparency Mechanism in Section 6. If the NRA determined that there is no effective competition then the NRA has to publish its analysis with proposed obligations and their justification. At the same time the NRA has to notify the EC in accordance with the Consultation and Transparency Mechanism in Section 6.

The Member States and NRAs have been very reluctant to adopt this provision because it is regarded as over-prescriptive and imposes excessive centralisation. It is also argued that NRAs have the local knowledge and expertise to determine the relevant markets rather than the EC and that the EC should merely provide 'indicative' lists 19.

The July Legislative Proposal attempts to address the above concerns of the NRAs and Member States 20. Article 14 states that after consultation with the NRAs via the HLCG, the EC will issue a "Decision" on relevant product and service markets which justify the imposition of regulatory obligations set out in the Specific Measures. The EC shall also publish "Guidelines" on market analysis and calculation of SMP. The markets identified may also include trans-national markets and in such markets NRAs concerned shall jointly conduct the market analysis. NRAs will need prior agreement of the EC if it seeks to use a different market definition or before imposing sector-specific regulatory obligations on markets other than those identified in the Decision. Within two months of the Decision being adopted the NRAs are obliged to carry out an analysis of the identified market. Additionally, unlike the April Working Document, the July Legislative Proposal expressly states that national competition authorities should also be fully associated with the market analysis.

If the NRA determines that the relevant market is competitive then no regulations are imposed and existing regulations would be removed. If the NRA determines that there is no effective competition then the NRA would impose the sector-specific regulatory obligations set out in the Specific Measures or maintain such obligations where they already exist. Additionally, all measures pursuant to the above shall be subject to the Consultation and Transparency Mechanism in Article 6.

The July Legislative Proposal is still prescriptive and centralised. Nonetheless, it does give NRAs the flexibility to use a different market definition and analyse other markets (not in the Decision) with prior agreement of the EC and hence, it does make allowances for local knowledge and expertise of NRAs in these instances. It must be noted the Consultation and Transparency procedure in the July Legislative Proposal is more clear and coherent. The NRAs have to publish the analysis of each market and determine whether the market is competitive or not in accordance with the Consultation and Transparency Mechanism in Article 6. The April Working Document Directive requires NRAs to publish its proposed decision (and the market analysis if there is no effective competition) with reasoning and notify the EC in accordance with the Consultation and Transparency Mechanism in Section 6.

HLCG 21

The HLCG is established by the framework Directive. Its status and role is covered in Article 21 of the July Legislative Proposal. It is independent of other bodies and has been set up as an advisory group. The group is composed of members from NRAs and the EC. Some tasks of this body will be carried out by expert groups. The group is to inform the EC of any divergences between the laws and practices of the Member States and the Community and gives opinions and recommendations to the EC. There has been debate as to the extent this "advisory" body will undermine the role of NRAs, especially as it will be consulted in instances such as market definition analysis.

Conclusion

The framework Directive attempts to ensure that the NRAs do not unnecessarily interfere in competitive markets. Thus, the NRAs can only regulate markets listed by the EC and when competition becomes effective, regulation must be withdrawn. The new framework also seeks to increase the power of the EC. For example, the EC shall identify which markets may need regulation and makes the final decision with regard to the adoption of the draft measures. It can be argued that this amounts to a centralisation of decision-making in the EC's hands which is comparable to the introduction of a European Regulatory Authority.

Footnotes

1 Communication form the Commission, 'The 1999 Communications Review - Towards a new framework for Electronic Communications infrastructure and associated services' COM (1999) 539, 10 November 1999 (hereinafter 'The 1999 Communications Review').

2 EC (DG) Working Documents can be accessed at http://www.europa.eu.int/ISPO/infosoc/telecompolicy/review99.

3 Communication form the Commission, 'The results of the public consultation on the 1999 Communications Review and Orientations for the new Regulatory Framework' COM (2000) 239 final, 26 April 2000.

4 EC Legislative Proposals can be accessed at http://www.europa.eu.int/ISPO/infosoc/telecompolicy/review99.

5 'Proposal for a Directive of the European Parliament and the Council on a common regulatory framework for electronic communications networks and services' COM (2000) 393 final, 12 July 2000 (hereinafter 'July Legislative Proposal').

6 DG Information Society Working Document - 'A common regulatory framework for electronic communications networks and services' - INFO A/1, ONLPIC00-02, 27 April 2000 (hereinafter 'April Working Document').

7 The 1999 Communications Review, p.8 & p.51

8 The 1999 Communications Review, p.51

9 Financial Times online article entitled 'EU telecoms regulators united for tougher line' by Dan Roberts, June 7, 2001

10 April Working Document, p.6

11 'An Initial Response from the UK from the Department of Trade and Industry, Department of Culture, Media and Sport, the Office of Telecommunications and Radio-communications Agency' 2000 (hereinafter 'The UK Government Response). Available at http://www.oftel.org.uk/indinfo/international.

12 July Legislative Proposal, p.15

13 April Working Document, p.8

14 'Independent Regulators Group Common Position on Commission Working Documents Dated 27 April 2000' (hereinafter 'IRG Document') Annex A, Section A, Problem 1. Available at http://www. oftel.org.uk; Legal article published in CTLR (2000) Issue 7, p.180-186 entitled 'Telecommunications: Towards a new EU regulatory framework for electronic communications' by Dr Martin Brodey; and The UK Government Response, section 6.

15 July Legislative Proposal, p.17

16 Ovum Consulting website article entitled 'EU telecoms regulation- a step too far?', May 16, 2001.
Available at http://www.ovum.com.

17 April Working Document, p. 12 and July Legislative Proposal, p.22, respectively.

18 April Working Document, p.13

19 IRG Document, Annex A, section A, Problem 10 and The UK Government Response, section 14.

20 July Legislative Proposal, p.23

21 The Communications Review, p.51 and July Legislative Proposal, p.27.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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