The European Electronic Communications Regulation and Markets 11 th Report Frequently Asked Questions

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1 MEMO/06/84 Brussels, 20 February 2006 The European Electronic Communications Regulation and Markets 11 th Report Frequently Asked Questions What is the EU regulatory framework for electronic communications? The EU regulatory framework for electronic communications came into force in 2002 and consists of five Directives: Framework Directive: outlines the general principles, objectives and procedures; Authorisation Directive: replaces individual licences by general authorisations to provide communications services; Access and Interconnection Directive: sets out rules for a multi-carrier marketplace, ensuring access to networks & services, interoperability, and so on; Universal Service Directive: guarantees basic rights for consumers and minimum levels of availability and affordability; e-privacy or Data Protection Directive: covers protection of privacy and personal data communicated over public networks. What are the regulatory principles of the EU regulatory framework for electronic communications? The liberalisation of telecommunications, completed in 1998, was considered a notable success. Opening up formerly monopolistic markets led to dramatically lowered prices and improved services for both consumers and business, boosting Europe s communications industry and creating economic growth. Continuous technological innovation, however, overtook the telecoms regulatory regime. Digitisation now allows many kinds of content to be delivered over different networks. The Internet has become a global infrastructure for a range of electronic communications services. Information and communications technologies are converging, opening up considerable possibilities for new industries and services. The EU regulatory framework for electronic communications tackles this technological convergence and extends and adapts the benefits of liberalisation to electronic communications in general. Based on the experience of telecoms liberalisation, policy makers believe that extending competition and ensuring opportunity and reward for innovative companies is the key to promoting technological advance. So why regulate? Why not let market forces alone generate growth in the e-communications sector? The difficulty is that Europe s telecommunications industry originated, in most cases, in state-run monopolies, leaving a legacy of imperfect competitive conditions.

2 Continued regulation is therefore essential for as long as market players have significant market power, to ensure a level playing field for new market entrants. Another reason is that market forces alone may lead to the exclusion of some social groups from essential public services. The new regulatory system therefore recognises a universal service obligation to ensure basic services at affordable prices to all in cases where the market alone does not provide. There are therefore a number of key principles underlying the Directives of the EU regulatory framework for electronic communications: cutting red tape: a general authorisation procedure for operators to enter new markets replaces individual licences. This drastically cuts red tape for enterprises, which no longer face frustrating delays as national regulators check compliance with licence conditions. light regulation: the framework builds upon general concepts of competition law, as applied to normally functioning markets. Regulation is seen as essentially a temporary phenomenon, required to make the transition from the formerly monopolistic telecommunications industry to a fully functioning market system. To develop in the short term, new market entrants need regulatory support to gain access to the networks of incumbent operators and to provide the benefits to end users which the market would offer if it were effectively competitive. However, as the sector evolves, operators will increasingly build their own infrastructures and compete more effectively. As normal market conditions develop, regulation can be rolled back, and competition law, as applied to industry in general, will replace sector-specific intervention. technology neutrality: regulation now refers to "electronic communications - not telecommunications". The same principles now apply regardless of which kind of existing or potentially new technology is involved. This technology neutrality is essential to provide the necessary flexibility to deal with emerging technologies and their convergence in fields such as media, internet and mobile communications. consistency across the European market: operators need to be assured that their investments can be planned in a stable regulatory environment, consistent and predictable throughout the EU s single market. Such a regime allows companies to operate on a scale which only a Europe-wide market can provide. The regulatory framework establishes new processes permitting collaboration among the national regulatory authorities of the Member States and between national authorities and the Commission. This extensive collaboration plays a key role in achieving the necessary coherence within the regulatory process at European level. In key areas, each national regulatory authority submits its draft national measures to the Commission and to other national authorities for consideration, and discusses common approaches in the European Regulator s Group, established by the Commission in In this way, a consistent approach is developed throughout the single market while permitting maximum flexibility to deal with national markets and conditions. What s different in the 11 th report? This is the second time that the report covers 25 Member States. This year s Communication and Commission staff working document focuses more on developments in the market that have been brought about with the implementation of the electronic communications framework. It also reflects the fact that some Member States have virtually completed the legislative and regulatory process ensuring implementation of the framework, while the remainder have made substantial progress. 2

3 What have been the main market developments? The telecommunications sector is moving through a transitional phase driven by competition and technological change. On the one hand, overall revenues from traditional services have either declined or growth has slowed as markets mature. On the other hand, competitive forces and technological changes are opening new opportunities for growth based on convergence between high speed broadband networks, audiovisual media and electronic devices. With these opportunities come new challenges as players face the prospect of enhanced competition from new players and platforms. Already it is clear that operators are investing to meet these challenges and be winners in this converged environment. These developments derive from a regulatory framework which has opened markets to competition and delivered significant consumer benefits, innovation and investment. In the field of broadband, take-up has grown rapidly to nearly 53 million lines, a rise of almost 20 million during More providers are in the market, with prices falling as transmission speeds increase. New entrants now have a combined market share of almost 50%, although many rely on incumbents networks to provide services. There is a significant move to unbundled local loops, with increased service quality and differentiation. In mobile, while take-up continues to increase, in particular in the new Member States, there are signs that the voice market is maturing. Revenues have, however, continued to grow at an estimated 5.9%. Prices for international roaming nonetheless remain high. 3G voice and content services are now rolling out with around 15 million subscribers. Revenues in traditional voice services continue to decline gradually, but remain the largest source of revenue to players in the fixed market. Consumers continue to benefit from falling call prices as more players enter the market. Voice over IP (VoIP) is challenging further the market position of entrenched players. It remains to be seen to what extent the challenge is compounded by services provided by internet software and search companies. What has led to the rapid take-up of broadband? There was a significant increase in broadband take-up in 2005, with average EU penetration (lines per 100 population) reaching 11.5% in October compared to 7.4% in October 2004 (with average EU 15 penetration up from 8.4% to 13% over the same period). This equates to over 52,000 new broadband lines per day across the EU. The total number of fixed broadband lines in the EU now stands at almost 53 million. Revenues from fixed data services have increased considerably (8.3%) This indicates that the consumer is benefiting from lower broadband prices as volumes grow. New entrants have a combined market share of almost 50%, although many still rely on incumbents networks to provide services. But there has been a significant move to unbundled local loops, with increased service quality and differentiation. Consumers are clearly benefiting from lower prices and higher speeds and a variety of broadband offers due to increasing competition in this market. New services (including triple play (voice, broadband, TV) and quadruple play (voice, mobile, broadband and TV) offerings), in turn are also expected to boost consumer demand and contribute to the current migration from dial-up to broadband. 3

4 Has mobile penetration continued to grow? The average EU penetration of mobile services reached 92.8% in October 2005 with faster growth being achieved in the EU 10. Three of the new Member States have exceeded the notional 100% mark for the first time. The number of service providers has grown from 166 in 2004 to 214 last year with 79 2G network operators in the EU. Penetration tends to be highest in the countries with a greater number of service providers. What about 3G? By September 2005, it was estimated that there were around 15 million subscribers to 3G services in the EU, which is a considerable increase over the previous year. There are now 58 operators offering commercial services including internet access, content services including news and sports highlights, video telephony and downloads. Roaming prices still remain high. What does the report state in this regard? The report acknowledges the problem of high prices for international roaming. A website was launched by the Commission and is providing a lead on consumer transparency in this area, while regulators are taking their own initiatives at national level under the aegis of the European Regulators Group. In terms of regulation, until the end of 2005, only one NRA, that in Finland, had analysed the relevant market in accordance with the regulatory framework, and has not found dominance in this market. The Commissioner has also announced determined action, through work an on EU regulation on international roaming charges which the European Commission could propose to the European Parliament and to the Council before the summer break. More details on the new Regulation will be announced in April, in parallel with the updated version of the website. What have been the benefits of regulation in the field of mobile telephony? Prices for calls by users of fixed networks to mobile subscribers still remain high, at eight to ten times the level for calls to other fixed network subscribers. However, there has been a downward movement in mobile termination rates. Regulators have intervened to bring termination rates down further in Most national regulatory authorities (NRAs) have set a period ( glide path ) for bringing rates down to a costoriented level. Mobile number portability has been an important tool for stimulating competition and has doubled during the year. Overall, 25.1 million numbers have been retained by customers who changed their operator in the EU. What is the situation as to fixed telephony? Despite the fact that reveules in traditonal fixed voice are falling by 1.6% a year, this remains an attractive market for new entrants since it remains the largest source of revenue for fixed operators, with a value in 2005 of 85.8 billion. The influx of players into the market has led to a further fall in incumbents market share. However, the rate of growth of subscribers using alternative operators has begun to slow and this is possibly the result of win-back campaigns by incumbent operators and also by the increasing attractiveness of bundles of services such as voice, internet and television. 4

5 What about network competition? Direct access competition is still relatively weak in Europe. Only 8.3% of subscribers (for EU 20) are using direct access from a new entrant player. In this case direct access means that the alternative operator provides the voice services over a line forming part of its own network to the customer. This could be a cable line, an unbundled line or some other means of access as wireless. The fact that only 8.3% of subscribers use direct access reflects the incumbent players continuing dominance of the local access market. The relatively high percentage of subscribers using alternative operators for direct access in countries such as Denmark and the United Kingdom is based on access by cable. In some countries, direct access is based on unbundled local loops. It is interesting to note that the percentage of subscribers using alternative operators for direct access is high in countries with low interconnection rates, e.g. Denmark and the United Kingdom. This suggests that low rates are not having an adverse effect on infrastructure rollout. What have been the main developments in the regulatory environment? Transposition of the 2002 framework has now been substantially achieved across the EU 25. (Greece adopted transposition measures in January). In view of the importance of timely transposition, the Commission had taken legal proceedings against those Member States who were furthest behind in transposing the framework rules into their national laws. This resulted in judgments of the Court of Justice against Belgium, France, Luxembourg and Greece. Primary legislation has now been adopted in all Member States. In some Member States (such as Belgium, Estonia, France, Latvia and Poland) secondary legislation is still needed to give full effect to the framework. The Commission will continue to maintain pressure on the Member States concerned to fill these legislative gaps as soon as possible. What are the conclusions drawn from the report in the regulatory field? National regulatory authorities bear the major responsibility for ensuring that the objectives enshrined in the framework provide the tools to ensure that regulation is applied consistently across Europe and that competitive conditions are only constrained by ex ante regulation in markets where competition is not effective. The regulatory structures and processes envisaged by the framework are being progressively put in place across the European Union and are providing the backdrop for increased competition, lower prices and greater choice and quality for end-users. However, while the European regulatory landscape is shaped by common objectives and a common purpose, it finds itself at different stages of development in different Member States. What s the good news for consumers? The interests of consumers of electronic communications services, in particular in the shape of greater choice, lower prices and higher quality, lie at the heart of the EU framework. For example, number portability has had a considerable impact on the market. Until 2005, 24.5 million mobile customers had opted to retain their number while changing their service provider. Its effect has been two-fold: not only does it help in enhancing competition, but it also is an instrument which facilitates consumer choice. 5

6 More telephone users want to have ready access to a directory and a directory enquiry service which covers all subscribers (including fixed and mobile) who have not chosen to keep their numbers private. Given the growing number of subscribers who are choosing only to own a mobile phone, it is increasingly likely that mobile subscribers will want the option to have their mobile numbers included in a directory database. The exceptionally high listing of mobile numbers in the Scandinavian countries demonstrates that the inclusion of mobile numbers has become a normal part of how people can reach each other. The EU framework includes an obligation on operators to inform customers of their right to include all their details in a directory. Mobile subscribers must therefore be offered the opportunity to opt-in to a directory. Therefore and as a follow-up to its statements in the 10 th Implementation Report on this issue, the Commission launched infringement proceedings against the Czech Republic, Greece, France, Cyprus, Latvia, Lithuania, Malta, Poland, Portugal, Slovakia and the United Kingdom for failing to ensure the provision of at least one comprehensive directory and/or at least one comprehensive directory enquiry service including the numbers of all fixed and mobile subscribers who have not chosen to exclude their numbers. In the meantime the situation was remedied in Lithuania and the Commission was able to close the case. What about emergency services? 112, the single European emergency number, can now be called free of charge from any telephone, fixed or mobile, in all Member States. Nevertheless, Member States are invited to explore ways of increasing the efficiency of their call centres, in particular by making use of caller location information from both fixed and mobile phones as well as to increase their efforts in promoting citizens awareness of 112. What has been done for users with special social needs? The i2010 vision of an inclusive information society is encapsulated in the objectives set for national regulatory authorities in the framework and the service that people with special social needs can expect as part of the universal service. Despite the fact that action is encouraged, rather than mandated, users with disabilities have access to affordable telephone services e.g. accessibility of public pay phones for wheelchair users, hard-of-hearing (by using amplification systems) and sight impaired (by installing a keyboard with a raised dot 5). Nevertheless, more can be done to ensure that users with disabilities have access to emergency services, that enquiry services across Europe can be accessed through relay services and that directories are available throughout Europe in Braille. Are EU electronic communications markets ever deregulated? Yes. Sector-specific regulation can be gradually dismantled as and when markets become competitive. Thereafter, commercial behaviour in the marketplace will be constrained by competition law, just as in other sectors. Article 7 of the Electronic Communications Framework Directive (2002/21/EC), requires national regulatory authorities to analyse their national markets and to propose appropriate regulatory measures to address market failures. Their findings and proposed remedies must be notified to the Commission and other national authorities. 6

7 The Commission has established a list of 18 markets for electronic communications (e.g. local and national calls), as a starting point for analysis by national regulators. These markets are listed in the Commission Recommendation on relevant product and service markets susceptible to ex ante regulation ( The latest state of play on these 18 markets is summarized in the table below. 7

8 1 2 A T B E C Y C Z D K E E Competition / Regulation Overview of notifications assessed until 13/12/2006 E F F D E H IR I L L L M S I R E L U L T T U V T N L P L P T S E S I S K U K + Effective competition -no ex ante regulation No effective competition - ex ante regulation Partial competition - partial ex ante regulation Electronic communications markets 1 Access to the public telephone network at a fixed location for residential customers 2 Access to the public telephone network at a fixed location for non-residential customers 3 Publicly available local and/or national telephone services provided at a fixed location for residential customers 4 Publicly available international telephone services provided at a fixed location for residential customers 5 Publicly available local and/or national telephone services provided at a fixed location for non-residential customers 6 Publicly available international telephone services provided at a fixed location for nonresidential customers 7 The minimum set of leased lines 8 Call origination on the public telephone network provided at a fixed location 9 Call termination on individual public telephone network provided at a fixed location 10 Transit services in the fixed public telephone network 11 Wholesale unbundled access (including shared access) 12 Wholesale broadband access 13 Wholesale terminating segments of leased lines 14 Wholesale trunk segments of leased lines 15 Access and call origination on public mobile telephone networks 16 Voice call termination on individual mobile networks 17 The wholesale national market for international roaming on public mobile networks 18 Broadcasting transmission services, to deliver broadcast content to end users The report can be consulted at : 8

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