DCMS consultation on the European Commission proposal for a directive establishing the European Electronic Communications Code (EECC)

ukcta_publicPolicy papers

UKCTA: 30th November 2016

1. UKCTA welcomes this opportunity to comment on DCMS’ consultation on the European Commission’s (“EC”) review of the regulatory framework for the telecommunications industry. We believe it is important that we now bring up to date the set of directives commonly known as the “telecom package” to deal with the significant changes which have taken place in the digital market since the directives were last updated. That process of change has been constant and is likely to remain so.

2. The views expressed in this response do not necessarily reflect those of Vodafone, which will be making its own submission.

3. UKCTA generally welcomes any initiative which aims to bring further harmonisation (where appropriate to do so taking into account differences in national market characteristics) and legal certainty. The aim of reducing the administrative burden at EU and national levels is also to be welcomed. The issue of continued common regulation is one of the key concerns for our sector in the wake of the UK referendum on EU membership. Electronic communications is an area in which the UK has been a leading voice in terms of developing regulation and we believe it is important that the UK continues to contribute in this key area of the economy. The possibility of a clash of timing between the implementation of the revised telecoms package and the end of the article 50 process is of great concern to UKCTA members who would prefer to see a pan European, harmonised, approach to regulation.

4. It is not clear to us what the UK’s role will be in future in relation to cross border regulation and participation in BEREC. Nevertheless, we are not in favour of the creation of a pan EU super regulator. We believe that NRAs are best placed to implement pan EU regulation on a national basis and that the creation of a super regulator would simply favour the very largest players such as BT, Deutsche Telekom and France Telekom at the expense of smaller, newer market entrants. Indeed, any such move would simply fuel the concerns about centralisation and loss of sovereignty which helped persuade voters in the UK to vote to leave the EU. It would be unfortunate if such perceptions and concerns were confirmed by moves to transfer responsibilities from NRAs to BEREC.

5. That having been said, UCKTA members do support harmonisation of regulation (where appropriate), if not of regulators. The market conditions can vary hugely between member states, NRAs are best placed to take into account national variations in their member state. Therefore it is important to ensure that while harmonising wherever possible, regulation takes account of existing differences in market conditions in the individual member states. In addition to bringing further harmonisation, we believe that the proposed code (EECC) should have as its priorities the encouragement of investment and innovation, the protection of consumers through the promotion of competition. It is particularly important that regulation recognises that the promotion of competition is as important in the high-end business services market as it is in the domestic consumer market.

6. Although we are unable properly to assess the draft code at this early stage, we aim in t6his response to provide an initial overview of our position.

Overarching principles

7. Harmonisation and consistency: it is of key importance that the EECC delivers the greatest suitable level of harmonisation and ensures that regulation is applied consistently across all EU member states whilst also taking account of the different characteristics of the market in member states.

Market regulation: The existing ex-ante regulatory approach based on general competition law principles, where regulation is only imposed when necessary and proportionate has proven effective and should be maintained in the EECC.

9. Light-touch horizontal regulation: Given today’s digital market dynamics and increased cross-sectoral competition we should shift away from sector-specific regulation towards generic horizontal regulation, and only apply sector specific regulation where absolutely necessary.

The need of business customers: The EECC should recognize the distinction between consumer services and business services (particularly large). These are often quite distinct and the regulatory remedies required can be markedly different.

The EECC – Part I: Framework

11. New definitions for Services: The introduction of the three “categories” of services falling under the electronic communication networks and services (ECS) definition together with the clear distinction between the network and the services layer should, in principle, allow for a more granular and proportionate approach to regulation. Whilst we welcome the intent, we believe this requires further fine-tuning to ensure a lighter approach where relevant. This also applies to “services consisting wholly or mainly of the conveyance of signals” (such as M2M) where the need for sector specific regulation has not been demonstrated.

12. Objectives: We support the 4 objectives outlined by the code as the revised package should encourage investment and innovation, protect consumers, and promote competition. To that effect, we welcome the introduction and recognition of the importance of high capacity networks. Nonetheless while the new objective to promote access to and take-up of very high capacity data connectivity is commendable, care should be taken to ensure it does not interfere with the other objectives and in particular the promotion of competition in the context of “SMP” (Significant Market Power) regulation.

13. Harmonisation: Although we welcome attempts by the EC to introduce further harmonisation we are concerned that the proposals do not take sufficient account of the differing market characteristics which exist in each Member State. Markets are structured differently across the EU and it is important to recognise that while harmonisation is, in general, a good thing, different market characteristics can make it difficult if not impossible to devise a one size fits all approach in every policy area. For example, mobile telephony is not provided on the same model in all member states, therefore proposing a solution for early termination charges which works in one country might be totally inappropriate in others. Article 98 (4) of the proposed code sets out two possible models for early termination charges, neither of which fits the way that such charges currently operate in the UK (where such charges are already regulated by other regulations).

Authorisations: The code should also aim to promote the cross-border provisioning of services by facilitating cross-border selling and contracting for example though a European passport. Once notified in one MS, a provider should be able to sell in all other EU jurisdictions. As mentioned previously with regards to the definition of services, new and emerging services such as M2M services should not be in scope and therefore not require an authorisation.

The EECC – Part II: Networks

15. Market analysis and SMP: We support the fact that the proposed code largely maintains the existing approaches to market analysis and SMP designation and the use of EU competition policy principles. The proposal to move to a 5 year cycle of market reviews while superficially attractive to industry and NRAs alike, does bring risks and we believe there is a need for care in the implementation of this proposal. NRAS can and do get things wrong, a longer review cycle means that errors will take longer to correct. Also, while 5 years may be fine for more mature parts of the market, in newer, emerging areas this may be too long. The optimum frequency of market reviews will depend very much on the characteristics of the particular market. In a mature and stable market five yearly reviews might well be appropriate whereas in an emerging, fast moving market a shorter review cycle could be justified. NRAs, perhaps by way of the recommendation on ex-ante markets, or through BEREC harmonisation, should have the discretion to apply a market review of between 3 and 5 years depending on the circumstances prevailing at the time in that market in that member state.

16. Transnational demand: We welcome the introduction of an analysis of transnational end-user demand and the ability of BEREC and EC to respectively adopt Guidelines and harmonised technical specifications for certain wholesale access products to meet the demand for cross-border communications.

Relaxation of Remedies: As said previously care should be taken to ensure that the “access to and take-up of very high capacity data connectivity” objective does not interfere with the promotion of competition in the context of SMP regulation. In this respect, we question the newly introduced approaches to co-investment (as it may exclude non-participants from access to these new networks) and wholesale-only SMP networks (as no price regulation may well lead to excessive pricing). In this area, the proposal seems to be to move away from classic competition law theories. We would have expected to see more of a focus on for example joint dominance. The proposals appear to us to be trying to shoehorn lessons from other sectors into the communications sector – we are not convinced that this is the answer.

Rather than pre-judging what co investment models are “good” the Commission ought to leave these questions open to be decided by NRAs. Models such as co-investment may be pro-competitive in some cases but this cannot be presumed to be true in all cases. Instead, NRAs should assess each commercial model or market development on a case-by-case basis, looking solely on effects on competition. By being more prescriptive about how certain business models or market structures should be treated, the proposed Code may limit NRAs’ ability to assess the market.

19. This may result in NRAs being pre-disposed to entrenching incumbents’ control over investment and access rather than competition (something which would be to the detriment of customers). It should not be for the regulatory regime to distort the market by promoting certain business models and market structures over others.

The EECC – Part III: Services

20. Scope: As mentioned under Part I, we believe that in principle there should be a more granular, proportionate and lighter approach to regulation. Indeed, more needs to be done to ensure that this is the case in practice. Sector-specific regulation of “services consisting wholly or mainly of the conveyance of signals” (such as M2M) is not needed. The Code should also clearly differentiate between end users as “consumers and micro and small enterprises” and enterprise users that don’t require the same level of protection as the former category.

21. Universal service: We have found it difficult to work out what these proposals are trying to achieve. The approach seems good but we lack the necessary detail to reach a definitive conclusion. The inclusion of a list of services is a much more nuanced approach than we have seen in the past and makes sense, it is certainly a more meaningful way to communicate the requirements than using a blunt measure d=such as download speeds.

22. Consumer rights: While we welcome the new provisions calling for maximum harmonisation for end-user protection provisions, the proposal still leaves scope for inconsistency across the EU. This is of key importance not only for pan-European players but also for the establishment of a true EU single market. Although the EECC includes some tentative proposals to explicitly exclude enterprise services from consumer protection obligations (e.g. elements of contract information requirements), we do not understand why this principle is not consistently reflected throughout the services section. Indeed, the text jumps inconsistently from “consumer” to “end-user” without clear justification. This reflects a confusion and muddled thinking seen in UK national regulation and we would hope that clarity of thinking at the EU level could eliminate such deficiencies at national level.

23. We question whether the framework should continue to include outdated voice telephony provisions (e.g. directory and CLI) regardless of the evolution of technology, business models and practices.

24. The draft EECC reflects a positive intent towards delivering a more targeted, proportionate and lighter touch regime. It is difficult to reach definitive views on the proposals at this stage. We are certain though that it is vital that the UK continue to participate in these discussions and that the UK adopts a regulatory regime which is as consistent as possible, if not identical to, the regime which applies throughout the rest of the EU. Harmonisation though does have its limits and the desire to harmonise should be tempered by a recognition that different national market characteristics can mean that it is not always appropriate to harmonise every aspect of regulation, one size does not always fit all.

25. Nevertheless, industry typically has no wish to see the UK either left behind with an outdated regulatory regime, nor to branch off in a totally different direction from the rest of Europe.

26. While the code introduces the welcome and commendable industrial policy objective to promote access to and take-up of very high capacity data connectivity, we believe that this is best delivered by the promotion of competition in the context of SMP regulation. The regulatory regime should not pre-judge what competitive outcomes a particular investment model will have.

27. As a principle, the Digital Single Market should move towards horizontal rather than sector-specific regulation that reflects market dynamics and the need for a flexible, technology-neutral and future-proof framework.

For services, where necessary, the framework should aim to promote a lighter touch horizontal regulatory regime for all market