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Agreement on EU Telecoms Reform Nears Finalisation

November 2009

In the early hours of 5th November 2009 an agreement was reached between the European Parliament and the Council of Ministers which paves the way for finalisation of a package of measures aimed at reforming telecoms regulation in the European Union, more than 3 years after the process first started.

The package had previously been held up by a single issue – the degree to which Member States should be required to go through a judicial process before restricting internet-access because of an allegation of copyright infringement. Disagreement about this issue has delayed the process by 6 months and at one point looked like ending it altogether.

Following final votes in Parliament and Council in November, these reforms could are now likely to come into force in early 2010. Member States will then have 18 months to incorporate the new provisions into their national legislation.

The following text, based on an (updated) extract from Chapter 1 of the Communications Law Handbook[i], summarises the key changes which the reform package will now introduce:

Key Reforms

Spectrum. Measures to introduce greater spectrum liberalisation and harmonisation based on the principles of technology and service neutrality, market-led authorisations and secondary trading may well turn out to be the most significant of all the reforms to be made. Harmonisation of spectrum seems likely to facilitate the creation of more cross-border pan-European telecoms services, and the principles of technology and services neutrality are intended to ensure that the market, rather than regulatory pressure, determines the most appropriate use of spectrum. The reforms in this area will bring a much stronger emphasis on flexibility in spectrum use, allowing operators to introduce innovative technologies and services quickly. The commission claims that this has the potential to generate an estimated additional 0.1% of GDP per annum, and that the new flexibility will in particular allow maximised use of the "digital dividend", the radio spectrum freed as a result of the switchover from analogue to digital TV[ii].

Boosting 3G mobile services: As part of the reform package a new GSM Directive was adopted on 16th October 2009[iii] for implementation within 6 months. The new Directive allows any service, starting with 3G and extending later to other new technologies, to operate in the GSM band which is currently reserved exclusively for GSM services. This will, the Commission says, lead to industry savings estimated at € 1.6 billion in capital costs for a single Europe-wide network, and enable faster roll-out of full 3G coverage. This will boost the take up of 3G in the EU, from the existing 3G customer base which was estimated at over 90 million in December 2008. 3G penetration rates are currently the highest in Italy, Austria, Sweden and the United Kingdom where they exceed 20% of the total subscribers.

Privacy and security breaches. Providers of publically available electronic communications services are now required, under a new provision, to notify their National Regulatory Authority (NRAs) and, in some circumstances also any affected users of any breaches in personal data security. This is a potentially significant change which will apply to any telecoms operator or internet service provider and it has attracted some considerable attention. It is worth noting, thought, that this new requirement is much less wide than similar laws applicable in certain of the states in the USA (eg California) which require public notification of security breaches for a much wider range of businesses. A proposal to extend the notification requirement to any providers of “information society services” (including online banks, online retailers and online pharmacies) was rejected. Member States should give data protection authorities power to set detailed rules and issue detailed instructions concerning the circumstances where notification is required. Other changes in this area will impose more general obligations on network providers to ensure that personal data can be accessed only by authorised personnel for legally authorised purposes, to protect personal data against accidental or unlawful destruction, alteration or processing and to implement a security policy with respect to the processing of personal data.

Citizens’ rights. Following long negotiations on this point, the new telecoms rules now explicitly state that any measures taken by Member States regarding access to or use of services (such as to try to combat piracy or illegal content) must respect the fundamental rights and freedoms of citizens, as they are guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms. Such measures must also be appropriate, proportionate and necessary and in particular, they must respect the presumption of innocence, and must include incorporate a fair and impartial procedure, including a right to be heard and to appeal to a judge.

Consumer protection and “net neutrality”. Under the new rules, NRAs will have power to set minimum quality levels for network transmission services so as to promote "net neutrality" and "net freedoms" for European citizens. In addition, thanks to new transparency requirements, consumers must be informed – before signing a contract – about the nature of the service to which they are subscribing, including traffic management techniques and their impact on service quality, as well as any other limitations (such as bandwidth caps or available connection speed). A further much-heralded change will allow any subscriber in the European Union to “port” their fixed or mobile telephone number within a period no longer than one working day . Other measures include improvements to the implementation of the 112 emergency number, improvements to access to free phone numbers called from abroad and empowering NRAs to impose minimum service quality requirements based on standards drawn up at an EC level. Finally, in this category, an amendment to the E-Privacy Directive has been made which gives ISPs and other persons with a legitimate interest in combating the sending of unsolicited commercial emails (know as “spam”) the right to take direct legal action against spammers in civil proceedings and the sending of unsolicited emails disguising or concealing the identity of the sender has been banned.

Creating a new pan-European regulatory body. A new Body of European Regulators for Electronic Communications (“BEREC”) will be created. BEREC will have a lesser role that was originally envisaged in the first draft of the reform proposals – it will have less power and, importantly, will be funded by the Member States and not by the Commission. BEREC will:

be comprised of the heads of each of the NRAs and a representative from the European Commission
obtain professional and administrative support from an autonomous “Office” funded by the Community budget and by voluntary national contributions
have a clearly defined role in drawing up regulatory best practices to be disseminated among NRAs;
issue opinions, recommendations and guidelines of which the NRAs and the Commission will be required to take the “utmost account”;
conduct its activities with a high level of transparency. It will be required to publish both its annual programme and report to the Parliament and Council annually on its activities.

Remedies. Under current rules the Commission may veto the decision of an NRA on market definition if the NRA defines a market in a way which differs from the current Commission recommendation on the subject. It can also veto an NRA’s finding that a particular operator has Significant Market Power (SMOP) in a market. The European Commission cannot, however, veto an NRA’s choice of remedies to address the presence of SMP. The new rules will not give the Commission a direct veto over remedies proposed by NRAs. Instead NRAs will be obliged to take “utmost account” of the Commission’s, and BEREC’s, opinion and if both the Commission and BEREC have “serious doubts” then the NRAs must co-operate with them both to identify the “most effective measure”. In effect the result is that the Commission has the power to delay the imposition of a remedy with which it disagrees, and to make the NRA justify its decision in writing, but no veto. The new rules also enable the Commission to adopt further harmonisation measures in the form of recommendations or (binding) decisions, if divergences in the implementation of remedies persist across the EU in the longer term

Functional separation. A further change to be introduced will set up a separate process whereby, in “exceptional circumstances” NRAs will have the power, subject to prior approval from the European Commission, to impose a remedy of functional separation (ie the physical and logical separation of an incumbent’s communications network from its services branches) on operators with SMP. It is worth noting, though, the peculiar situation in the UK[iv] – where OFCOM had available to it, in addition to the powers granted under legislation implementing the 2003 framework, the threat of a review under the Enterprise Act to the Competition Commission. It may be that this situation, being unique to the UK, means that it would be more difficult to impose functional separation on an unwilling incumbent in any other country though both Poland and Italy are currently moving towards some sort of separation themselves.

Strengthening the NRA. The reforms in this area include a requirement on Member States to ensure that the head of the NRA can only be removed from office if he or she no longer fulfils the conditions required for the performance of their duties or if they have been guilty of serious misconduct. Other reforms also aim to strengthen the independence and power of the NRA. For example a clarification has been introduced stating that interim measures may only be granted to suspend an NRA’s decision pending appeal if there is an urgent need to suspend the effect of that decision to prevent serious and irreparable damage.

Regulatory holidays, next generation networks and infrastructure sharing. There has been some debate in this area on this principle of “regulatory holidays”. This concept refers to a decision by an NRA to incentivise significant investments in networks by allowing (usually incumbent) operators a period of time after completion of their investment before they will be required by regulation to give access to the new network infrastructure their competitors. The European Commission and Parliament has confirmed its strong opposition to any such concept despite intensive lobbying from some countries (especially Germany), and has stated that NRAs have the power to oblige dominant players to share facilities such as buildings, entries to buildings, building wiring, masts, antennae, towers and ducts. Instead NRAs should incentivise investment by ensuring that any access obligation imposed on incumbent operators takes appropriate account of the risks incurred in building the infrastructure in the first place. On the basis of these new rules, the Commission plans to issue a recommendation for the regulation of access to next generation access networks in the first half of 2010.

Mike Conradi

[i]The Communications Law Handbook, (http://www.tinyurl.com/commslawhandbook), published by Bloomsbury Professional in November 2009, is edited by Mike Conradi. For a 25% discount code contact us by email at events@kemplittle.com.

[ii]Click here for press release

[iii]http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1545&format=HTML&aged=0&language=EN&guiLanguage=en

[iv]Chapter 5 of the Communications Law Handbook, ibid, discusses in detail how functional separation has been achieved in the UK via the creation of BT Openreach.