Status of voice communications on Internet under Community law and, in particular, pursuant to Directive 90/388/EEC (98/C 6/04)

(Text with EEA relevance)

Regulatory position of voice communications on Internet

Directive 90/388/EEC on competition in the markets for telecommunications services (OJ L 192, 24. 7. 1990, p. 10) defines in detail the service which the Member States may continue to reserve to their telecommunications organisations.

According to Article 1 of Directive 90/388/EEC 'voice telephony means the commercial provision for the public of the direct transport and switching of speech in real-time between public switched network termination points, enabling any user to use equipment connected to such a network termination point in order to communicate with another termination point`.

On 20 October 1995 the Commission published a communication to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services (95/C 275/02, OJ C 275, p. 2) (the communication). This set out the Commission's approach on the implementation of the definition in Article 1 of Directive 90/388/EEC. Since then due to the development of specific software it has become possible to code, compress and transmit voice communications in such a way that it has become viable to send them via the Internet to other Internet subscribers using the same or interoperable software and via gateways to standard telephones. This is a new issue and the Commission should therefore adopt a supplement to the communication on these services, often described as 'Internet telephony`.

The present notice, which concerns the two-way exchange of voice communications via the Internet (1) (2), addresses two key regulatory questions:

- firstly, whether such services in the run up to the full liberalisation of voice telephony services and telecommunications infrastructure from 1998 are already in the liberalised area, following an assessment under the voice telephony definition in Directive 90/388/EEC,

- secondly, to what extent should those elements of the regulatory framework for 1998 (3), which are applicable to the provision of voice telephony services, be applied to voice communications services provided over the Internet.

Categories of Internet telephony

In examining issues associated with Internet telephony, this notice considers in particular situations where users are connected to the Internet via public switched (fixed) network termination points in order to communicate as opposed to, for example, dedicated connections or other means not using such termination points. Within this focus, three distinct categories of voice communications making use of Internet can be distinguished from the point of view of the user:

- computer to computer voice services: voice communications transmitted via the Internet between the PC of one user and the PC of another (both users using modems, compatible software, loudspeakers and microphones to communicate),

- computer/phone voice services: voice communications transmitted via the Internet between a PC of one user (with modem, software, loudspeaker and microphone) and another user using a traditional telephone connected to the public switched telephone network (PSTN), and

- phone-to-phone voice services: voice communications transmitted via the Internet, but between users who both are using telephones connected to the public switched network. In this case, part of the communication is transmitted via packet means using Internet protocols instead of fully via the national and international public switched networks.

Assessment under the voice telephony definition in Directive 90/388/EEC

Under the definition of voice telephony in Directive 90/388/EEC, voice communications via the Internet could only be considered as voice telephony if each of the following criteria are met:

- such communications are the subject of a commercial offer

'commercial` should be understood in the common sense of the word, i.e. that the transport of voice is provided as a separate commercial activity with the intention of making a profit. Consequently, it does not cover the simple technical non-commercial provision of a telephone connection between two users.

In the case of the Internet, while the provision of software and browsers enabling users of such software to send and receive voice communications is subject to commercial offer (often pre-installed on new PCs), in most cases the commercial provision of the transport of voice is, at least for the time being, not the principal aim of access providers (4), and Internet telephony is only an additional feature offered by Internet access which is chosen by the customer for a number of reasons, such as browsing, e-mail, and downloading of files and data, etc. In other cases, the necessary software has been acquired by the user rather than obtained from the access provider to which they subscribe.

Given that in most cases, the facility for voice communications is only one part of an integrated Internet service offered to the customer, where the voice service is ancillary to other elements of the Internet service (just as video telephony is not considered as voice telephony today). Internet voice will as a general rule not match this first element of the Community voice telephony definition.

Only where phone-to-phone Internet telephony is marketed in the European Union as an alternative form of voice telephony service, would the organisation concerned be considered to be making a commercial offer.

Similarly, in the case of PC-based voice communications, if the provision of a dial-out facility to any telephone number became a decisive element in service providers commercial strategies, they could be considered commercially the transport of voice,

- for the public

in the case of computer-to-computer voice services, although only users who subscribed to an Internet service provider (ISP) providing access to the Internet and who use compatible software would be able to use the Internet for calling each other, it could be argued that computer-to-computer Internet voice is provided 'for the public` since the service would be available to all members of the public on the same basis.

However computer-to-computer and phone-to-phone voice communications transmitted via the Internet, whereby any necessary conversion of the signal is taken care of by the organisation offering the service, would meet this criteria, since such services are available to all members of the public, subject to them entering into the necessary commercial arrangement with the organisation concerned,

- to and from public switched network termination points

'between public switched network termination points` means that, to fall within the reserved area up to the dates set for liberalisation, the voice communication service not only has to be offered commercially and to the public, but also it has to connect two network termination points on the PSTN (5) at the same time. These termination points are those defined by subscriber numbers from the national telephone numbering plan. Consequently, if access to the Internet is obtained via leased circuits, the service could never be considered as voice telephony, even if the call terminates on the public switched network. This would be true whether connecting a telephone or a computer.

If the Internet user can only call other Internet subscribers whose computers are connected via a modem and who are using compatible software, then this is also not 'voice telephony` because it is not 'enabling any user . . . to communicate with another termination point` in the sense of 'any user to any user`. However, in the cases of computer-to-phone or phone-to-phone Internet voice this element would be satisfied,

- it involves direct transport and switching of speech in real time

given the technique used for the first voice communications between Internet users and the early state of development of Internet technology (mainly bandwidth and compression techniques) Internet telephony could not, originally be considered to take place in realtime (6). According to this basic technique, the voice is digitally encoded, packed and sent by a user from a termination point to a server and on to the reception server which in turn sends it to the receiver equipment, connected to a termination point, which assembles the packets to be delivered as voice via the loudspeaker. The time period required for processing and transmission from one termination point to the other is generally still such that it cannot be considered as of the same quality as a standard real-time service.

This would be true whether the voice communication transmitted via the Internet is between two PCs, between a PC and a telephone on the public switched network or between two telephones. Although voice communications via Internet between two telephones involve two conversion stages, these communications can often be subject to less delays than between two PCs. However, given the fact that part of the transmission is over the Internet (which currently has only one class of services), it is subject to unpredictable congestion risk, making it difficult or impossible to guarantee the same level of reliability and speech quality as produced by the PSTNs.

In cases where organisations offering phone-to-phone Internet voice are guaranteeing quality of speech by bandwidth reservation and claim themselves that the quality of the service is the same as circuit-switched PSTN voice, this element of the voice telephony definition will obviously already be met.

In summary therefore, the Commission considers that the definition of voice telephony in Directive 90/388/EEC taken together with existing precedents provides good guidance for assessing the regulatory position of voice communications services on the Internet in the pre-liberalisation situation.

These services cannot for the time being be considered as voice telephony in the sense of this Directive and they therefore fall already within the liberalised area, before the deadlines set for the implementation of full competition. There are nevertheless already new voice communications services offered to the public making use of Internet technology. The situation must therefore be kept under review in the light of technological and market developments.

Regulatory consequences

Current situation

- Licensing

Internet access providers now typically operate under a data transmission or value-added service authorisation.

According to Directive 90/388/EC

- the provision of telecommunications services other than voice telephony, the establishment and provision of public telecommunications networks and other telecommunications networks involving the use of radio frequencies, may be subjected to only a general authorisation or a declaration procedure. To the extent that Internet Voice is considered not to be a voice telephony service within the meaning of the Directive, a requirement for an individual licence may therefore not be imposed on Internet access/service providers,

- the general authorisation or declaration procedures may only contain conditions which are objective (i.e. linked to the essential requirement involved), non-discriminatory, proportionate and transparent. This implies that no specific authorisation scheme should, in principle, be drafted for Internet access/service providers which is different from the one applicable to other data transmission providers. In any case, where the Internet telephony service is only one part of an integrated Internet service offered to the customer, where it is ancillary to other elements of the Internet service, the telephony application would be subsumed under the broader authorisation which covers the Internet access provider's operation and it would be considered disproportionate to require Internet access providers to obtain an additional authorisation,

- where a Member State wants to withdraw or refuse to grant a general authorisation for the supply of a non-reserved service, reasons must be given and there must be a procedure for appealing against such a decision (7),

- the relevant authorisation schemes must have been communicated to the Commission.

The Licensing Directive, which enters into force on 1 January 1998 further details which conditions may be attached to authorisations, as well as the principles licensing procedures should respect.

- universal service

To the extent that Internet Voice is considered not to be a voice telephony service within the meaning of the Directive, no contribution can be required from Internet access providers.

Future situation

As shown in the above analysis, the regulatory position of voice communications on the Internet depends on an analysis of the actual service provided as regards the various elements of the definition of voice telephony in Article 1 of Directive 90/388/EEC.

The current position of voice communications on Internet under Community law may change in the light of further technical and market developments. The comments received by the Commission show that at least to a limited extent key elements of the conditions for such an evolution in the Community approach are close to being met, namely:

- at least one group of Internet service providers are starting to provide a service whereby an Internet user can connect to a local Internet service, log on with his PC or other terminal equipment, input the destination telephone number, have the call routed over the Internet to any telephone number (including to users without a modem) at the far end against payment;

and

- the use of the Internet (and the lower consequent tariffs) are a decisive driver for Internet subscription to such a service (whether or not the subscriber is also taking an Internet connection to a PC as part of the service allowing use of his or her telephone).

Nevertheless, additional elements of quality may remain to be satisfied.

When all the criteria of the voice telephony definition are satisfied, those Internet service providers offering a dial-out service to any telephone number, and only those, could then be considered providers of voice telephony services under Community law. This description is by way of example and does not exclude other possible interpretations of future developments.

This could have significant regulatory consequences for the relevant undertakings:

- Licensing

According to Article 3 of Directive 90/388/EEC and Article 7(2) of the Licensing Directive, Member States could then subject the operation in their territories of Internet service providers' voice telephony services to individual licensing procedures if they deemed it necessary. However, any licensing schemes must be notified to the Commission.

In any case, once some voice communications services on the Internet can be considered as voice telephony, and service providers be subjected by certain Member States to individual licences, even in this case, both Directive 90/388/EEC and the Licensing Directive stress the need for proportionality and non-discrimination in licensing regimes. Furthermore, any licensing scheme must take into account the consumer interest to be able to choose among a variety of services and operators, notably avoiding disproportionate or discriminatory charges,

- universal service

If in the future Internet voice is considered voice telephony, then the service providers concerned would fall within the category of organisations that could be asked to contribute to universal service funding after markets are opened to full competition, in accordance with the principles set out in Community law and with the guidelines on the costing and financing of universal service set out in the Commission communication of 27 November 1996 (COM(96) 608).

In a majority of Member States this issue will not arise, but where it does, Community law (8) provides a framework according to which contributions to universal service may be required from organisations providing publicly available telecommunications networks and publicly available voice telephony services.

The imposition of burdens relating to such an obligation would have to be proportionate, non-discriminatory and transparent. Proportionality requires that:

- double contributions to universal service obligations are avoided. Where a service is provided which relies on the user having a connection to someone else's network, care will be needed to ensure that regulators do not collect two contributions: one from the PSTN operator and another from the service provider, even if the service offered involves voice telephony,

- the cost and effort required to identify the relevant elements necessary for calculating universal service contributions do not represent a disproportionate burden on the organisation concerned in relation to the impact of its activities on the provision of universal service in the Member State concerned. There could be a real risk of substantial barriers being created to the provision of an innovative service,

- further obligations stemming from the ONP legislation

Once some voice communications services on the Internet can be considered as voice telephony, if providers of such services were to enjoy significant market power as defined pursuant to Article 2 of the proposed amendment to the Article 100(a) Voice Telephony Directive now being discussed before the European Parliament and Council, they would be subject to the relevant provisions set out in this Directive.

The need for periodic review

The Commission will review the scope of this notice periodically and at latest before 1 January 2000.

(1) Applications which allow, for example, stored data (such as Web pages, e-mails or voice mails) to be retrieved in spoken form are not considered by this notice, as they are considered to be new multimedia services, notwithstanding the voice element within the overall service.

(2) This notice does not consider the situations' where the Internet is only used to dial up a call-back operator in order to set up a telephone call via the public switched telephone network (PSTN). The service provided by the call-back operator would however be subjected to a separate assessment under the voice telephony definition. If that call-back operator also provided, in addition to switching, direct transport of speech on own or leased infrastructure, then it would fall within the category of voice telephony providers.

(3) In addition to Directive 90/388/EC (the Services Directive) as amended in particular by Directive 96/19/EC (the Full Competition Directive), this regulatory framework is set out in three harmonising measures, namely, Directive 97/13/EC (the Licensing Directive); Directive 97/33/EC (the Interconnection Directive); and Directive 95/62/EC as amended by Directive 97/. . ./EC (the Voice Telephony Directive) on the application of open network provision (ONP) to voice telephony.

(4) for example: America On-Line, CompuServe, Skynet, Ping, Atlas/Global One. Certain service providers like Globallink do not essentially offer access to Internet, but specifically offer a product principally focused on voice communications which facilitates their transmission via the Internet from a telephone as well as from a PC, and are not to be considered as access providers.

(5) The public switched network is not formally defined in the Directive. It must be given its common meaning, i.e. the public switched telephone network (PSTN) which is the collection of switching and transmission facilities used by the telecommunications organisation to provide the normal telephony service.

(6) Voice mail applications accessed via the Internet would fall outside the definition because the nature of such services is that the voice communication effectively does not occur in real time.

(7) Detailed provisions are found in Article 5 of the Licensing Directive.

(8) See Directive 90/388/EEC and Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection in telecommunications with regard to ensuring universal service and interoperability through the application of the principles of open network provision (ONP), OJ L 199, 26. 7. 1997.