Executive Summary Sheet

Impact Assessment on the measures concerning the European Single Market for electronic communications and to achieve a Connected Continent

A. Need for Action

Why? What is the problem being addressed?

The Union is fragmented into distinct national markets lacking thus a genuine Single Market for electronic communications services. EU rules are implemented in diverging ways, raising barriers to entry and making it difficult and costly for operators to provide cross-border services. Fragmentation extends to all the vital sector-specific rules: authorisation to operate under consistent rules, access to key inputs for fixed or mobile business, rules on end-user protection; a major symptom is unjustified costs for communications across borders within the Union. Fragmentation is not only a sector-specific issue, it affects many other industries such as transport and cross border service providers (commerce, tourism, financial services). European operators cannot benefit sufficiently from economies of scale and new growth opportunities. They have not fully embraced opportunities offered by the internet. At the same time, consumers have less choice, less innovative quality services, and they still pay a high price when their calls cross borders or when they use data and voice communications while travelling in the Union.

What is this initiative expected to achieve?

The objective of the initiative is to enable the completion of a European Single Market for electronic communications. Removing the identified obstacles to the Single Market, by targeting the different types of known fragmentation in one single initiative, will foster greater competition, enable innovation in new services and applications. A Single Market will create opportunities for firms to operate on a bigger scale helping European operators to become more competitive global players and attract new market entrants.

What is the value added of action at the EU level?

Measures at EU level are necessary to tackle the current fragmentation by addressing the identified bottlenecks and enabling operators to benefit from regulatory consistency and common inputs in order to provide services on a pan-European basis. Measures at EU level would also lead to a reduction of administrative and regulatory burden, a consistently high level of consumer protection which would promote trust and confidence and a wider choice for users.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why?

Option 1 aims at fostering completion of the Single Market through regulatory coordination. It addresses the identified problems using recommendations (Art. TFEU 292 and Art. 19 of the Framework Directive) and through the foreseen review of elements of the regulatory framework for electronic communications services and networks e.g. the Universal Service Directive in 2014 and the Roaming Regulation in 2016. Option 2, the preferred option, consists of a set of integrated legislative with targeted measures to establish a complete Single Market in electronic communications services supported by enhanced EU coordination (by introducing a single EU authorisation for European electronic communications providers and provision of services on the basis of harmonised consumer protection rules, convergent regulatory remedies, access to common inputs such as spectrum, leased lines and bitstream and a single consumer space where roaming and cross-border charges are no longer an impediment and with guaranteed access to the open Internet). This option builds on the current regulatory framework, preserving its key features (e.g. market analysis, finding of dominance and imposition of ex ante remedies to ensure effective competition), progressively decreasing regulatory pressure if markets are proven to be competitive, and through targeted changes aims at achieving greater regulatory consistency especially for companies operating in more than one Member States and, at the same time, securing for the users the advantages of a connected Continent. Option 3 is identical to Option 2 in terms of measures but differs in the governance structure. Under this option, a single EU regulator would be established that would have responsibility for implementation and enforcement of pan-European services, including in the area of spectrum, where appropriate in cooperation with national regulators.

Who supports which option?

There is a large degree of convergence on the urgent need to overcome the identified fragmentation of the Single Market for electronic communications services. However views differ on how best to achieve this, depending on the interests of different stakeholder groups. Some stakeholders (notably incumbent operators) argue for far-reaching change, including greater consistency of regulatory approaches, both in fixed and mobile networks, more predictability and continuity, as well as a more significant deregulation. Some operators have expressed concerns about the impact of certain elements of these proposals, notably on roaming and international calls, on their revenues. Other parts of the industry (including access seekers) argue for better implementation and more consistency in the provision of “virtual” access products. All telecom operators agree on the need to improve coordination in spectrum policy in order to free more spectrum for broadband service in a regulatory environment that favours stability and investments. Consumer organisations argue for removing artificial costs (e.g. for roaming) arising whenever consumers use services when they cross borders. Many service providers (transport, navigation, logistic) also argue in favour of the end of roaming charges in order to develop innovative business models. They also insist on removing discrimination resulting from blocking and throttling of services. Industry users, large as well as SMEs, including web entrepreneurs and start-up's, stress the importance of access to high-quality connectivity for competitiveness, allowing them for example to reap the benefits of cloud computing and machine-to-machine communications services applications. Growing concerns are voices about the lack of broadband coverage and congestion of mobile networks. In a policy debate held in the Transport, Telecommunications and Energy Council of 6 June 2013, a considerable number of Delegations supported the objective of completion of a Single Telecoms Market, with an emphasis i.a. on ensuring vigorous competition, promoting better choice for consumers, addressing net neutrality, tackling roaming in a proportionate way, ensuring greater regulatory consistency, avoiding regulatory arbitrage and ensuring closer coordination of national spectrum approaches. A large number of delegations expressed concerns about centralising policy through a single European regulator and/or central EU authorisation and assignment of spectrum. The European Parliament has already held three meetings to discuss the forthcoming proposals. MEPs in particular highlighted the need as part of a true Single Market for electronic communications services to eliminate roaming, to introduce clear and stringent rules on net neutrality and ensure a high level of consumer protection. MEPs have also stressed the need for realism and for assessing new proposals in terms of expectations and time constraints.

C. Impacts of the Preferred Option

What are the benefits of the preferred option (if any, otherwise main ones)?

The major direct benefit of a Single Market for electronic communications services is estimated to be of the order of €110bn p.a. Moreover, the positive spill-over effects on other sectors are expected to be several tens of billions of potential gains p.a. The benefit of the preferred option, relative to the others, is that it builds upon existing legislation and governance and that it is focused on the essential aspects of the identified problems of fragmentation, without undue centralisation, and is therefore a realistic approach to achieving these benefits more rapidly and more surely than the other options. The preferred option is a pragmatic answer to compelling problems in particular with regard to spectrum ensuring timely availability to avoid congestion or the collapse of networks. Firstly, directly related sectors such as telecoms equipment manufacturing, application developers and content industry are set to immediately benefit from a more dynamic European telecoms market. Secondly, sectors like the automotive industry, the logistics sector or the energy sector will benefit from enhanced connectivity in the Single Market and productivity gains through e.g. ubiquitous cloud applications, connected objects and possibilities for integrated service provision for different parts of the company. Thirdly, public administrations and general services such as in particular the health sector are also due to benefit from wider availability of eGovernment and eHealth services. E-Health in particular has the potential to deliver better quality care at much lower costs. Finally, European consumers would benefit from more choice, more innovative and better quality services. The preferred option can attain the desired objective without creating new administrative burdens.

What are the costs of the preferred option (if any, otherwise main ones)?

The proposed simplified regulatory regime would not generate regulatory and administrative costs to companies; on the contrary it would lower them. Some measures may result in a reduction of some revenue stream for operators. If roaming and intra-EU calls were provided at the level of domestic rates, an annual revenue loss of 1.650 million EUR resulting from loss of roaming revenues and a 700 million EUR decrease on revenue linked to international calls is estimated in a worst case scenario (i.e. when no account is taken of effects of price elasticity or reasonable use criterion for roaming). Therefore in reality the impacts are likely much smaller. In addition, a loss of operator's revenues would have taken place anyway, notably as a result of the roaming regulation (which requires that the difference between national and international roaming approaches zero by 2016) and of increasing competition as well as technological change (for example, Voice over IP). On the other hand, the framework will enable new sources of revenue to be tapped, better conditions to use spectrum and economies of scale to be exploited.

How will businesses, SMEs and micro-enterprises be affected?

The preferred option – by removing obstacles to such connectivity – enhances productivity and provides new business opportunities to all. Under the new rules it will be much easier for web services providers to purchase the suitable quality of connectivity fitting for the services provided, whilst the overall quality of access to the internet will improve in Europe serving all suppliers and users of internet based services.

Will there be significant impacts on national budgets and administrations?

The choice of a Regulation as legislative instrument would not imply any transposition or implementation costs for public authorities. For administrations, the long term impact of the proposed measures would also be generally beneficial as higher revenues from spectrum will increase tax income over time. However, there might be some shortcomings in case best practices are not followed. Enhanced regulatory co-ordination between authorities is unlikely to require additional resources.

Will there be other significant impacts?

A Single Market for electronic communications services underpins the digital Single Market and therefore the positive effects will spill over into the wider digital economy.

D. Follow Up

When will the policy be reviewed?

The Commission will evaluate, after four years, the impact of the proposed measures, with a view to proposing appropriate adjustments, if necessary.

Table of Contents

Executive Summary Sheet 1

A. Need for Action. 1

B. Solutions. 1

C. Impacts of the Preferred Option. 2

D. Follow Up. 4

Impact Assessment Report 7

1. INTRODUCTION.. 7

2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES.. 9

2.1. Introduction. 9

2.2. Consultation and Expertise. 9

2.3. Opinion of the Impact Assessment Board. 12

3. PROBLEM DEFINITION AND SOURCES OF REGULATORY FRAGMENTATION.. 13

3. 1. Barriers to the Single Market through National Authorisation Regimes linked with inconsistency in regulatory approaches implemented by National Regulatory Authorities. 16

3. 2. Lack of co-ordination in spectrum assignments and regulatory uncertainty as to the availability of frequencies that severely hinders the roll-out of Next Generation Wireless Networks. 18

3.3 Lack of pan-European Virtual Network Access and Inputs (wholesale products which allow the provision of services using the network of another operator) with consistent service interoperability levels 22

3. 4. Evidence of market fragmentation on consumer interests: high costs of roaming and international calls, blocking or throttling of services and uneven levels of consumer protection. 23

4. MANIFESTATION OF THE IDENTIFIED PROBLEMS AND STAKEHOLDERS AFFECTED 26

4.1. Single Market fragmentation affecting ICT user industries. 26

4.2. Single Market fragmentation affecting European consumers. 28

4.3. Single Market fragmentation affecting telecom operators. 33

4.4 Single Market fragmentation affecting telecoms equipment and device manufacturers. 36

5 Justification for EU Action. 36

5.1. Single Market Perspective and Subsidiarity. 36

5.2. Proportionality. 38

5.3 Legal Basis. 38

6. Objectives. 39

6.1 General Objective. 39

6.2 Specific Objectives. 41

6.2.1 Specific Objective 1. 41

6.2.2 Specific Objective 2. 41

6.2.3 Specific Objective 3. 41

6.2.4 Specific Objective 4. 42

7. Policy Options. 42

7.1 Baseline Scenario. 43

7.2 Option 1. 43

7.3 Option 2. 44

7.4 Option 3. 52

8. Analysis of Impacts. 53

8.1 Methodology. 53

8.2 General Impacts of the Single Market for Electronic Communications. 54

8.2.1 Effects on Telecoms Markets. 54

8.2.2 Effects on Other Sectors and on the Ecosystem.. 70

8.2.3 Effects on Different Member States. 71

8.2.4 Impacts on GDP.. 73

8.2.5 Social Impacts of the Single Market 74

8.2.6 Administrative impacts. 76

8.3 Evaluation of Policy Options. 76

8.3.1 Impacts of Option 1. 76

8.3.2 Impacts of Option 2. 76

8.3.3 Impacts of Option 3. 76

9. Choice of the Preferred Option. 76

9.1 Baseline Scenario. 76

9.2 Option 1. 76

9.3 Option 2. 76

9.4 Option 3. 76

9.5 Risk Assessment of the Preferred Option. 76

10. Monitoring and Evaluation. 76

10.1 Specific Objective 1. 76

10.2 Specific Objective 2. 76

10.3 Specific Objective 3. 76

10.4 Specific Objective 4. 76

References. 76

Glossary. 76

Annexes. 76

Annex I – Detailed Overview of the Consultation of Stakeholders and other EU Institutions 76

1. Public Events Organised by the Commission. 76

2. Other Public Events. 76

3. Comments of Stakeholders on specific elements of the package. 76

4. Discussions with Other EU Institutions. 76

4.1. The Council of Ministers. 76

4.2. The European Parliament 76

5. Relevant Public Consultations, EP Resolutions and Citizens' Initiatives on Related Subjects/Specific Measures. 76

Annex II – European Consumer Consultative Group (ECCG) Meeting 11-12 June 2013 (Sub-Group on the Provision of Internet Services) - Operational Recommendations. 76

1. Clarity and Understanding of the Information Provided to Consumers. 76

2. Contract Terms, Usage and Switching. 76

3. Quality of the Service - Complaints. 76

4. Enforcement 76

5. Net Neutrality. 76

6. Roaming. 76

Annex III – Examples of Regulatory Divergence in the Electronic Communications Sector 76

1. General Authorisation. 76

2. Access Regulation. 76

2.1. Regulated Markets. 76

2.2. Access Obligations. 76

2.3. Non-Discrimination Obligations in Key Wholesale Broadband Markets. 76

2.4. Costing Methodologies in the Key Wholesale Broadband Markets. 76

3. Authorisation and Spectrum Management - Harmonised Bands for Wireless Broadband 76

4. Net Neutrality and Consumer Issues. 76

Annex IV - Overview of the Market for Electronic Communication Services, 2013. 76

1. Developments in the Electronic Communications Sector. 76

1.1 Deployment of Broadband. 76

1.2 Mobile Services. 76

1.3 Marketing Strategies and Broadband Pricing. 76

2. Competitiveness in the Sector. 76

2.1 Revenues. 76

2.2 Average Revenues in the Mobile Services Sector 76

2.3 Market Share. 76

Annex V – Methodological Annex. 76

1. Steps Towards a Truly Internal Market for e-Communication. 76

2. The Socio-Economic Impact of Bandwidth. 76

Annex VI - Incoming roaming calls. 76

Annex VII - Input from RSPG concerning spectrum for wireless broadband. 76

Annex VIII – International calls. 76

List of Figures

Figure 1 – Investment Trends - Wireless CAPEX in US, Canada, Europe (Local Currency, 2002 = 100) 14

Figure 2 – Main European Operators' Footprint through Separate National Operations. 15

Figure 3 – Number of Mobile Operators in Different EU Countries. 20

Figure 4 – Structure of Multi-Site/Multi-National Business Operations. 26

Figure 5 – Difficulties with Sourcing Fit-for-Purpose MCS/MNC Solutions. 27

Figure 6 – Experience with Obtaining Multiple Offers for MCS/MNC.. 27

Figure 7 – Number of Connected Devices. 28

Figure 8 – High Differences between Price Levels in the EU.. 30

Figure 9 – Price Disparities in Various Electronic Communication Segments. 31

Figure 10 – Average Delivered Broadband Speed (Mbps) 32

Figure 11 – US vs. Europe 4G Population Coverage. 33

Figure 13 – Global Fixed Traffic 2010-2018. 34

Figure 16 - Domestic Capex/Sales of EU Incumbents vs International (2006-12) 35

Figure 17 – Global Total Traffic in Mobile Networks, 2007-2012. 35

Figure 18 – Telecom Equipment Providers’ Performance (Total Returns) 36

Figure 19 – Economic Benefits for Business Communication Services of a Single Market for Electronic Communications. 72

Figure 20 – Consumer Surplus by Scenario (Western Europe) 76

Figure 21 – Consumer Surplus by Scenario (Central and Eastern Europe) 76

Figure 22 – Impact of the Single Market on GDP by Option. 76

Figure 23 – Broadband Penetration (Subscriptions/Population), January 2013. 76

Figure 24 – Mobile Subscribers & Penetration Rate at EU Level, Oct. 2004 – Oct. 2011. 76

Figure 25 – Voice Traffic on Fixed and Mobile Networks, 2005-2010. 76

Figure 26 – Mobile Broadband Penetration – All Active Users, January 2013. 76

Figure 27 – Bundled Offers Penetration (Subscriptions/Population), July 2012. 76

Figure 28 – Broadband Retail Prices, Stand Alone Offers, 12 to 30 Mbps, 2012. 76

Figure 30 – Electronic communications sector revenues, 2011. 76

Figure 31 – Average Revenue per User (ARPU) in Mobile Communications, 2011. 76

Figure 32 – Average Revenue per Minute (in €-cents) in Mobile Communications, 2011. 76

Figure 33 – Fixed Broadband Lines – Operator Market Shares, January 2013. 76

Figure 34 – Mobile Subscribers: Operator Market Shares, October 2012. 76

Figure 35 – Wholesale & Retail roaming financial transaction. 76

List of Tables

Table 1 – LTE subscriptions worldwide (in thousands) 18

Table 2 – Prices for Spectrum in the EU.. 20

Table 3 – Examples of Prices of International Mobile Calls for Different Operators (per minute) 31

Table 4 – Problem Drivers and Objectives. 40

Table 5: Annual Revenue Loss Resulting from the Introduction of RLAH in a Static Scenario with Fixed Roaming Volumes. 64

Table 6 – Impact of Limiting Price Differentials between Domestic and Intra-EU International Calls 68

Table 7 – Summary of Impacts from Different Policy Options. 76

Table 8 – Input on spectrum policy for wireless broadband. 76

Table 9 – Illustrative tariffs for international calls in the EU.. 76

Impact Assessment Report

1. INTRODUCTION

In the face of the deep crisis affecting its economy and society, Europe needs to tap into new sources of growth in areas that will reinstate its competitiveness, drive innovation and create new job opportunities. At a moment in time when the world evolves towards an Internet economy, directly affecting all sectors, from traditional services such as banking and insurance to retail commerce, industrial production and energy supply, Information and Communications Technologies (ICT) needs to be fully recognized as a source of the smart, sustainable and inclusive growth envisaged in the Europe 2020 Strategy.

As one of its Europe 2020 flagship initiatives, the Digital Agenda for Europe[1] (DAE) defines a set of ambitious targets to ensure that Europe taps the benefits of the digital economy, notably that by 2020, all Europeans should have access to high-speed broadband networks offering at least speeds of 30 Mb per second, and that 50% of Europeans should enjoy speeds in excess of 100 Mb per second. These targets recognize that the availability of high-speed networks in Europe is the foundation for the digital economy to flourish.

Consistent with these agreed policy objectives, the 2013 Spring European Council stressed the importance of the digital Single Market for growth and, in its conclusions, included the need for concrete measures to be presented by the Commission in time for the October European Council to establish a Single Market for Information and Communications Technology as early as possible. The initiative discussed in this Impact Assessment responds to this challenge.

Not long ago, Europe was leading the world in communications technologies and services. This was a result of conscious policy choices such as the opening up of the telecoms markets or the engineering of the global success of GSM through the adoption of EU-wide standards resulting from European research. With such policy decisions, Europe recognised the importance of digital 'connectivity' to sustained economic growth and supported the leadership of European companies. That lead has been lost. In the EU telecommunications sector[2] overall revenues have been shrinking for the last few years, a trend to which the economic crisis has also contributed. Moreover, new business models to exploit fast data growth and compensate for rapidly decreasing revenue from voice communications (as consumers increasingly embrace Voice over IP) have been slow to emerge and operators have typically been cautious to invest in rolling out new high speed infrastructures.

Whilst there are multiple reasons for the lack of dynamism and unexploited growth potential of the telecommunications sector for the economy as a whole, the fact that operators provide their services within distinct national markets, each subject to specific rules and practices, and that consumers cannot in practice benefit from services provided from other Member States, constrains the potential of industry to expand across borders and grow, whilst slowing down the introduction of new business models. Another reason for the present situation is the delay of European companies in embracing the internet revolution. The low usage patterns of internet services are a significant hurdle for the economic growth affecting the EU economy as a whole. The impact of this goes in fact well beyond the telecoms sector itself. Another element that explains the poor performance of the telecom sector is the slowness of adoption of 4G mobile technology due to a difficult process of spectrum licencing that is not yet over and very diverse and sometimes extremely burdensome authorisation conditions for deploying wireless networks.

With the adoption of successive electronic communications reform packages, Europe made important progress towards a single market for electronic communications putting in place a supportive and consistent regulatory environment fostering competition and better rights for consumers. However, specific issues connected with the completion of the Single Market, and identified on the basis of extensive stakeholder consultation and regulatory practice to date. remain and must be addressed as a priority. The principal outstanding integration challenges are:

i. to remove unnecessary obstacles in the authorisation regime and in the rules applying to service provision with the aim of making it easier for companies to contemplate multicountry operation.

ii. to ensure greater harmonisation for accessing essential inputs, regarding both predictable assignment conditions and coordinated timeframes to access spectrum for wireless broadband across the EU; an essential feature if we want full continental coverage and affordable connections; and promoting more internet based access products to European fixed networks so that providers can more easily offer their IP services across the single market.

iii. to guarantee common high levels of consumer protection across the Union and common commercial conditions in this respect, including the persistent problems of mobile roaming surcharges and of access to the open internet.

These are distinct challenges, to which distinct solutions must be found, but which, if addressed together, could have a transformative rather than merely incremental effect on sectoral dynamics in the Union.

The potential macro-economic impact of completing a genuine Single Telecoms Market is significant: this will create opportunities for firms to operate on a bigger scale with less regulatory burden, enhancing their capacity to innovate, to grow, become more productive and generate jobs, widen consumer choice and raise the quality of service. Improved connectivity would in turn enable growth possibilities across all economic sectors enabling the use of applications such as eCommerce, cloud computing and organisational innovation, driving productivity gains especially for SMEs.

It is estimated that the untapped potential of a Single Telecoms Market corresponds to a yearly amount of an additional 0.9% GDP or €110bn p.a.[3]

2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

2.1. Introduction

The current regulatory framework was implemented in 2002, and has been updated once in 2009 (with entry into force by mid-2011). The current framework has successfully liberalised previously monopolistic national markets by reducing barriers to entry and promoting effective competition and incrementally paved the way towards a single market for electronic communications. The framework is based on market analysis by national regulatory authorities (NRAs), one in each Member State, and in case where significant market power (or dominance) of one or more operators is found, the imposition of ex-ante remedies to ensure effective competition. The current framework makes provision for supranational markets to be defined and addressed, but the current regulatory and industry structure is not well designed to the development of such markets, in particular on the supply side.

The current framework is therefore premised on the implementation of rules by national authorities in 28 Member States. Experience shows, however, that these rules tend to be implemented in different ways, which makes it more burdensome, if not practically impossible, for operators to provide services on a cross-border basis or to enter new markets on the basis of a mere extension of existing commercial and technical models. Similarly, consumers cannot in practice enjoy services provided from other Member States, as they can in other sectors subject to Single Market rules. A serious degree of regulatory divergence is experienced in the new generation regulatory products such as internet based access products where different solutions are applied to solve essentially the same problems.

In the context of the regulatory framework centered on distinct national markets, the obstacles to cross-border provision of services and consumption are well documented (see Annex III for details and examples) and have been confirmed by a number of studies, several of which have been carried out for the Commission. The Impact Assessment draws on many other sources of evidence, such as the effect of the application of European rules in the annual Digital Agenda Scoreboard and economic studies conducted by DG ECFIN, for example on fragmentation of the telecommunications market in Europe (see list of references).

2.2. Consultation and Expertise

The Commission has engaged extensively with all relevant external stakeholders in order to assess the state of the telecommunications market and to determine how to improve conditions for establishing a digital Single Market. In the consultation process broad public events were combined with more targeted consultation to achieve the required breadth and depth of stakeholder inputs, supported by market studies. Over the course of the past two years, the Commission received substantive input on the subject matter of a Single Telecoms Market from a wide range of stakeholder organisations, including those representing established and alternative operators, business and consumer organisations as well as users of telecommunications services, national regulators and governments. The Commission has engaged in each Member State with a "going local exercise" that allowed to review the status of the market and the outstanding problems.

The Commission has also drawn on the results of a CEO Round Table dialogue, held during 2011, involving senior company representatives from the telecom, equipment manufacturers and media sectors, which produced a set of concrete recommendations. In particular, the Round Table called for one single binding European regulatory framework and concluded that Europe needs healthy companies with sufficient scale and specialisation. It was also recognised that pan-European companies should help market integration and the emergence of truly pan-European services, which are not sufficient today. The lack of necessary investments in high-speed Internet was identified as an important concern. The Round Table concluded that this trend needs to be addressed in the long-term interest of consumers and competitiveness. Also the need to develop open and interoperable standards for next generation products was highlighted.

The work undertaken by the Body of European Regulators for Electronic Communications (BEREC) has been instrumental in preparing the initiative in hand. For instance, BEREC has been actively looking into the issue of net neutrality (or the 'Open Internet'). In its report on best practices to facilitate consumer switching[4] it concluded that for competition to be able to deliver effective outcomes for consumers, it was essential to ensure transparency for consumers and called, inter alia, for keeping unnecessary switching costs and barriers to a minimum. BEREC's traffic management investigation showed that Internet subscribers are subject to significant restrictions[5]. Furthermore, in its report on the impact of administrative requirements on the provision of transnational business electronic communications services[6] BEREC assessed possibilities for a 'one-stop shopping' type of authorisation procedure and concluded that "interventions on EU and national legislations may be necessary in view of any implementation of a system of this sort".

The work of the Radio Spectrum Policy Group (RSPG) in recent years has underlined the importance of radio spectrum for wireless broadband, the potential benefits of infrastructure sharing and the need for closer cooperation amongst Member States on cross-border coordination issues. Already in 2011, the RSPG in a joint report with BEREC highlighted the possibilities of infrastructure and spectrum sharing in mobile wireless networks[7], stating that sharing agreement solutions that are compatible with competition law may have advantages for all parties involved, including end users (e.g. in terms of coverage and/or quality of service). In June 2013, the RSPG issued a comprehensive opinion on the strategic challenges facing Europe in addressing the growing spectrum demand for wireless broadband[8]. The RSPG highlights in particular the tremendous increase in the volume of data traffic for delivery of broadband services over both wireless infrastructures and defines wireless broadband as high-speed wireless transmission of data that may be provided via either fixed/RLAN, mobile or satellite platforms. Based on a developed roadmap for future broadband spectrum, the Commission is urged to develop a strategic plan to make sufficient and appropriate spectrum available to meet the increasing demand for wireless broadband services in the time frame 2013-2020[9]. In addition, in 2012, the RSPG proposed a process for assistance from the Union or “good offices” from the RSPG for facilitating cross-border coordination negotiations for cases of harmful interference between Member States or with third countries, respectively. Whereas the need for enhanced coordination of spectrum management has been recognised by Member States, they argue that there needs to be enough room for specific national situations. Relevant RSPG reports and opinions and details regarding the related public consultations are listed in Annex 6.

The Commission closely monitors the implementation of the legal framework for electronic communications. It has not only noted inconsistent practices by NRAs when regulating relevant markets, but it has also detected a structural lack of coherence across Member States with regard to the authorisation and the opening of spectrum bands for technology-neutral use.

The Commission has also contracted several studies (for example on the impact of traffic off-loading and related technological trends on the demand for wireless broadband spectrum) and conducted public consultations on specific problems over recent years (notably public consultations on a structural solution addressing high roaming charges, on spectrum policy coordination and shared use, on Wireless Broadband, on the possible reduction of costs for infrastructure roll-out, on the consistent application of ex-ante remedies imposed on dominant/SMP operators by national regulators, on a revision of the list of relevant markets susceptible to ex ante regulation, on specific aspects of transparency, traffic management and switching in an Open Internet and on the functioning of the market for Internet access and provision from a consumer perspective).

On the specific issue of the functioning of BEREC the Commission has contracted an external study and has discussed the results of the study with a panel formed by stakeholders.

Following the 2013 Spring European Council meeting, which stressed the need for concrete measures to establish the Single Market in ICT as early as possible, the Commission organised several consultative events attended by stakeholders representing all segments of the industry, consumers and civil society (namely a public information meeting in Brussels on 17 June 2013 and a comprehensive discussion as part of the Digital Agenda Assembly 2013 and the Digital Champions' meeting in Dublin on 18-20 June 2013). However, due to time constraints a full (12 weeks) public consultation could not be organized. As more details on the draft proposal emerged in early July, the Commission also received contributions from many stakeholders and their representative organisations on some of the specific measures under consideration (see Annex I for details).

Discussions have shown a large degree of convergence on the urgent need to overcome the remaining fragmentation[10] of the Single Telecoms Market, acknowledging the benefits that would flow from this in terms of additional growth. However, views differ on how best to achieve this, depending on the specific interests of different stakeholder groups. More detailed stakeholder views are presented throughout the report.

Some stakeholders (notably incumbent operators) argue for far-reaching change, including greater consistency of regulatory approaches, both in fixed and mobile networks (e.g. full harmonisation of spectrum assignment), more predictability and continuity, as well as more significant deregulation. However, whilst recognising the importance of a Single Telecoms Market for consumers, some operators have expressed concerns about the impact of certain elements of these proposals, notably on roaming and international calls, on their revenues. Other parts of the industry (including access seekers) argue for better implementation and more consistency in the provision of “virtual” access products, which would enable them to provide seamless pan-European services, particularly to business customers.

Consumer organisations argue for removing artificial costs (e.g. for roaming) arising whenever consumers use services when they cross borders. They also insist on removing discrimination resulting from blocking and throttling of services. Industry users, large as well as SMEs, including web entrepreneurs and start-up's, stress the importance of access to high-quality connectivity for competitiveness, allowing them for example to reap the benefits of cloud computing and machine-to-machine communications services applications. In sum, different stakeholders support or oppose different elements set out under each of the options.

By and large, Member States support efforts to achieve a Single Telecoms Market, even though on specific aspects a number of them have called for caution. In a policy debate held in the Transport, Telecommunications and Energy (TTE) Council of 6 June 2013 a considerable number of Delegations supported the objective of a Single Telecoms Market, with an emphasis inter alia on ensuring vigorous competition, promoting better choice for consumers, addressing net neutrality, tackling roaming in a proportionate way, ensuring greater regulatory consistency, avoiding regulatory arbitrage and promoting closer coordination of national spectrum approaches. A large number of delegations expressed concerns about centralising policy through a single European regulator and/or central EU authorisation and assignment of spectrum. Discussions were also held in June 2013 with the Body of European Regulators for Electronic Communications (BEREC) and the Radio Spectrum Policy Group.

The competent committees in the European Parliament held three meetings to discuss the forthcoming proposals: In general, MEPs expressed strong support for the thrust of the Commission's forthcoming proposals. MEPs in particular highlighted the need, as an integral part of a true Single Telecoms Market, to eliminate international roaming charges, to introduce clear and stringent rules on net neutrality and ensure a high level of consumer protection. Some MEPs have pointed to the challenging time-table for agreeing a set of ambitious measures before the forth-coming EP elections.

More recently after the intended measures which were subject to the ISC have been amply debated in the press the Commission has received a number of unsolicited written contributions on the specific issues of the proposal that allowed to have a very granular view of the opinions of the market participants and of the interest groups on all aspects of the proposal.

2.3. Opinion of the Impact Assessment Board

The draft Impact Assessment was presented to the Impact Assessment Board on 17 July 2013 and resubmitted on 14 August and 4 September. The Board examined it and delivered its opinions on 19 July and 29 August 2013. Following the latter opinion the draft Impact Assessment was further revised. The IAB examined it and delivered its final opinion on 6 September. In response to the recommendations of the Board, the document was revised introducing the following main changes:

· The text has been significantly streamlined and any duplication removed. The overall narrative has also been adjusted in light of the Board's comments;

· The text has been fully aligned with the latest draft of the proposed legal instrument;

· A full section on international roaming has been integrated. In this regard, it is important to note that the approach foreseen in the legal instrument, i.e. the gradual introduction of 'roam like at home' (RLAH) type of tariffs through bilateral or multilateral roaming agreements, is optional and fully consistent with the current regulatory framework (Roaming III Regulation). It follows that the proposed approach will produce impacts only to the extent that operators decide to opt-in. In that case, the impact can be expected to be positive compared to the baseline (no change) scenario; -This section also develops the impact of the proposal with regard to international calls and abolishing charges for incoming calls, and refers to any possible unintended consequences (including as regards roaming);

· Figures have been added to illustrate the impacts of other specific parts of the proposal, notably on spectrum coordination, wholesale inputs, international calls and net neutrality;

· The text has been refocused on the aim of completing the single market;

· The subsidiarity section has been developed to highlight certain choices intended to ensure that the EU-level intervention does not go beyond what is needed and preserves Member State freedom, to the extent consistent with the overall objective, in preparing draft SMP remedies, in determining whether European virtual access products would be suitable to resolve local competitive problems or in designing the details of spectrum assignment procedures;

· More attention has been paid in the report to set out the wider aspects of coordination in the spectrum area and to assess the possible impact on Member States;

· Similarly the document was revised to clarify the current authorisation regime and explain the obstacles which a single authorisation can be expected to remove;

· The report explains more clearly what is insufficient about current regulatory framework particularly with regard to the Article 7 procedure and clarifies how the proposed measures are expected to lead to greater consistency of regulatory remedies including as regards virtual access products;

· The description of measures to ensure the protection of consumers, including further assessment of the possible implementation costs is strengthened;

· Positions of stakeholders on individual aspects of the proposal have been added, where available;

· All sources have been referenced.

3. PROBLEM DEFINITION AND SOURCES OF REGULATORY FRAGMENTATION

Europe lacks a genuine single market for electronic communications. The Union is fragmented into distinct national markets defined by Member State borders.

Market segmentation and persistent barriers to entry restrict competition which is a key driver of growth and investments. Variations between national markets are observed in market shares and price disparities above 100% and coefficients of variation above 30%, in both fixed and mobile markets[11]. The lack of a Single Telecoms Market leads to additional compliance, and transaction costs and facilitates market concentration[12].

Today’s economy is knowledge-based. The role of ICT, and more specifically that of high-speed broadband networks and ‘connectivity’, as a driver of growth has been researched extensively[13].At present, the EU is not fully tapping the benefits of ICT for growth, and investments in high-speed networks, for example as regards 4G (on the basis of so-called Long Term Evolution technology – LTE), are not happening fast enough (see figure 1). Investments in infrastructure are indispensable to exploit the opportunities for innovation and new services, such as cloud services, running over these networks. High speed broadband networks are the arteries for digital growth.

Figure 1 – Investment Trends - Wireless CAPEX in US, Canada, Europe (Local Currency, 2002 = 100)

While there are a number of reasons for lower levels of investment, including companies' strategies and wider economic conditions, their financial situation and access to capital markets, competitive pressure or demand-side developments, the right regulatory environment is crucial to contribute to a dynamic and competitive market. It must provide the right balance of risk and reward for those prepared to invest. In order to achieve these objectives, the Commission is adopting together with this proposal a Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment.[14] This Recommendation will promote competition and enhance investments in high-speed networks by providing long-term stability of copper access prices, ensuring access seekers equal access to the incumbent operators' networks thereby ensuring a level playing field, and by setting out the conditions under which price regulation of NGA networks is no longer warranted,

New sources of revenue have not been exploited sufficiently given lack of innovation in business models to address changes in consumer behavior (shifting away from voice to data). Regulatory fragmentation – including inconsistent remedies and sometimes over-regulation - also generates legal uncertainty and in some cases even overregulation, which in turn can slow down the introduction of new business models. For example, different ways of regulating virtual wholesale access products (such as bitstream or leased lines) make it more complicated and costly for operators to develop products for the business-to-business market (which represents some 50% of total turnover in the telecommunications sector) on a multi-Member State or even pan-European basis. Different ways of regulating traffic management practices (also referred to as "net neutrality") create uncertainty as to the possibility to offer specialized services with guaranteed quality. This legal uncertainty hampers product and business-model innovation and, consequently, the introduction of new business models.

Another example is the inconsistent approach to spectrum assignment in the EU, which leads to the fact that the key input for mobile operators is differing across Member States, e.g. in terms of timely availability and license conditions[15].

In particular, telecom operators are hampered by regulatory and administrative obstacles to operate as integrated providers across different Member States. Out of hundreds of telecom operators in Europe, none is active in all Member States. Furthermore, an average European can only choose among 3 or 4 alternative providers. In fact, several major companies (e.g. Vodafone, France Telecom) have begun to reduced their European footprint by withdrawing from certain Member States’ markets (see figure 2). Where they expand it is often outside of the European Union.

Figure 2 – Main European Operators' Footprint through Separate National Operations

Major telecom companies have begun to exit some national markets

Source: Booz & co., Building and Leveraging Scale in the Digital Home Sector, a Study for Liberty Global

The completion of the Single Market depends on a number of factors including economic, cultural and wider regulatory divergences. On the demand side, there exist considerable divergences in consumer protection rules, copyright, or data protection, which are often considered as the main barriers to a rich digital Single Market with vibrant, cross-border content. For example, today's copyright and rights’ management systems remain territorially-based with important differences between Member States, for example as regards the implementation of exceptions. The implementation of the framework is complex and often cited by stakeholders as an important reason for the lack of multi-Member State or even pan-European premium content offers (in particular in light of the increasingly bundled content and connectivity services).

This, in turn, limits the choice of citizens who want to enjoy legally their content wherever they are in Europe, which the availability of cloud services makes possible. The Commission has already launched important initiatives to address these pressing demand-side issues, e.g. a draft Data Protection Regulation to secure full substantive harmonization and a European coordination mechanism; legislative reform of collecting societies; the “Licenses for Europe” process and a commitment to consider possible copyright reform legislation in 2014. These issues, even though highly relevant to the development of the telecoms sector, are therefore not further addressed in this Impact Assessment.

The main sources of regulatory fragmentation in telecommunications are the following:

3. 1. Barriers to the Single Market through National Authorisation Regimes linked with inconsistency in regulatory approaches implemented by National Regulatory Authorities

The current European authorisation regime falls under the provisions of the Authorisation Directive[16] and follows the principle of national jurisdictions. This principle is in particular confirmed also in the event of cross-border provision of electronic communications services to undertakings located in several Member States.

Despite the attempt of the Authorisation Directive to reduce the administrative formalities that may be imposed in the context of the general authorization (Article 3(2) of the Authorisation Directive), individual notification of activities is nevertheless required in almost all Member States (26 out of 28), with corresponding national notification, each differing in terms of modalities and content of the information required. In addition to that, several Member States link direct and indirect additional national establishment and/or proxy requirements to each national notification regime.

While this widespread practice has already triggered several complaints leading to investigation of the Commission and, in some cases, to the opening of infringement procedures, the overall system in general does not take sufficiently into account the specificities of pan-European electronic communications service providers (for example those addressing business-to-business needs). As a result, a company wishing to offer services in the whole territory of the EU (while it may have only one business customer in each Member State) has to be authorised under each national regime. In addition, such a company with limited activities in several Member States will have to face several national administrative charges as well as universal service contribution regimes. While some Member States provide for a de minimis exemption threshold this is often based on different criteria. Finally, notification pursuant to the electronic communications rules may be leveraged by Member States to presume the obligation to establish, without regard to the effective nature of the activity carried out. In conclusion this results in administrative burden and increases the costs of providing a service across borders. As a matter of fact, heterogeneity of notification requirements as well as the additional requirement linked to the notification was raised by stakeholders in the context of a public consultation carried out by BEREC on the impact of administrative requirements on the provision of cross-border services[17].

At the same time telecommunications services have to be customised to different national markets across the EU because of diverging regulatory obligations relating to the provision of a service. These are often as specific as the need to use a particular font in the contract with the end-user. Whereas regulation applying to the networks, which are inherently physically situated in a given Member State, needs to take account of local circumstances (including the number and nature of infrastructures available), varying regulatory approaches and national differences in the application of market remedies are a substantial constraint even in the presence of objectively similar circumstances (see Annex III for details and examples). Still, large differences in wholesale and retail prices across Member States cannot be justified by different underlying national circumstances alone but are also the result of (sometimes significantly) varying regulatory approaches.

In line with current EU rules, national regulators must analyse their telecoms markets, and impose proportionate regulatory remedies on operators with significant market power (SMP) in non-competitive markets, that is, on operators that can act independently of competitors, customers and consumers. Such regulatory remedies can include access, transparency, non-discrimination, accounting separation, cost accounting, price control and, in exceptional circumstances, functional separation obligations.

Even though the Commission received additional powers under the so-called Art. 7/7a procedure through the last review of the electronic communications framework in 2009, allowing it to suspend proposed national remedies in order to seek solutions with the relevant NRA and BEREC, there is still a distinct difference between Commission powers in respect of competition analysis (market definition and SMP), for which it is possible for the Commission to require withdrawal of a draft decision, and its powers in respect of remedies. In case of remedies, if there is disagreement at the end of a so-called "phase II" procedure where the Commission has expressed "serious doubts" on the compatibility of a draft national measure with the proper functioning of the Single Market, it may adopt a recommendation calling for the amendment or withdrawal of the draft measure, but not a binding decision. The NRA must take utmost account of the Commission's recommendation, but can depart from it as long as it provides a reasoned justification. After this step, the Article 7 procedure foresees no further steps for the Commission to continue pursuing its goal of consistent regulation.

This lack of enforceability of the results of the Commission's investigation into proposed remedies creates a problem for the internal market, because NRAs still use a variety of approaches in similar circumstances. The potential lack of consistency is especially problematic for companies operating in more than one member state and could be a potential barrier for further expansion and investments of companies within the EU footprint.

Even in a field such as termination rates, where the approach to pure LRIC calculation of regulated efficient rates under the Commission Recommendation 2009/396/EC has enjoyed the solid backing of BEREC in the individual remedies cases opened to date under the 7a procedure, there have been a number of recent cases where individual Member States have taken a different approach, even if the competition problems of these markets are very similar across Member States. Moreover, this is an issue with important ramifications - for example, in the case of calls between Member States, which can be expected to become more and more significant as the Single Market integrates, it leads to operators in Member States where efficient cost-oriented termination rates have been introduced cross-subsidising operators in Member States where this is not the case and where additional costs are included in the calculation of the termination rates. In addition, the abolition of roaming surcharges for incoming calls is justified by the widespread implementation of efficient cost-oriented termination rates, including for calls from other Member States.

Therefore, effective solutions in this respect are vital for the functioning of the single market. Similar interlinkages can be cited as regards the other main area of ex ante regulatory activity, namely access remedies – the useful effect of the introduction of European virtual access products would be undermined if the Commission were not able to ensure that they are properly taken into consideration in market analysis, at least in respect of remedies applied to SMP operators with a multi-country footprint. Even if access remedies are imposed in relation to next generation fixed broadband networks, there is no consistency of the features of these remedies across Member States (as further demonstrated in Annex III). Access remedies, on the other hand, will play a fundamental role for operators that will use access products to expand into new geographies within the Union. Such expansion will be more costly without a coherent implementation of standardized remedies across Member States. A study commissioned by the European Commission[18] highlights how national orientation of sector regulation, which results in a lack of standardised wholesale offers fit for multinational corporations, increases the operating costs for multinational operators. This view is particularly supported by stakeholders that supply business customers and offer multi-site connectivity across Member State borders.

The current arrangements with regard to regulatory measures proposed are thus not sufficient to ensure a consistent application of remedies across the EU for companies aiming at multicountry coverage, as they may be subject to different regulatory approaches in objectively equivalent situations in different Member States.

3. 2. Lack of co-ordination in spectrum assignments and regulatory uncertainty as to the availability of frequencies that severely hinders the roll-out of Next Generation Wireless Networks

Wireless broadband communications includes cellular broadband networks (such as 4G networks), which support mobility over a wide area, and radio local area networks (RLAN, such as Wi-Fi networks) supporting nomadic and static usage of broadband services. Other regions such as the US and parts of Asia have deployed high speed wireless networks more rapidly and comprehensively, and generated customer take-up more quickly. (See Table 1 for LTE subscriptions worldwide).

Table 1 – LTE subscriptions worldwide (in thousands)

Year || 2012 || 2013

North America || 32080 || 60425

Western Europe || 2634 || 13008

Central & Eastern Europe || 1813 || 9688

Asia/Pacific || 28058 || 63680

Latin America || 334 || 2745

Africa/Middle East || 386 || 2873

World || 65305 || 152417

Source: Digiworld 2013

The Radio Spectrum Decision 676/2002/EC establishes a procedure whereby the Commission, working on the basis of mandates to CEPT[19] in order to gather the necessary technical expertise, can adopt, through comitology, technical harmonization of conditions of use of radio spectrum. This procedure has enabled the allocation of approximately 1.000 MHz of radio spectrum to electronic communications for licensed use under harmonised conditions throughout the Union.

However, allocation is only a first step: in cases where rights of use must be assigned (as is the broadly case for cellular mobile networks), uncoordinated spectrum assignments in the Union are holding back the Union’s potential to benefit from the benefits of wireless broadband and the mobile revolution. There are no systematic Union rules on the conduct of assignments. The existing telecoms legislation establishes basic framework conditions, relying mainly on coordination between Member States themselves, and requiring that assignments are based on objective, transparent, non-discriminatory and proportionate criteria and that procedures are open. The legislation also opens a number of options for Member States, regarding issues such as technical quality of service, maximization of spectrum sharing, or transfer and lease of spectrum rights of use. EU rules also establish that fees charged should be proportionate and should ensure optimal use of these resources. As regards timing of assignments and duration of rights of use, there are no general rules. A punctual legislative intervention has been made through the RSPP, establishing deadlines for assignment of a range of electronic communications spectrum to be conducted and for the relevant spectrum to be made available, but with limited success.[20] Despite their legal obligations, Member States have only assigned 650MHz out of 1000MHz of spectrum, designated to wireless broadband. While informal consultations on spectrum assignment plans sometimes take place between individual Member States and the Commission, the only formal tool available to the Commission to enforce even the current very high-level legislative principles is through ex post infringement action, which could add additional unpredictability for investors after an assignment has actually taken place.

In addition to assignment conditions, other barriers are holding back mobile connectivity, such as fragmented base station permit procedures and legal uncertainty concerning network sharing.

More specifically, obstacles for network operators and service providers to offer pan-EU service include:

i) different, uncoordinated spectrum assignments in different Member States do not allow for the same level of roll-out and quality. For example an operator that does not have sufficient spectrum below 1GHz in a given region is not able to economically roll-out wireless broadband services with wide coverage in that region. The amount of EU harmonised spectrum assigned in Member States still varies by a factor of up to three. Different spectrum assignments lead to different levels of competition in national markets (Figure 3 below) and by that perpetuate market segmentation of the Union into national markets. Retail prices for mobile services between different Member States still vary by up to a factor of seven (see Figure 8 further down), which can be partially attributed to widely varying conditions (going beyond price differentials for equivalent spectrum) in access to the most relevant productive input and to differing market structures, which are in turn influenced by spectrum holdings of the market players.

Figure 3 – Number of Mobile Operators in Different EU Countries

Source: COCOM

Table 2 – Prices for Spectrum in the EU

MS || Total Revenues (billion € - 800 MHz) || Total Revenues (billion € - 2.6 GHz FDD) || Revenues (€/MHz/pop - 800 MHz) || Revenues (€/MHz/pop - 2.6 GHz FDD)

Germany || 3,576 || 0,258 || 0,73 || 0,022

France || 2,64 || 0,936 || 0,68 || 0,103

Spain || 1,302 || 0,117 || 0,47 || 0,023

Italy || 2,934 || 0,432 || 0,82 || 0,06

The Netherlands || || 0,0026 || 0,5* || 0,002**

Portugal || 0,27 || 0,036 || 0,28 || 0,028

UK || || || 0,48 || 0,054

* Based on the price paid by one operator (Tele2) for reserved spectrum for a new entrant in the 2012 multiband auction. Other operators are reported to have paid significantly in excess of this amount for similar quantities of spectrum in the same band of €2,00/MHz/pop or even higher.

** All 2.6GHz FDD spectrum was auctioned in 2010, 2.6GHz TDD spectrum was auctioned in 2012.

Source: Commission analysis.

ii) different prices paid for spectrum licenses of differing durations imply different investment and pricing strategies which in turn depend on the competitive situation in a given market but also on the timing, the offer available and the auction design. Prices for high-valued sub-1GHz spectrum between Member States vary by up to a factor of three and exceed in some cases by far the amount paid in other world regions, such as in the US, by companies to gain access to similar spectrum portions. The effect of price variations on commercial decision-making is accentuated through the predominance of one-off payments. Moreover, market players are faced with additional cost through the limitation and renewal of licenses, which is often not the case in other world regions. Variations in duration of rights of use can lead both to variations in the investment horizon and to difficulties in aligning investment decisions across member States over time. Whereas the suitability of auctions to efficiently assign spectrum to market players is not questioned, consistent and efficient auctions are essential for the development of the market. High spectrum prices have an effect on market outcome, either in the form of higher prices than would otherwise apply and/or in lower investment capacity of operators in improved network capacity. Auction designs that aim at revenue extraction may conflict with the goal of maximizing social welfare[21] and with EU rules on optimal use of spectrum resources, but that rather abstract rule is currently difficult to apply.

iii) uncertainty on the calendar for award or renewal of licence conditions means less predictability for businesses. Mobile operators or consortia of mobile operators are not currently able to acquire licenses for already harmonised but unassigned bands, or newly harmonised bands across different Member States with similar license conditions, in a pre-defined time window to allow them to expand their European footprint and to offer the same service across different Member States. Such lack of synchronisation in the authorisation of spectrum for wireless broadband means not only that new technologies such as 4G are available only in parts of the Union but also that operators cannot place larger orders with equipment manufacturers and thus negotiate discounts, which would be possible if authorisations across different Member States would be granted within a shorter time-frame.

iv) considerable differences in conditions and obligations, such as those relating to auction design, payment and fees, coverage and network/spectrum sharing, creates uncertainty. An example of legal uncertainty is the approach taken towards Mobile Virtual Network Operator (MVNO – companies that provide services by using the network of another operator). In some 10 Member States, MVNO access is provided for mainly through attachment as a condition to spectrum assignments rather than as the result of a market analysis based on the existence of significant market power. Although the Radio Spectrum Policy Programme (RSPP) indicates that MVNO access is one possible tool to address competition problems, there is no clear and objective test or threshold for using this tool in the context of spectrum assignments, or on how it should interact with other interventions to enhance (infrastructure-based) competition, such as spectrum caps. This has significant and diverging effects on market structure, within a context which is normally characterised by greater infrastructure competition than in fixed-line markets.

v) fragmented permit procedures to deploy small access points. This means that in more densely populated areas increased capacity cannot be realised by using additional spectrum resources, by reusing spectrum resources through the deployment of additional smaller cell base stations or by deploying wireless hotspots. These small installations can be integrated in public infrastructure such as street lampposts with low visibility or be based in end-user premises. However, a number of administrative and structural barriers exist for upgrading existing sites to provide higher capacity and for deploying new sites. Moreover, in many cases, operators encounter significant delays in the approval of planning permission requests, which can range from one month to up to two years. This is hampering in particular the roll out of small cell technology as it requires huge numbers of base stations and thus permits.

Some Member States have introduced permit exemptions for low-power base stations and simplified procedures, including by setting up a single contact point for permit requests ('one-stop-shop' licensing). Furthermore significant variations can be observed between Member States as regards the application of electromagnetic field (EMF) limits. It has even been the case that Member States (or regions / municipalities thereof) have imposed limits that are more than 100 times stricter than the recommended limit in Council Recommendation 1999/519, without clear scientific underpinning, which can restrict the deployment even of very low-power equipment.

vi) Legal uncertainty concerning network sharing, spectrum sharing and spectrum trading or leasing. With a limited business case for deploying wireless broadband in certain areas, rolling-out several parallel infrastructures in such regions can be highly uneconomical. Recent studies have identified the possibility for significant roll-out cost savings in the order of 30-40% through infrastructure or spectrum sharing and several Member States have developed first guidance in this regard. The authorization of active as well as passive network sharing arrangements, while respecting competition rules, which can be applied contextually according to the efficiencies achieved and shared with end-users, may allow economic wireless broadband roll-out in certain areas and for higher broadband speeds if combined with national roaming and spectrum pooling schemes which increase spectral efficiency through wider bands. At the same time, easier spectrum transfers, leases or sharing could, consistently with competition rules, allow more efficient spectrum use, greater network differentiation and thus greater investment incentives. However, there is currently wide variation in national licensing practices in these respects.

Overall, the lack of a single wireless space, where providers can offer wireless services wherever they are based and a lack of consistency in spectrum assignment inhibit efficient spectrum utilisation and gives rise to a lower availability of quality services. The situation in the 800 MHz frequency band is a case in point of this fragmentation and underscores Europe's inability, to date, to deploy precious spectrum for wireless internet services (4G or LTE) in an efficient way. The time needed between the early and late movers amongst EU Member States will likely reach as much as 6 years which explains why certain leading smartphone manufacturers have decided not to equip their devices with the necessary technology for it to serve in those bands in Europe.

3.3 Lack of pan-European Virtual Network Access and Inputs (wholesale products which allow the provision of services using the network of another operator) with consistent service interoperability levels

The slowness of companies and regulators to embrace the internet revolution has put the EU at a significant disadvantage. There is a consistent lack of interoperable, cross-border wholesale IP products which allow for the provision of digital services not only telecommunications but also innovative value added services such as online content, cloud, e-Health applications or gaming services, using the network of another operator on a cross-border or pan-European-wide basis. The possibility to provide such services on a pan-European level creates opportunities for operators to develop new business models and exploit new revenue streams.

As present, operators who wish to develop cross-border offers and exploit pan-European business strategies, have difficulties finding wholesale access inputs at consistent and appropriate quality and service interoperability levels. Quite often, the relevant wholesale access products, if available at all, require different processes and exhibit different technical features in each Member State. As a consequence, integrating the different inputs into a single cross-border service of consistent quality raises costs or even makes the provision of some types of offers impossible. This costly and time-consuming process deters cross-border and pan-European strategies.

A further obstacle to the Single Market is the lack of products that guarantee end-to-end quality of service at the IP level when networks interconnect for achieving end-to-end communications (which should not be confused with the IP interconnection market). Such IP Interconnection products are needed in order for telecoms providers to enable their clients to offer services with guaranteed quality across different Internet network layers, such as for real-time applications (e.g. video conferencing, e-health applications, e-procurement, online trading or gaming). If the parameters for these products could be defined on a common basis, this could provide an impulse for the development of offers on commercial terms compliant with those common parameters and bring about a Single Market for guaranteed quality online service provision in a relatively short period of time.

Most of the next generation network operators and Internet service providers deploy and run networks based on the Internet protocol (“all-IP networks”), but with a strong control at the borders of their network (e.g. translation of format and change of addresses through IP gateways). Typically TV distribution over a telecom network (IPTV), audio streaming services, but also voice calls (when on-net) are services currently delivered with managed quality of service. The paradox is that while operators use IP (managed) guaranteed quality for their own services, they do not generally offer them to third parties, or if at all they offer only limited versions. As a consequence, a large part of the potential efficiency gains associated with the shift to all IP are foregone and the development of innovative services constrained.

One reason why appropriate service offers in this area have not evolved is that the current fragmentation shields operators from international (intra-EU and global) competition. This may explain why some incumbent operators have reacted rather critically to ideas to ensure greater consistency of virtual access and IP interconnection products, since such consistency will likely trigger additional competitive forces.

Evidence supporting the seriousness of this problem includes the conclusions of the CEO Round Table of July 2011, the findings of the study into the cost of non-Europe in electronic communications cited above, a recent study by WIK for ECTA and INTUG on international business communications services, and a series of bilateral meetings with stakeholders.

3. 4. Evidence of market fragmentation on consumer interests: high costs of roaming and international calls, blocking or throttling of services and uneven levels of consumer protection.

Many consumers in the EU directly experience the lack of a Single Telecoms Market and the costs of market fragmentation. The connected car of the future risks not working in an environment with high roaming costs, the same applies for the personal health network or the virtual reality tools of the future. Innovation in the EU is hampered by high roaming charges.

International roaming charges are probably the most visible example of an unfinished Single Market. While successive Roaming Regulations have brought tangible benefits to consumers in the form of price reductions for voice and SMS roaming services, and more recently for data communications, roaming charges continue to be an important cost to citizens and businesses and, as such, constitute an important impediment to mobility within the Single Market. Many Europeans avoid, or curtail usage of their mobile phones, navigation services when travelling outside of their home Member State in order to avoid incurring mobile roaming charges[22].

The Roaming III Regulation, adopted in 2012, introduces the possibility for "decoupling" which allows customers to contract with separate roaming providers. This will inject greater competition into the market but is not expected of its own to create a situation where customers can confidently replicate their consumption behavior in their home Member State when travelling abroad (also referred to as "Roam Like at Home" or RLAH).

Of a similar nature, consumers are still confronted with the impact of borders when they make international calls within the European Union. It can sometimes be up to five times more expensive to call between cities in different Member States when the distance is, say, 100 kilometers than it is to call between two cities in the same Member State when the distance can be many hundreds of kilometers. Current EU rules however do not address the issue of unjustified costs for calls which involve a cross-border element, such as international calls within the Union. As a result, rates that consumers are charged are often multiples of national rates while technically the difference in the cost of provision can be marginal.

To date many consumers are not always in a position to access and distribute information or run applications and services of their choice over the Internet. Any limitations to access to the Open Internet can impact on end-users' freedom of expression and the way in which they can receive and impart information. Although operators need to manage Internet traffic in order to ensure the proper functioning of the networks (including managing network congestion, security threats, etc.), there are many instances when unjustified blocking and throttling occurs.

According to a major 2012 BEREC Internet traffic management investigation[23], access restrictions due to traffic management measures are relatively frequent and affect a significant number of mobile and fixed end-users in most Member States. The blocking and throttling of P2P and VoIP is the most common example: over 21% of Internet access subscribers are affected by fixed P2P and mobile VoIP restrictions and over 36% by mobile P2P restrictions.

Deliberate blocking or slowing down of traffic, in particular the service of a competitor is anti-competitive. The risk that any service can be blocked or throttled creates uncertainty which may impact negatively on innovation and growth. Indeed, web entrepreneurs and start-up's for example in the content or applications field would not likely invest in new ventures in Europe if such risk were perceived to be real.

Absent clear and predictable rules at EU level, some EU Member States have begun to adopt their own approaches regarding traffic management practices (often referred to as 'net neutrality'). Regulatory measures have been developed at national level ranging from non-binding instruments (self-regulatory measures in the United Kingdom and Denmark) and more elaborated guidelines (NRA guidance in France) to the enactment of specific legislation on net neutrality (the Netherlands and Slovenia). Additionally, Germany is planning to adopt legislative proposals in the near future. Several initiatives have been announced or are under preparation in other Member States. This could result in further fragmentation of the Single Market that significantly complicates the integrated management of multi-territorial networks.

At the same time, regulatory diversity and rigid rules may make it difficult or even impossible for Internet Service Providers (ISPs) to offer specialised services to businesses who would need specific guarantees to develop successful products to particular types of customers such as in e-health (e.g. distant health monitoring), video-conferencing, ultra-high definition quality content, stock trading or gaming which require higher delivery standards (notably with regard to latency and jitter) than "best efforts" Internet. If European operators would have legal guarantees that they could offer such high-quality products, whilst ensuring "best efforts" Internet for all other traffic, this could spur new business models and also give them greater leverage in negotiating agreements with so-called 'Over The Top' (OTT) providers.

The current EU regulatory framework provides for sector-specific consumer protection for users of electronic communications services. A number of the EU provisions in this context have an enabling character and the telecoms consumer rules in general are considered a set of minimum harmonisation measures. This means that EU consumer protection rules in telecommunications are implemented with varying levels of detail, focus and impact at national level. As a result electronic communication service providers wishing to operate across borders face a wide variety of diverging national consumer protection rules which leads to a fragmented Single Market. The same goes for consumers wishing to contract services abroad.

Transparency is an essential part of consumer empowerment. As stated by BEREC, "to date end-users in Europe have reportedly met repeated difficulties in identifying and understanding the characteristics of offers, in particular for access to Internet. In this context, improving transparency is an obvious necessity"[24]. As operators are often not sufficiently transparent, end-users are not able to clearly understand the characteristics of the products and to make a well-informed choice. This lack of transparency exists for traffic management practices as well as for quality of service. This is confirmed by findings of a DG SANCO study regarding the transparency of offers provided by ISPs on their websites[25]. Indeed, 94% of respondents consider that ISPs do not provide information on their website on blocking/throttling of specific applications or services.

According to a recent Eurobarometer survey[26], nearly six out of ten respondents (57%) are not aware of their Internet connection maximum download speed. In this context, there are also important discrepancies between advertised speeds and actual speeds. Findings of a Commission study conducted by Samknows[27] show that there can be a significant difference between advertised speeds and actual speed on fixed networks. On average, EU consumers receive 74% of the advertised headline speed they have contracted for. xDSL based services achieved only 63.3% of the advertised headline download speed, compared to 91.4% for cable and 84.4% for FTTx (including VDSL).

An important element of consumer protection is the possibility to switch providers easily. It is also an important condition for enabling competition. In practice many barriers to switching exist and there are many differences in national rules on switching. This issue is closely linked to the rules on transparency. As BEREC has highlighted, the effectiveness of transparency measures crucially depends on the ability of the customer to switch to another ISP when s/he is not satisfied with the service provided (i.e. the competitiveness of the end-user market). This depends on the availability of alternatives which meet consumer demand. The public consultation on specific aspects of transparency, traffic management and switching in an open Internet revealed that improved transparency and easier switching are considered very important by citizens.

Contracts are an important element relevant to switching, as restrictive contractual terms and conditions can be one of the main barriers to switching. In the BEREC report on best practices to facilitate consumer switching, some of the main obstacles to switching identified by NRAs were: contractual issues (in particular restrictive terms and conditions e.g. early termination charges), lack of consumer information (especially regarding pricing structures and the implications of switching), technical issues (such as process deficiencies in the switching process particularly for Internet/broadband and bundles) and other obstacles, such as lack of one-stop-shops, abuse or delay of the switching process by the operators. There is also a lack of clarity on the switching and contract rules regarding bundles. For example, in some jurisdictions contracts are extended tacitly (by up to one year) after the expiry of the initial contract period, without any advance notice, sometimes on the basis of the ISP’s general terms and conditions. There is however no justification to require a customer to stay with the provider after the initial contract period is over. Such practices reduce considerably the effective “time window” for end-users to switch or for competing ISPs to “lure away” end-users with attractive offers.

As to the switching costs that consumers face, according to the study "The Functioning of the Market for Internet Access and Provision from a Consumer Perspective", on average, respondents in EU Member States spent 2.5 hours of personal time on the switching process, ranging from less than 1 hour (25%) to more than 10 hours (3%). This includes "the initial search for new providers, comparing offers, contacting the new provider, signing the contract and installing new equipment". Although only 10% of consumer survey respondents found it difficult to switch, "almost half (44%) say they experienced problems of some kinds when switching", thus corroborating BEREC's assessment of the switching process. The study finds that "for the EU the average financial (time) cost associated with switching provider is €31.9 per household, assuming the switching efforts are made during work time, and €9.6 if they are made in leisure time".

4. MANIFESTATION OF THE IDENTIFIED PROBLEMS AND STAKEHOLDERS AFFECTED

4.1. Single Market fragmentation affecting ICT user industries

The lack of a genuine Single Telecoms Market affects all companies both large multinationals and SMEs. Business users face obstacles in sourcing telecoms services and connectivity solutions from a single supplier and with consistent quality. This increases transaction costs, impedes the use of business-critical multi-site applications and undermines the efficient design of value chains with detrimental effects on productivity. In a fully-fledged Single Market, one of the crucial strengths of European integration should be the ability of businesses to locate their operations in all areas of the EU so as to realise a maximum amount of benefits from regional specialisation patterns and factor endowments. A strategy that efficiently organises the value chain this way will typically induce companies to spread production and workflow process across multiple sites and countries throughout the EU (as depicted in Figure 4).

Figure 4 – Structure of Multi-Site/Multi-National Business Operations

Source: WIK, taken from BT et al.

Telecommunication services that ensure seamless exchange of information between all sites become truly vital. According to WIK[28], the value of telecommunication services and products supplied to multi-site/multi-national corporations (MSC/MNC) accounts for 28% of the European telecommunications market. Companies are however rarely able to find solutions that meet their needs (see Figure 5).

Figure 5 – Difficulties with Sourcing Fit-for-Purpose MCS/MNC Solutions

Source: WIK

Likewise, only a minority of respondents in the survey was able to find several suppliers with almost half reporting that they were rarely able to find more than one or two suppliers (see Figure 6).

Figure 6 – Experience with Obtaining Multiple Offers for MCS/MNC

Source: WIK

As noted in a paper prepared by DG ECFIN earlier this year[29], different dispersion measures (price disparities generally above 100% and coefficients of variation over 30%) seem to confirm that significant fragmentation still exists among national electronic communications markets. It also appears that this fragmentation has not been significantly decreasing over time. The paper argues that it is particularly striking that integration remains limited also in highly regulated segments like roaming. Overall, the analysis confirms that fragmentation can at least be partly attributed to the still national orientation of sectoral regulation. At the same time price dispersion within the EU is the result of many factors, including different cost levels (of capital and labour inputs) and different purchasing power parity levels. The current initiative is not seeking to address price dispersion per se but focuses on removing artificial border effects, so that competitive entry and expansion is facilitated on common terms, with likely indirect effects on price divergence to the extent that it is in part due to non-competitive rents; while also addressing directly a more limited example of divergence, namely where disproportionate price differences relative to the domestic level arise from the mere fact that communications cross borders (i.e. international calls, roaming).

Large and small companies are equally likely to benefit from cloud services which allow them to quickly adapt their ICT capabilities to business performance. Such services may be adversely affected, for example by the lack of assured end- to- end quality of service in a fragmented market or high costs of connecting to the cloud resources from across a border or on the move.

Products themselves are also becoming increasingly connected: e.g connected elevators that call for assistance through the Internet or connected appliances (e.g. domestic sensor systems, alarms, energy monitors) that can be operated from a distance. Industry sources expect 25 billion devices to be connected to the Internet by 2015 and 50 billion by 2020 (Figure 7).

Figure 7 – Number of Connected Devices

Source: Cisco Internet Business Solutions Group (Cisco ISBG), April 2011

All these products need to have ensured access to a network. This is much easier to achieve for a manufacturer or a retailer in the US or China where a contract with a single operator opens up immediate access to a large market (e.g. AT&T's "Digital Life" portfolio of services offered across its network). This is not the case in Europe. The effect goes beyond this being a problem of lack of scale for many telecom operators in Europe making it difficult to develop such integrated, innovative service portfolios. For example, connected cars, which are expected to come onto the market before the end of this year. While a connected car crosses borders without any difficulty, its continuous connectivity requires multiple agreements with service providers in different Member States (since no single operator covers the whole EU territory) offering different products with different quality of service. The result may be inflated costs related to data roaming across networks, lock-in since changing of supplier(s) will be complicated and costly and, in a worst case scenario, even interruption of service. The complexity and additional costs of seamless connectivity for connected cars puts European automobile manufacturers at a competitive disadvantage.

Also, organising supply chains across the EU is challenging if connectivity cannot be ensured or only at higher charges. This is the case for example for equipment with in-built SIM cards (such as GPS or other mobile devices). If suppliers want to ship such equipment to other Member States to meet demand, this will involve significant extra costs.

There are numerous other examples of how the lack of a Single Telecoms Market is an impediment to innovative services across sectors. Distribution and logistics sectors are likely to benefit from the positive effects on productivity of machine to machine (M2M) communications provided a Single Market is in place to underpin the connectivity and foster access to numbering resources. Health equipment such as a connected heart monitors requires a constant and reliable network connection wherever the user is located in Europe. And so on.

The EU's trading partners are already exploiting this potential. The ICT sector and the wider internet economy in the US, Asia and some emerging countries is booming and driving growth and jobs across the entire economic value chain. It is estimated that between 2010 and 2016 growth in the European ICT sector will only reach 0,3% compared to 15% in the US, 26% in Asia and 57% in Africa[30]. The EU share of the digital value chain is smaller but that does not diminish the importance of telecommunications inputs for the EU economy at large.

4.2. Single Market fragmentation affecting European consumers

The consumer's place of residence still plays a significant role in the quality of the level of consumer protection received and in the choice of services available.

In many cases consumers are served on different terms or are prevented from using certain services abroad or from providers elsewhere in the EU for reasons related to the existence of national borders.

Obvious examples of an unfinished Single Telecoms Market such as roaming and differences between costs of local and international calls reduce consumer demand. Fragmentation resulting from different levels of consumer protection (for example, regarding price transparency, quality of service and switching) restricts consumer choice. Rules also tend to be too complicated for the average consumer. Complex contracts make comparisons, particularly on a cross-border basis, difficult if not impossible.

Prices for most basic communication services such as fixed line broadband subscriptions or mobile voice calls are often lower in the EU than in comparable countries. Price reductions as a result of competitive pressure have generated considerable benefits for consumers and produced overall net welfare gains.

However, from the perspective of consumers, the current patchwork of rules and national markets in the EU has also perpetuated certain tendencies. For example, there are still considerable variations in mobile voice prices among Member States, which cannot be justified by underlying national circumstances alone (e.g. different cost structures and/or purchasing power). Average revenue per minute for mobile voice stood at above €14cents in the Netherlands and Luxembourg but was well below €3 cents in Lithuania and Romania.[31] Similar discrepancies are confirmed by newly released OECD data.[32]

Figure 8 – High Differences between Price Levels in the EU

Source: Digital Agenda Scoreboard 2013

In particular, in a Single Telecoms Market, both roaming and international call prices[33] should gradually approach national rates. In particular for data roaming, however, the difference between domestic and roaming rates remains very high. The effective data roaming rates are lower than regulated caps and were in the region of €0.58 per MB on average at the EU level at the beginning of 2013. The domestic average price for data roaming is around €0.01 per MB[34]. The average spending on mobile data in Europe is €8.30 per month, which would allow for just over 14 MB of data roaming as opposed to the average domestic use of 250MB in the UK currently. It is clear that in particular in data roaming, such current pricing substantially reduces usage (i.e. there appears to be substantially greater price elasticity than for voice calls). There is thus far little sign of competitive downward pressure to close the gap between national and international roaming prices.

Currently international call prices are not regulated, and the base prices tend to be higher than roaming prices despite the fact that roaming when using the networks of others definitely entails higher costs for the operator, and such international communication prices are even increasing in some markets. Examples are provided in Annex VIII. The additional costs for an international call are limited and will diminish further in the current shift to Internet based services (in an 'all-IP' world) and given the increasingly widespread use of smartphones. It is possible that outstanding very high price levels in this segment are untouched by, if not even underpinned by, greater competition for certain customer segments – from VOIP or comprehensive bundled packages including international minutes to at least significant destination countries for communications traffic – because customers who do not benefit from such offers are identifiable as susceptible to pay such higher charges.

Different cost profiles also affect other segments of the market (see figure 9).

Figure 9 – Price Disparities in Various Electronic Communication Segments

Source: European Commission[35]

Table 3 – Examples of Prices of International Mobile Calls for Different Operators (per minute)

Country || Operator || Price of International Mobile Calls

Portugal || Vodafone || €0.465

Spain || Movistar || €0.65

Italy || TIM || €0.35

France || Orange || €0.35

Belgium || Belgacom || €0.97

UK || Vodafone || €1.19

Germany || T-mobile || €0.48

Germany || O2 || €0.75

Hungary || Telenor || €0.35

Source: Operator websites

For wireless communications, fragmented market structures, competition within markets, and the modest size of European operators have led to limited exploitation of economies of scale. As a result, European operators have been investing less in network and services upgrades relative to other industrialised regions of the world. Whereas in Europe wireless CAPEX in 2012 exceeded its 2002 level by around 28%, in the US and Canada spending was more than 60% above 2002 levels (Figure 1). As a result, many European consumers have access to networks and services with lower characteristics particularly for wireless communications.

The EU also lags behind with respect to the actual speeds in use (Figure 10). A qualitative assessment suggests that lower EU high speed penetration is at least to some extent attributable to insufficient/lower coverage.

Figure 10 – Average Delivered Broadband Speed (Mbps)

Source: Sanford C. Bernstein, based on Bernstein Analysis and ITU

The situation is similar in wireless where, to date, mainly as a result of delayed LTE roll-out, the speed of high-end mobile data connections in Europe is lower than in the US[36]. European LTE/4G networks are estimated to cover just under 30% of the European population whereas in the US the largest two operators Verizon and AT&T cover around 90% and 60% of the population with 4G, respectively (Figure 11).

Figure 11 – US vs. Europe 4G Population Coverage

Source: Sanford C. Bernstein, based on company reports, Eurostat, US Census Bureau & Bernstein Analysis

The quality of broadband also presents a fragmented picture (Figure 12), meaning that users access different speeds in different countries. This is mainly due to fragmentation in terms of technologies across countries and to different degrees of competition.

Figure 12 –Fixed broadband lines by speed

Source: Communications Committee

4.3. Single Market fragmentation affecting telecom operators

The telecommunications sector consists of fixed incumbent operators and their challengers often relying on wholesale access to networks for their services, cable operators that have built their strength around content delivery but now compete head to head with the more traditional players, mobile operators and satellite platforms.

The sector has, as a whole, witnessed strong price competition over the last years and limited innovation. The previously cited analysis by DG ECFIN[37], notes that the national orientation of the current framework may have contributed to "inconsistencies in its implementation" including as regards market analysis and remedies "thereby forcing multi-country operators to duplicate costs and limiting opportunities to realise economies of scale". Similarly the lack of standardised wholesale offers fit for multinational corporations increases the operating costs for such operators. The resulting regulatory uncertainty contributes to making markets "less attractive for entry and reduces incentives to invest, especially in riskier new generation access networks". Annex IV presents the state of the electronic communications markets in more detail.

Figure 13 – Global Fixed Traffic 2010-2018

Source: Ericsson Mobility Report Nov 2012

Business models in Europe are still largely based on (declining) voice revenue; operators have not yet managed to successfully monetise the growing demand for data (see Figure 17 on data traffic below). Despite competition from global content and applications providers (e.g. Skype, What'sApp) that have d