EN EUROPEAN COMMISSION Brussels, 25.8.2010 SEC(2010) 630 final/2 PART 1 CORRIGENDUM

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PROGRESS REPORT ON THE SINGLE EUROPEAN ELECTRONIC COMMUNICATIONS MARKET (15th REPORT)





{COM(2010) 253} TABLE OF CONTENTS MARKET AND ECONOMIC DEVELOPMENTS 4 Financial and Economic Sector Overview4 Challenges for fixed and mobile markets7 Mobile Communications8 Broadband18 Fixed voice telephony34 REGULATORY DEVELOPMENTS 44 Institutional Framework44 Implementation of regulatory measures47 The consumer interest55 Horizontal Regulation73

Spectrum Management75 Monitoring and Enforcement79 IMPLEMENTATION IN THE MEMBER STATES AUSTRIA 81 BELGIUM 95 BULGARIA 105 CYPRUS 119 CZECH REPUBLIC 130 DENMARK 144 ESTONIA 156 FINLAND 167 FRANCE 180 GERMANY 194 GREECE 207 HUNGARY 219 IRELAND 230 ITALY 242 LATVIA 256 LITHUANIA 268 LUXEMBOURG 279

MALTA 288 NETHERLANDS 299 POLAND 309 PORTUGAL 323 ROMANIA 337 SLOVAKIA 352 SLOVENIA 365 SPAIN 377 SWEDEN 391 UNITED KINGDOM 404 List of Acronyms 418 MARKET AND ECONOMIC DEVELOPMENTS Financial and Economic Sector Overview Although the electronic communications sector weathered the economic downturn in 2009, the maturing nature of traditional markets such as fixed and mobile voice presents significant challenges to growth. The sector is facing its biggest transformation since liberalisation with the transition to an all-IP environment both in fixed and mobile networks. Voice communications are increasingly being replaced by internet-based calls or being included in broadband bundles. The sector's organic growth based on new subscriptions is slowing down for legacy mobile and broadband markets. At the same time, increases in data traffic are not yet compensating for declining prices and voice traffic. The economic climate in 2008 and 2009 led to weakened user spending (corporate spending in particular) yielding close-to-zero revenue growth while access to credit was restrained temporarily. Large cost cutting plans (in particular in terms of capital expenditure (CAPEX)), combined with business models based on flat rates, have however ensured continued profitability throughout the crisis. While achieving significant growth is challenging, there are some good prospects for a return to positive growth rates in 2010/2011 driven by the recovery of GDP and increased consumer spending. Furthermore, continued cost-cutting strategies are expected to fuel profitability and provide scope for increased investment in network upgrades and next-generation access. Revenues Revenues for the EU electronic communications sector were €351 billion in 2008 in the EU, which account for about half of the ICT sector overall. Seven of the ten largest telecoms operators in the world are European. 43% of the sector revenues are driven by fixed voice telephony and broadband (both business and private users), 47% are provided by mobile communications (voice and data), with the remaining 10% from Pay TV. It is estimated that the growth rate for revenues in the electronic communications sector (both wholesale and retail markets) in 2009, was close to zero (Table 1). As European markets mature, revenue growth is stronger for those operators which are active in markets outside the EU.

Table 1

Growth rate Share in telecom service revenues Fixed voice telephony and Internet access and services -2.5% 36% fixed voice telephony -6.3% 24% internet access and services 5.6% 12% Mobile voice telephony and mobile data services 0.6% 47% mobile voice telephony -1.8% 36% mobile data services 9.3% 11% Business data services 0.6% 7% Pay TV 11.7% 10% Total Telecom Services (Carrier Services) 0% 100% Source: EITO (2009) The mobile sector is experiencing close-to-zero growth. Unlike for the fixed sector where flat-rate offers are common, mobile services are more elastic and leave room for higher fluctuations in volume, especially for voice communications. The share of revenues accounted for by mobile voice is declining while SMS revenues are not growing to any significant extent. Mobile broadband services are growing fast, although these still account for a relatively small part of the overall mobile revenues. Nonetheless, with the rise of smartphones and dongles mobile broadband services are expected to play a positive role in terms of future revenue growth. The fixed sector has performed slightly better than the mobile segment over the course of the crisis, largely as a consequence of positive growth in broadband services. However, fixed voice telephony revenues continue their decline. Investment Investment by the EU electronic communication sector accounted for €47 billion in 2008, which represents a drop of 1.5% on 2007. Investment in the fixed market accounted for 70% of the total (incumbents are responsible for 70% of that figure) while the mobile sector was responsible for the remaining 30%. To offset the slow revenue growth in 2009, incumbent operators focused on cost cutting strategies using two main approaches: restructuring activities (OPEX) and cutting investment (CAPEX). Furthermore, operators are seeking agreements to share infrastructure and spectrum with competitors. Investment is declining at a faster pace than revenues. The intensity of investment as measured by the CAPEX/revenues ratio is declining but is estimated to remain around 11% (from a level of 14% in 2008 and 15% in 2007). With the exception of Denmark and Luxembourg, the ratio CAPEX/revenues is higher in the newer Member States (Figure 1). Figure 1 Despite the fact that most investment in the EU is in fixed networks, only a very small proportion of that is currently in new fibre-based access technologies. Alternative operators are increasing their investment in unbundled wholesale products while incumbents are mostly targeting upgrading of legacy infrastructure. Cable operators are currently upgrading their fibre networks. In the mobile sector, investment is currently focused on increasing HSDPA coverage. LTE had its first commercial launch in 2009 in Sweden. However, in a majority of Member States the commercial launch of LTE has been delayed until 2010-2011, with extensive deployment expected in 2013-2014. Access to finance in capital markets returned, in the second half of 2009, to its pre-crisis levels. In the 3rd Quarter of 2009, the EU bond issue was above 2007 levels. Most telecom operators are well rated by rating agencies. In 2009, the telecoms sector Dow Jones SXKP index performed better than the index stoxx 50. This performance was mainly driven by dividend strategies and a conservative approach to investment. Challenges for fixed and mobile markets The complementary nature of fixed and mobile operations has led to significant consolidation of these two activities by the main telecoms groups. Nevertheless these two markets have different characteristics and structures and face different challenges. The fixed sector shows strong national characteristics. This national dimension is most likely the result of governments' strategic considerations regarding nation-wide networks (which started with fixed telephony and carried over to broadband markets) as well as of a fragmented regulatory environment. The fixed sector is currently facing migration to fibre-based access technologies, which is a costly process, in particular because of significant civil engineering costs. Deployment of fibre is taking place mainly in densely populated high-rise areas and in large cities, whilst the business models for deployment in other areas are currently uncertain. Uncertainty around future activities in this segment does not make the business case for mergers and acquisitions particularly attractive. There could be room however for small scale consolidation activities. For example, in 2009, some medium-sized alternative operators acquired smaller players. Network sharing and other collaborative agreements are likely to emerge as a response to the high investment costs envisaged in the sector. There is a much greater European dimension in the mobile sector, at least in terms of ownership. Almost 80% of EU citizens subscribe to one of the four main mobile groups (460 million subscribers) leaving little room for further consolidation. However, there could be further scope to achieve cost reductions through integration and sharing agreements leading to further possible acquisitions of medium and small sized operators by the larger players. The four main groups are present in the majority of Member States (in the form of subsidiary, joint venture or commercial agreement) and they own the first and/or second largest mobile operator in almost all EU Member States (except in Denmark, Latvia and Finland). Most of the main mobile operators are subsidiaries of fixed incumbents. The only large European group which is not the subsidiary of a fixed incumbent has now entered the fixed market to complement its activities (in order to be able to supply convergent offers, e.g. quadruple-play). While half of European operators are not part of these groups, these represent only 20% of the European market. While mobile operators' strategies (e.g. in terms of negotiations with suppliers or investment decisions) are European, mobile services are produced and marketed at the national level. The approach to auctioning of spectrum licences has led to a national focus which has not yet translated into pan European services. A lot of the innovation in electronic communications currently comes from internet companies, which are outside the traditional boundaries of the sector. These are mainly Internet platforms offering a wide range of web services in the wake of the cloud computing transformation. Some are also investing in backbone networks to facilitate the throughput of traffic. The frontiers between the different actors in the value chain are therefore blurring. The new battle in the technology world is taking place in mobile broadband services through smartphones and mobile operating systems.

Mobile Communications Mobile communications have been driving half of the sector's revenues in recent years. However, the mobile sector is now at a crossroads, with the advent of mobile broadband services and the ongoing challenge to traditional revenues. While declining, voice revenues still represent 81% of the overall mobile sector revenues in 2008 compared with 86% in 2007. SMS revenues are stabilising at around 12% of the total whereas mobile internet revenues have doubled between 2007 and 2008. However, mobile internet still drives only 4% of the total revenue with significant divergence across Member States. The rapid increase in the take-up of mobile broadband is expected to put more pressure on network capacity (since it uses relatively more capacity than voice). However, this increased traffic may only produce correspondingly limited revenue growth given that retail offerings are increasingly based on flat rates. As traditional markets mature, and as regulation creates the conditions for increased competition (faster portability and lower prices thanks to lower termination rates), exploiting the potential profitability of mobile broadband is one of the main challenges ahead for the sector. The transition from voice telephony to all-IP broadband mobile networks will also represent a major challenge both for operators and regulators. Mobile Broadband The mobile broadband market is emerging rapidly. The average EU penetration rate of dedicated mobile broadband cards is 5.2% of population and is growing fast (more than 86% between January 2010 and January 2010, Figure 2), responding to demand for ubiquitous internet access. In six Member States (Finland, Portugal, Austria, Sweden, Ireland and Denmark) the penetration rate exceeds 10%. While in the short term mobile broadband may be substituting for sales of fixed broadband lines in certain cases, in the long term it is expected to complement the supply of fibre-based next-generation access.



Figure 2 Mobile data services, however, do not yet constitute a significant source of revenues. The introduction of flat rates and bundles has been one of the main drivers of the development of mobile broadband, but this pricing approach often leads to reduced average revenue streams per user. In the future, the development of mobile VoIP solutions may also impact on the structure of business models. While the recent economic crisis has contributed to negative growth in mobile capital expenditure (-2.4% in 2008), the rise in data traffic will require upgrades to increase network capacity and hence further investment. Operators are looking to new business arrangements such as network sharing or spectrum re-farming. New value-added services such as mobile payments are also expected to create new sources of revenues. Mobile internet access has been driven by the take up of new smartphones and applications which determine the way users access the web on the move. Internet companies are innovating in the end-user market. Frontiers between the different parts of the value chain are blurring bringing new actors to the market. Competition for the provision of internet and web-based services, which are financed through downloads and advertisement, is taking place over mobile platforms, smartphones and mobile operating systems.



Traditional markets are maturing Mobile voice penetration in the EU reached 121.9% and, as expected, its growth rate in 2009 has begun to stabilise (+2.5%) (Figure 3). An average penetration rate above 100% indicates the use of multiple SIM cards per person (for example for business and private purposes). Figure 3 Penetration rates increased significantly from 2008 levels in Portugal, Romania and Finland. Following a review by operators of their subscriber databases, mobile penetration rates have been lowered in Italy and Estonia. As for last year, France has the lowest penetration rate in Europe. This is due to some extent to the policy of limited promotion of prepaid offers used by French operators (Figure 4).



Figure 4 Although the ratio of prepaid to postpaid subscribers is diverse across Europe, the number of prepaid subscribers continues to decline to the benefit of postpaid: from 58.2% in 2008 to 55.3% in 2009 (Figure 5). Italy and Malta have the highest proportion of prepaid users due to their operators' business strategies. Figure 5 The spending of the average European SIM card owner continues to decline. Mobile ARPU (average revenue per user, calculated as total mobile revenues divided by the total number of users) has decreased in Europe from €369 per user in 2007 to €323 per user in 2008.

Prices also continue to fall (Figure 6). The price per minute for mobile communications has declined from €0.14 in 2007 to €0.13 in 2008. The most significant declines took place in Finland and Latvia. Strengthened competition, (explained also by more effective regulation of termination rates), the introduction of flat-rate offers as well as lower roaming charges were the main factors leading to the decreases. In general, the wide differences between the countries with the cheapest and the most expensive prices are a demonstration of the lack of internal market and divergent market characteristics across the Member States. Figure 6 Since 2004, mobile telephony prices, as measured by the OECD baskets methodology, have decreased for all consumer patterns (Figure 7). While prices in the low and medium usage basket have fallen by around 38%, those in the high usage basket have decreased by nearly 44% since 2004. Figure 7a Figure 7b Figure7c Mobile traffic is increasing While prices fall and number of subscribers grows only marginally, the volume of mobile voice telephony traffic (in terms of minutes) at the expense of fixed voice telephony (which remains stable in volume). Mobile voice telephony represents today 47% of the traffic in minutes while fixed voice telephony represents 53%. If the current trend continues, mobile voice telephony will already be greater than fixed voice telephony in 2009/2010. The volume of mobile voice traffic increased in 2008 by 13% while the retail price per minute decreased in a similar proportion. Voice traffic will soon give way to data traffic (Figure 8) with important consequences for network capacities. Figure 8



The European dimension of the mobile services industry While prices for services and equipment may differ, the patterns of competition in mobile markets are not as diverse across the EU Member States as they are in fixed markets (where different technology-mixes play an important role). Mobile markets in the EU Member States usually count three to four network operators. At a national level, the market share of the leading operator is generally below 40% and the main competitor average market share is around 30%. The leading operator and/or the main competitor are usually owned by one of the four main mobile groups which have pan European strategies in terms of marketing and of bargaining with suppliers. In terms of services, however, markets remain national. The mobile sector is quite concentrated. Almost 80% of Europeans subscribe to one of the four main mobile groups in Europe (460 million subscribers), which are present in the majority of the Member States. These companies, except for one, are subsidiaries of the main incumbents in the fixed market. The market shares of the leading operator and the main competitor continue to decrease albeit only slightly in the EU Member States due to the appearance of Mobile Virtual Network Operators (MVNOs) targeting specific segments of the market (Figure 9). Figure 9

The EU average market share of the leading operator continues to follow a downward trend but has dropped by only 2.1 percentage points since 2004. For the first time, in 2009, the market share of the main competitor is below that of the remaining operators combined. The leading operator has the lowest market share in the UK (21%) and Poland (33%). The impact of regulation: mobile termination rates and portability Mobile Termination Rates Mobile termination rates (MTRs) continued to fall in 2009 (fall of 18.4% compared to 14.8% a year ago). While such decreases clearly have an impact at the retail level, other factors such as the introduction of flat-rate offers also affect retail prices. Moreover, in 2008, while the MTRs declined, the number of interconnected minutes went up by 5.2%. Despite the decline, MTRs remain high when compared to fixed interconnection rates. Regulation is effectively bringing down interconnection rates in the EU as a whole through glide-path mechanisms. Further reductions are expected as the NRAs implement the Commission Recommendation on terminations rates. There remain major discrepancies remain between MTRs in different Member States (Figure 10). The rates are lowest in Cyprus (1.95 euro-cent) while Bulgaria still has the highest (12.14 euro-cent) (Figure 11). Figure 10



Figure 11 Divergences in mobile termination rates among Member States (Figure 12) have not decreased over the last years. Mobile Portability Number portability is now available in all Member States. The timing and the level of charges are important factors affecting the porting of numbers. Significant reductions in time limits were introduced or were planned. The average time taken for mobile number portability (wholesale level) in the EU is 4.1 days, a considerable reduction from 8.5 days in 2008 (Figure 13). Figure 13 Broadband

In 2009 the EU broadband market continued to be the largest in the world, with some Member States leading in terms of penetration rates. The EU fixed broadband penetration rate reached 24.8% (Figure 14), an increase of 2 percentage points over the previous year despite a significant slowdown in the growth rate. Most of the EU broadband lines are based on xDSL technologies. Mobile broadband take-up is growing but the deployment of high-capacity broadband is currently limited: While 84.6% of fixed broadband lines in the EU offer speeds above 2 Mbps only 23.4% of them are above 10 Mbps. Retail prices declined, mostly as a consequence of quality (speed) upgrades, and bundled offers are on the rise. Since July 2003 the incumbents' market share in the fixed broadband market has been following a downward trend which in 2010 stabilised at around 45%; however, in some countries, the incumbents are regaining market share. Local loop unbundling (fully unbundled lines and shared access) is the principal means by which new entrants can offer retail DSL services (73.7% of new entrants' DSL lines, up from 69.2% in January 2009), mostly at the expense of resale which has shrunk by 3 percentage points during the last year. Growth in fixed broadband lines has been the lowest since 2003 Broadband markets in 2009 continued to be a positive source of revenue growth for the electronic communications sector, although at lower rates than in previous years. In January 2010 there were 123.7 million fixed broadband lines, up 9.3% since January 2009, and the EU average fixed broadband penetration rate reached 24.8%, up 2percentage points over one year. Nevertheless, with 10.2 million new fixed broadband lines, i.e. 28 199 net additions per day, the growth rate was 24.5% lower than a year earlier and the lowest in the last five years ( Table 2 ). Table 2 Period January 04 January 05 January 06 January 07 January 08 January 09 January 10 BB lines 23 302 070 39 488 334 59 348 726 80 117 975 99 812 771 113 446 213 123 738 940 BB penetration 4.9% 8.2% 12.1% 16.3% 20.2% 22,8% 24.8% New lines per day 28.752 44.225 54.412 56.902 53.958 37 250 28 199 Overall growth in fixed broadband penetration has been slowing down over the past 2 years and only in five countries (Luxembourg, Hungary, Portugal, Slovakia and Sweden) was the number of net additions in 2009 greater than in 2008. In a number of cases markets appear to approach maturity which in some cases is combined to some extent with broadband fixed-mobile substitution. This would appear to be the case for countries such as Denmark or Finland, for instance. Figure 14 The Netherlands on the other hand has the second highest penetration rate in the EU but still experienced an increase in the number of lines of 1.5 percentage points, slightly below the EU average. France and Germany, which together account for 35.9% of the EU broadband market, also saw a close to 3 percentage point increase in fixed broadband subscribers. Hence it appears that there is yet some margin for growth in the broadband market. Data on household take up, a good proxy for the growth potential of broadband markets, suggest that there are yet a high proportion of EU households that do not have a broadband connection. In the Netherlands and Denmark around 25% of households do not have a connection, but on average more than 50% of households are not yet connected to broadband ( Figure 15). Figure 15 Source: Eurostat Community Survey on ICT usage by Households and Individuals (2009) Growth in countries where broadband markets are far from being mature also shows a mixed picture. Cyprus had the highest year-on-year increase in fixed broadband lines (4 percentage points). Slovakia and Greece, which have penetration rates below average, have also displayed higher growth rates and are thus catching-up with the EU average. However, Austria, Spain, Romania, Lithuania, Italy, Poland, Bulgaria, Slovenia and Latvia only had growth rates between 1 to 2 percentage points, failing to catch up and falling further behind the EU average (Figure 16).



Figure 16 The impact of the economic slowdown in 2009 on the broadband market is mixed. EU GDP declined by 4.2% in 2009 compared with 2008 whereas fixed broadband lines grew by 9% (January 2009-January 2010). While the fixed broadband market in some countries with stronger than average GDP decline (Slovakia, Greece, Hungary, Czech Republic and Germany) grew faster than in the EU, countries such as Belgium, Spain, Austria, Poland and Italy lagged behind the average broadband growth despite lower than the EU average GDP decline. Despite these disparities, the broadband gap, i.e. the difference between the highest and the lowest level of penetration, was 24.8 percentage points in January 2010, 1.6 percentage points lower than in 2009 and continues to fall. Growth in mobile broadband has been significant in a number of EU countries in 2009. Although the penetration of dedicated mobile broadband cards was limited to 5.2% of EU population in January 2010, the mobile broadband market is growing rapidly (the penetration rate was 2.8% in January 2009). In six Member States (Finland, Portugal, Austria, Sweden, Ireland and Denmark) the penetration rate exceeds 10%. The estimated number of dedicated mobile broadband cards (25.1 million) represents about 20% of all fixed broadband connections, up from 10% in 2008.

International comparison In 2009, the EU continued to be the largest broadband market in the world and some EU Member States enjoy the highest penetration levels. In terms of ranking there have not been any significant changes since 2008: The Netherlands and Denmark continue to be the best performers, followed by Sweden, Finland and Luxembourg, which had penetration levels above 30% of the population, along with a group of four non-EU countries, Norway, Switzerland, Korea and Iceland ( Figure 17). The EU was catching up with the US in broadband take-up. The gap in penetration rates declined to 2.8 percentage points in July 2009, from 3.4 points in July 2008. The US broadband market grew by 8.2% (compared with 10.6% in the EU) between July 2008 and July 2009 to reach a penetration level of 26.7%. This may be partly explained by the greater impact of the economic slowdown in the US, as well as the fact that the US market is more mature than the European. Figure 17 At the global level, growth in the broadband market was driven by strong increases in developing markets. The total number of broadband subscriptions was estimated to be around 440 million at the end of July 2009, with a year-on-year growth rate of 16%. Among the largest broadband markets, China, Russia, Mexico, India and Vietnam experienced the biggest increases in broadband subscriptions, thereby reducing the proportion of EU lines in the global total. Growth rates in developing countries (India 62%, China 23%, Russia 39%, Brazil 23%, Mexico 54%) outpaced the levels of developed countries, clearly from much lower levels of penetration. Many EU operators have been very active in these growing markets. Despite the good penetration rate levels, most of the EU broadband lines are based on xDSL technologies and average speeds are usually lower than in other developed countries with high broadband penetration rates. Lines based on fibre to the home (FTTH) solutions and fibre + LAN only represent between 1.8 and 5% of all broadband lines, while this share is much higher in countries such as Japan (51.4%) or Korea (46%). In the US, FTTH lines represent 6% of all broadband lines. Although FTTH deployment has accelerated in 2009 ( Figure 18) differences are still very apparent. Price levels also reflect these differences. In October 2009 broadband standalone access at 100 Mbps was available at around 30 euros per month in Japan and 20 euros in Korea. These prices are between 20 and 50% lower than prices for similar products in those EU countries where these are available. Figure 18 The pattern of high-capacity broadband deployment is different in advanced markets compared to emerging ones. In Japan, US, South Korea and Taiwan it appears that growth is being largely driven by operators’ efforts to persuade DSL and cable subscribers to switch to FTTx, whereas in the less developed markets such as Russia and China, large numbers of first-time broadband customers have signed up to FTTx, often because it is the only technology available to them. This pattern may enable currently less developed markets to leapfrog the advanced broadband economies in the future. Market developments - the emergence of fibre and mobile broadband DSL continues to dominate the EU broadband market, although its share of the market has slightly decreased to 79% from the peak of 81% in January 2006 ( Figure 19). In the period between January 2009 and January 2010, 70% of the new lines were provided by means of xDSL technologies, while 30% were connections using other types of technologies, featuring a 3 percentage point increase in the number of access lines by other means compared to the year before. In the fixed broadband market, the largest relative growth was experienced by broadband lines based on fibre to the home and fibre + LAN, which altogether increased by 26%, admittedly from a lower base than DSL or cable modem lines, technologies that showed an increased of around 8%. Figure 19 Most operators have expanded the number of broadband products based on fibre. Of a sample of 2,700 broadband products offered by the largest and most representative operators in the EU Member States in October 2009, 26% of them are based on fibre technologies, 4 percentage points up on 2008 (Figure 20). Products based on cable modem also experienced a significant increase. Availability of high-speed, fibre-based products is still limited to some parts of major urban areas and new offerings are often used by operators to assess consumers' interest in switching to upgraded broadband access. Despite the above, the highest growth occurred in the mobile broadband market, where take up increased by 115% (January 09-January 10). The number of new mobile broadband products offered by mobile operators also doubled in 2009. Figure 20

Some countries show completely different patterns in their choice of broadband technologies, especially Member States where the lack of legacy infrastructure has triggered investment in other technologies. In Romania, Bulgaria and Lithuania and, to a lesser extent, in Estonia, Latvia, Slovakia and the Czech Republic, the deployment of fixed broadband lines is very much based on fibre access ( Figure 21). Figure 21 Despite this higher proportion of FTTx lines in these Member States, it seems that actual speeds provided by these fibre access lines are in many cases comparable or even lower than ADSL2+ speeds. The slowdown in the growth of broadband subscriptions experienced in 2009 was accompanied by some price reductions, or speed increases for the same price, in broadband products as well as by a rise in the number of bundled offers which often have the benefit of putting a cap on the retail prices but risk locking in customers and reducing churn. As of October 2009, it is estimated that almost 68% of broadband products offered by the largest broadband operators consisted of bundles of services, broadband combined with telephone being the largest one (Figure 22). In April 2007 bundled services constituted only 36% of operators' offerings. More and more consumers perceive bundles as a way to reduce spending in communications services.



Figure 22 In 2009 there was a wide debate about the transition to next generation access networks although in reality the market has been very cautious about the move. Many operators blame uncertainty surrounding regulatory approaches to NGN and uncertainty as to demand, as currently only a fraction of consumers use 80% or more of the network capacity available to them. Hence, it appears that only a few customers would be willing to pay a premium for very fast broadband when other speeds at lower prices are available and fit the current needs of most broadband users. In a flat rate based IP environment, an increase in traffic does not automatically translate into an increase in revenues. This has an impact on operators' profitability and their capacity to invest in expanding their networks capacity. Operators are searching for new and sustainable business models also by diverting some operations into applications, services and content. Competition stagnates in the DSL market The market share of the incumbent fixed operators since July 2003 has followed a downward trend which is now stabilising around 45% of the broadband market and in some cases the incumbents are regaining market share. The decline in incumbents' market share in 2009 has been the lowest since data are collected, 0.5 percentage points only, compared to 0.6 and 0.8 percentage point drops in the past 2 years and losses of between 3 and 4 points in previous years. In most of the largest EU Member States incumbents still control a large share of the market ( Figure 23), affecting the EU average (Italy 57%, Spain 55%, Germany 46%; France 46%, Poland 40%).



Figure 23 The UK is the exception and the incumbent in this country has the lowest market share of all EU Member States after Romania. However, in 2009, the incumbent operator in the UK gained some market share. Incumbent operators have also gained market share in Denmark, Latvia, Austria and Finland. They have also gained share in Belgium, Bulgaria, Czech Republic, Malta, Portugal and Romania, countries in which the incumbents' market share is below 50%. A shift in broadband speeds and a slight fall in prices As of January 2010 61% of fixed broadband lines in the EU offered speeds between 2 and 10 Mbps ( Figure 24). The most significant development is the shift in the two other category of lines: Low speed broadband lines with download rates between 144 Kbps and 2 Mbps only represent 15% of all fixed broadband lines in January 2010, down from 25% in 2009, while the fastest category of lines (10 Mbps and above) has increased its share, from 14% in January 2009 to 23% of all fixed broadband lines in January 2010.



Figure 24 Therefore, while on average the increase in broadband speeds is not significant yet, there is a clear trend towards faster access lines. In terms of volume, the large majority of fixed broadband net additions in 2009 occurred in the range of 10+ Mbps speeds and most EU countries experienced a reduction in the proportion of low speed fixed broadband lines ( Figure 25).

Figure 25 The raise in the number of high speed broadband lines follows the major increase in the number of high speed fixed broadband offers. Between October 2008 and 2009, the number of broadband products (broadband standalone and bundles) with speeds higher than 20 Mbps doubled, thus becoming the category of lines with the highest number of offers in the EU. Products with speeds greater than 20 Mbps represent 33% of all products commercialised by broadband operators. Lines of speeds between 8 and 20 Mbps follow with 23%. Offerings with speeds between 2 and 8 Mbps, which represent the bulk of the active broadband lines in the EU, only account for 23% of all broadband products. With regard to broadband retail prices, the median of price offers with download speeds between 2 and 4 Mbps in the EU 27 countries slightly decreased in 2009 (Figure 26). For broadband lines with speeds between 4 and 8 Mbps, it appears that prices decreased significantly in the newer Member States, while they remained more stable in the rest of the EU. Figure 26 The DSL market is stabilising Market shares Local loop unbundling (fully unbundled lines and shared access) has recorded positive growth and has become the main form of wholesale access for new entrants with 73.7% of DSL lines, up from 69.2% in January 2009 ( Figure 27). New entrants' use of bitstream access for local loop unbundling in the provision of broadband services remained stable (its share went down by 1 percentage point only since January 2009). The share of lines based on resale, which represents a type of access for low-investment intensive new entrants, has shrunk by 3.5 percentage points during the last year.



Figure 27 Resale is used only in a limited number of Member States (especially the UK, Germany and Luxembourg but also Belgium, Sweden, Denmark, the Netherlands and Spain), and in almost all countries LLU or bitstream are the predominant means of access. The EU average hides wide differences between EU Member States, which reflect diverse regulatory approaches in the broadband wholesale market. For example, in the cases of Bulgaria, Romania and the Czech Republic, the broadband market follows completely different patterns. In the first two countries, due to the absence of legacy infrastructure based on PSTN, competition is based on cable modem networks and in local new networks, based on fibre + LAN. DSL lines only represent around 30% of all broadband retail lines and new entrants do not rent almost any PSTN lines from the incumbent. In the Czech Republic, only 39% of broadband lines are based on DSL, with a clear predominance of fixed wireless access and cable modem. Alternative operators only rent 5% of all fixed broadband lines from the incumbent operator. Similar situations occur in Latvia, Lithuania, Estonia, Slovakia and Malta, where the incumbent operator fully, or almost fully, controls the DSL market (Table 3). With the exception of Slovakia, in none of these countries is DSL the predominant technology.



Table 3 Country NEs DSL as % of all fixed broadband lines NEs DSL lines as % of all DSL lines DSL as % of all fixed broadband lines BG 0% 0% 31% RO 0% 0% 28% LV 0% 0% 49% LT 0% 1% 36% EE 2% 6% 42% MT 3% 6% 48% SK 4% 8% 46% CZ 5% 13% 39% BE 8% 14% 57% HU 10% 23% 44% PL 16% 28% 56% CY 16% 17% 94% PT 16% 27% 59% NL 16% 26% 62% DK 16% 27% 60% LU 17% 20% 83% AT 17% 25% 68% SI 21% 34% 62% IE 23% 31% 72% SE 23% 39% 59% FI 24% 32% 76% ES 26% 32% 80% EU27 35% 44% 79% IT 40% 41% 97% DE 44% 49% 90% EL 44% 44% 100% FR 49% 52% 95% UK 51% 64% 79% Along with platform based competition, effective sector regulation has been a key factor in driving competition, in particular in those countries where DSL is a predominant technology. Sector regulation has fostered competition and growth in the DSL market and consequently a significant lift in the broadband market. However, in the last three years, the share of new entrants' DSL retail lines has only increased by 0.6 percentage points at EU level (Figure 28), which is a major change compared to previous years. In many countries, the growth of new entrants' DSL lines was flat or even negative. This can be partly interpreted as a result of the small contraction of the DSL market, the maturity of some markets and the (albeit small) increase in the relative size of lines based on new technologies, where new entrants have been more active. Although new entrants have continued investing in the DSL wholesale market (growth in LLU products is still significant), the DSL retail market has somehow stabilised and major shifts in market shares are no longer expected. Figure 28 LLU pricing

Decreases in LLU prices in 2009 were not significant compared to the reductions seen in 2008. On average, prices for fully unbundled lines only decreased by 1.8%, while prices for shared access declined by 5.1%. These reductions are similar to the 2007 levels. There were slight increases in the price of LLU in Denmark, Italy, Cyprus, Finland, Sweden and the UK. Prices did not experience any change in Belgium, Bulgaria, Ireland, Latvia, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania and Slovenia. In all other countries prices of fully unbundled lines decreased. With regards to shared access lines, prices went up in Denmark, Finland, Sweden and the UK, and remained constant in Belgium, Bulgaria, Germany, Estonia, Ireland, France, Cyprus, Latvia, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania and Slovenia. State Aid in the Broadband market In 2009, spurred on by the economic crisis, there was considerable interest in public funding of broadband deployment, as several recovery packages (including the EU's) regarded broadband as an important instrument to foster sustainable economic growth. In order to provide legal certainty to undertake public support for broadband as well as for high-capacity broadband (Next Generation Access) in under-served areas, the Commission adopted Guidelines on 17 September 2009 which outline how public funding can be provided for broadband in line with EU state aid rules. These Guidelines explain how public funds can be channelled for the deployment of basic broadband networks (e.g. upgrade of legacy networks-copper) as well as of Next Generation Access ("NGA" – mainly fibre based new architectures) to areas where private operators do not intend to invest. The primary objective is to foster a wide and rapid roll-out of broadband networks while at the same time preserving the market dynamics and competition in a sector that is fully liberalised and subject to ex-ante regulation. The Guidelines also ensure that whenever state aid is granted to private operators, the aid must foster competition by requiring the beneficiary to provide open access to the publicly funded network for third party operators. The Guidelines also contain specific provisions concerning the deployment of Next Generation Access networks, allowing public support to foster investment in this strategic sector without creating undue distortions of competition. The distinction between different areas in terms of competition is adapted to the situation of NGA networks (whose deployment, as signalled before, is still at an early stage). They require Member States to take into account not only existing NGA infrastructures but also concrete investment plans by operators to deploy such networks in the near future. A number of crucial safeguards (such as detailed mapping, open tender, open access obligation or technological neutrality and claw-back mechanisms) are laid down in order to promote competition and avoid the 'crowding out' of private investment. In 2009 the European Commission took 12 decisions regarding broadband projects involving public funding. 11 of these were found to be compatible with the Treaty (article 4(3) decision types), while one was not considered aid but rather a Service of General Economic Interest. The total amount of the aid approved was €467 million. Table 4. # Decision name MS Decision Date Decision type 1 N 238/2008 - DE - Broadband infrastructure development DE 23/02/2009 Article 4(3) 2 N153/2009 - DE - Amendment of the State aid broadband scheme N266/2008 DE 19/05/2009 Article 4(3) 3 N183/2009 - LT - RAIN project LT 17/07/2009 Article 4(3) 4 N243/09 - DE - Extension of broadband coverage in Niedersachsen DE 14/08/2009 Article 4(3) 5 N 331 2008 Réseau à très haut débit en Hauts-de-Seine FR 30/09/2009 Article 4(2) 6 N172/2009 - SL - Broadband development in Slovenia SI 19/10/2009 Article 4(3) 7 N418/2009 - UK - Northern Ireland UK 5/11/2009 Article 4(3) 8 N 388/2009 – FI - High-speed broadband pilot projects in Finland FI not yet Article 4(3) 9 N 607/2009 - IE - Rural Broadband Scheme IE 4/12/2009 Article 4(3) 10 N 423 2009- CY -Cyprus Broadband CY not yet Article 4(3) 11 N 323 2009 - ES - Broadband Asturias ES not yet Article 4(3) 12 N368/2009 Amendment of the State aid broadband scheme N115/2008 DE not yet Article 4(3) Investments in the deployment of high speed broadband networks were also being financed by the European Investment Bank. In particular, alternative operators in Italy, Germany, Portugal and France used the Bank to finance the upgrading of their networks and the roll-out of next generation fibre networks. According to the Commission, these projects are likely to foster the development of competition and advanced electronic communications services. Fixed voice telephony Traditional fixed voice telephony services are increasingly being replaced by mobile solutions and Voice over Broadband. At times offered for free as a marketing tool, the service is increasingly accessible within broadband bundles and no longer attracts significant new entry or investment as a standalone service. Over recent years fixed voice telephony retail and wholesale prices as well as market shares have not varied to any significant extent. There even seems to be a slight increase in the market shares of the incumbents for some segments and also in the retail prices. EU average incumbent fixed interconnection rates remained stable with very slight declines over the last year. Fixed voice telephony declines both in terms of revenues and volumes Fixed telephony traffic, measured in million of voice minutes, continues to decline,- by 7% in 2008 and around 30% since 2005 (Figures 29a 29b). Regarding revenues, while fixed voice telephony still drives 30% of the total revenues of the telecom sector, its share has been declining constantly over time. With the introduction of bundles, regulators experience difficulties in collecting data for the different segments of the voice telephony market (local, national, international) as some operators no longer make this distinction. Moreover, operators offering quadruple-play do not clearly distinguish between revenues coming from fixed voice, mobile voice and other services.



Figure 29a

Figure 29b



The increase in bundles and VoIP While the traditional fixed telephony services decline, managed VoIP services continue to increase. At the end of 2008, the market share of VoIP operators on the basis of traffic represented 14% of the fixed telephony market (a 78% increase compared to 2007) (Figure 30). Figure 30 As noted above, fixed voice telephony services are increasingly offered within bundles. For example, while in October 2007 64% of the broadband offers in Europe were standalone (broadband only, without other services like voice), in October 2009 only 32% were standalone. The pattern of competition The fixed market remains very concentrated in some Member States. The Herfindahl Index, an indicator of market concentration, is very high, in particular in Bulgaria, Cyprus, Lithuania, Malta, Slovenia and Finland (Figure 31).



Figure 31 Market share Incumbents' market shares for national calls have grown in the EU between 2006 and 2008 (+16%) (Figure 32). On the other hand, the market share of calls to mobile remained stable at around 60%, while the incumbent market share in the international calls segment has continued to decrease (-7% between July 2007 and July 2008). The international fixed calls market is still the most competitive fixed telephony market.



Figure 32 In some Member States, the incumbent's market share remains high (Figure 33). In Sweden and the Czech Republic, the share has actually increased. Figure 33 Choice

Direct Access provided by alternative operators (the provision of publicly available telephone services through LLU and/or proprietary infrastructure) remains low in the EU, with three quarters of EU subscribers still using the incumbent for direct access (Figure 34). The number of subscribers making use of alternative operators has continued to increase, from 20% in July 2008 to 24% in July 2009 (Figure 35), but this had no significant impact on the total market shares in terms of revenues and volume. There were also increases in subscribers using national (+8%) and international (+9%) calls from alternative fixed operators (Figure 34). Figure 34 Figure 35 Fixed number portability is an important tool to stimulate competition in the fixed telephony market. The average time needed to port a number at the wholesale level in the EU-27 is now 5.9 days (down from 7.5 days last year), although in some countries it still takes more than two weeks (Figure 36). Figure 36 Retail and wholesale prices are stable Fixed voice telephony tariffs have increased in the past year. Following the OECD methodology, the price of the 3-minute local call increased by 3.7%, while the 3-minute national call increased by 4.8%. The 10-minute local call increased slightly by 0.5%, while the 10-minute national call increased by 4.1%. These results suggest that competition in the fixed market is weakening. As highlighted earlier, this is possibly due to the declining importance of the market.



Figure 37a Figure 37b Figure 38a Figure 38b EU average incumbent fixed interconnection rates remained stable with only a slight decrease over the last year: down 3.7% in the local and the single transit levels and 3.5% in the double transit (Figure 39a). The countries with the lowest charges are, as last year, the UK, Estonia, Sweden and Cyprus.

Figure 39a Divergences in fixed termination rates among Member States (Figure 39b) have not decreased over the last years. Variations are now marked and slightly increasing. Figure 39b REGULATORY DEVELOPMENTS Institutional Framework Independence of national regulatory authorities Since the 2002 regulatory framework came into effect, the Commission has continuously monitored the requirement for independence of NRAs, and has taken action when necessary. The main issues to arise in this respect are often connected to institutional arrangements including the attribution of regulatory functions, the rules with regard to the appointment and the dismissal of the regulator and the availability of adequate resources (staff, expertise and funding). Member States should ensure that NRAs are legally distinct from and functionally independent of electronic communications networks and services providers. This requirement for structural separation between the regulatory function and activities associated with ownership and control is particularly relevant when Member States retain ownership or control of electronic communications undertakings. In 2009, this was still an issue in certain countries. For example, in Romania, it appears that the Ministry carries out regulatory tasks while also being involved in the management of electronic communications undertakings. For that reason, a letter of formal notice was sent to Romania in October 2009. In Latvia and Lithuania, the Ministries were considered to be vested with regulatory powers while also being involved in activities associated with ownership and control of state-owned undertakings. After the Commission sent reasoned opinions to these Member States in April and June 2009, the respective authorities adopted legislation providing for transfer of the regulatory functions to other ministries. The Commission services are monitoring the practical implementation of this new legislation in the light of the requirements of the regulatory framework with regard to transparency and impartiality of decisions. A similar issue is currently under investigation in Estonia. Clear rules regarding the formal establishment of the NRA structures should enhance the impartiality and the transparency of the NRA's functioning. The rules for dismissal of NRA management are fundamental in this regard. In 2009, the Commission was able to close infringement proceedings regarding the NRA's independence in Luxembourg. In two Member States, Romania in January 2009 and Slovakia in May 2009, infringement proceedings were launched because of the dismissal of the head of the NRA before the terms of office had expired. The Romanian authorities restructured the NRA by means of emergency decrees, which should become law, providing for a clear and stable legal basis for the functioning of the NRA. In Slovakia, new legislation was adopted in February 2010 restricting the grounds for dismissal of the head of the NRA. In Slovenia, the NRA's director was dismissed before the end of his term in the context of the assignment of a 3G licence. The Commission's services are currently looking into this issue. The Commission's application to the Court for incorrect transposition in Poland of the provisions relating to independence of the NRA was withdrawn As the Polish authorities amended their legislation and reintroduced a fixed term of office for the president of the NRA. At the same time, a list of conditions for dismissal was established so as to avoid arbitrary intervention in the NRA's functioning. In Ireland, the government issued a statement on economic regulation. While acknowledging the need for independent regulation, it nevertheless stated that ministerial policy directions may be necessary and introduced resourcing and budgetary constraints on the NRA. The Commission services will continue monitoring potential problems with regard to the independence of the NRAs. Powers and resources of national regulatory authorities National regulatory authorities must be endowed with the appropriate legal powers to carry out their tasks related to market regulation and consumer protection. In Poland, the relevant law was reviewed so as to allow the President of the NRA to take full responsibility for market definition and to exercise fully, its competences in the market analysis process. In Bulgaria, the number of NRA board members was increased by new legislation and their mandate was prolonged. Furthermore, the NRA was also endowed with more specific powers with regard to digital switchover. The Finnish NRA received new responsibilities related to the extension of the scope of universal service. In Belgium, an amendment to the legislation entitles the NRA to adopt a retroactive decision under certain conditions, when decisions are annulled by a Court judgement. As to the German legislation of 2007 regarding the regulatory treatment of 'new markets', it was confirmed by the European Court that the NRA's discretionary powers cannot be limited as to its responsibility to carry out market analyses. It is vital that NRAs are able to enforce the regulatory obligations imposed. This has again been reported as a concern in Estonia and Bulgaria, where fines are of insufficient levels or not applied consistently. On the other hand, procedures for enforcing obligations via the medium of fines have been clarified and strengthened by further legislation in Belgium, where the NRA is now able not only to impose higher fines but also to impose them more rapidly, without issuing a preliminary formal notice. In Portugal, a new system has been established for fines and sanctions for breaches of legal and regulatory provisions. In Spain, the NRA adopted a standard procedure for payment of penalties, which is applicable to all reference offers. In a certain number of Member States, the NRAs tend to consider voluntary commitments made by certain undertakings as a means of providing better enforcement of regulatory obligations. The effects of this negotiated approach still remain to be seen. In Italy, the NRA intensively examined a series of voluntary commitments from the incumbent as regards open access to its wholesale services. In Poland, an agreement was signed between the NRA and the incumbent in order to provide for voluntary restructuring and non-discriminatory access for alternative operators. A draft law would allow the President of the NRA to accept voluntary commitments. The capacity of an NRA to undertake its tasks also depends on its effectiveness in terms of powers and resources. Limited human and financial resources have still been reported in a number of Member States (e.g. Estonia, Poland, Slovakia) whilst some have increased their staff in 2009 or are planning to do so (Greece, Luxembourg). Dispute resolution

In the event of disputes arising between providers of electronic communications networks or services, the NRA should be able to issue a binding decision. The dispute should in principle be resolved within four months. However, in many Member States this timeframe is still not respected. Sometimes, dispute resolution is used as a regulatory tool to address perceived incomplete regulation. In particular this was observed in Poland and has in the past been seen in Austria. However, the Austrian NRA now includes the details of the remedies in the draft decisions from the very beginning, avoiding the need for further clarification through disputes. If an NRA, instead of issuing specific regulation, would tend to adopt different decisions for operators at different points in time, this would lead to discrimination and regulatory uncertainty among market players. By this means, the consultation and market analysis procedures laid down in Articles 6 and 7 of the Framework Directive might be circumvented. The Commission's services will follow developments. An increased number of disputes have been observed in the United Kingdom, where a Court judgment of 2008 required the NRA to depart, where appropriate, from earlier SMP decisions when exercising its dispute resolution powers. In Ireland, where market players voiced concerns about the NRA's implementation and enforcement capabilities, the NRA recently launched a new consultation on its dispute resolution procedures. In Sweden, the competence of the NRA to settle disputes regarding interconnection agreements remains limited in scope. The infringement proceeding launched in 2008 is still pending, even though work is ongoing to address the issue. Appeals The right to an effective judicial review of NRA decisions, as laid down in Article 4 of the Framework Directive, is granted to anyone who is "affected" by that decision. The terms user "affected" or undertaking "affected" are interpreted by the Court of Justice as meaning that not only the addressee of the decision taken in the context of a market analysis, i.e. the (former) SMP undertaking, but also any user or undertaking in competition with it, whose rights are or may be (adversely) affected by it, has the right to appeal against that decision. In Sweden, the government adopted an amendment to its legislation, enabling all market players to appeal NRA decisions. This allowed the Commission to close the relevant infringement proceeding in October 2009. In Austria, questions have been raised with regard to the operators' right of appeal against the withdrawal of regulation when a market is no longer considered susceptible to ex ante regulation at the national level. In Greece, a judicial decision is pending at the Supreme Administrative Court concerning which instance is constitutionally empowered to handle appeals against the regulatory decisions of the NRA. By settling the jurisdiction of the administrative Appeal Court, to which the appeals are currently addressed, such a decision should determine the effectiveness of the appeal mechanism. Systematic appeals, often combined with lengthy proceedings, create ambiguity and legal uncertainty in some Member States (Belgium, Greece, Luxembourg, Poland, Portugal, Sweden). A significant increase in the number of appeals has been reported in the United Kingdom putting a strain on the regulator's resources. Uncertainty in the market is becoming especially apparent when operators do not comply with obligations or when new regulations imposed are not able to fully replace annulled decisions as they are not always applied retroactively. On the other hand, the situation in Belgium has improved as new legislation allows the NRA to adopt retroactive decisions under specific conditions. Implementation of regulatory measures Decision making Market analysis 2009 was characterised by patchwork of progress across Member States with regard to market analyses. On the one hand some regulators advanced with their periodic market reviews and/or addressed the key regulatory bottlenecks with more effective remedies tailored for the next generation environment (e.g. access to unbundled fibre loops in the Netherlands). At the same time, some other regulators did not make visible progress in analysing markets (e.g. Belgium, Luxembourg). Romania and Bulgaria, whilst making progress have yet to finalise their first round market reviews. It also appears that regulators are prioritising the setting out of principles for the regulatory treatment of next generation networks (NGN). This important work is often only at a preparatory phase and has hence not yet resulted in final market analyses. In addition, the NRAs' regulatory agendas were sometimes influenced by the increasing number of disputes (e.g. UK, Slovenia, Sweden). Also, in a number of cases, appeals and/or court decisions obliged the regulators to re-conduct the previously concluded market analyses or to re-impose remedies (Austria, Belgium, Denmark, Germany). Remedies Whilst a proper market analysis is an important step in identifying competition failures, the final test of the success of regulation is measured by the ability of the remedies imposed to resolve those failures. With this regard, and in order to enhance the internal market, three important issues need to be addressed: consistency, clear and appropriate remedies as well as effective and timely enforcement. Consistency of regulatory approaches is an issue which the Commission has raised repeatedly. Significant divergences in the regulatory approaches create competitive distortions and obstacles to the development of the internal market. Under the current framework the Commission, in addition to Article 7 comments letters, has addressed the problem by using its powers to issue harmonisation measures. In May 2009, the Commission adopted a Recommendation for the regulatory treatment of fixed and mobile call termination rates. Another important area where different regulatory practices are emerging and in which the Commission will produce guidance, is that of the regulatory treatment of fibre in the wholesale broadband markets. In order to enable the Commission and the NRAs to contribute to the maximum to consistency under the Community consultation mechanism, it is important that draft regulatory measures are notified with sufficient detail. In particular, the Commission has emphasised that cost oriented price caps and glide-paths constitute regulatory obligations referred to in Article 16 of the Framework Directive and have an effect on trade between Member States. In this regard, the Commission launched an infringement proceeding against Germany for the failure to notify its recent setting of mobile termination rates and the underlying cost accounting methodology. The Commission has also reminded NRAs (e.g Latvia, Lithuania, Poland and Sweden) to notify the details of the glide paths. Inconsistency is further increased by the fact that the Commission's comments under the Community consultation process were not followed in all cases by the NRAs. For example, this was a case in the mobile termination and in the wholesale broadband markets. In this respect, the newly adopted framework gives the Commission further tools in the area of remedies and in particular, provides for a mechanism where the Commission, the Body of European Regulators (BEREC) and the NRA in question shall co-operate closely to identify the most appropriate and effective remedies in the light of the regulatory objectives whilst also taking into account the need to ensure the development of consistent regulatory practice. Likewise, effective enforcement of remedies remains an issue which needs to be addressed by regulators. In some Member States it appears to take more than two years after the initial decision on remedies before the obligations are properly enforced. This has been the case for example in Germany for the enforcement of bitstream remedies. In Italy, the 2008 bitstream offer was approved only in May 2009, and the bitstream offer for 2009 has not yet been approved. In Belgium, the reference offer for VDSL2+ was still not finalised, although the incumbent had already started commercialising this technology on a large scale since April 2008. The delays in enforcement may imply that remedies become outdated when they finally are available to alternative operators (e.g. ATM bitstream in Germany). In addition to timeliness, the remedies should also be clear and sufficiently detailed. The low or even the lack of take-up of wholesale broadband products in for instance, Estonia, Latvia, Lithuania, Slovakia, is partly explained by loosely defined remedies which also tend to invoke disputes, further tying regulators' resources (e.g. Slovenia, Sweden). Despite these persistent shortcomings positive developments were also reported. In Spain, the reference offer adopted for access to passive infrastructure was positively received, although it has been mainly used for connecting mobile base stations and in some cases for fibre connections to business customers. In Austria, the draft measures currently under preparation will already include the details of the remedies to be imposed, contrary to the previous practice where the details were set only through dispute resolution. Portugal has mandated the publication of indicators, which should enable a better follow-up of the implementation of remedies and, in particular, non-discriminatory obligations. Furthermore, in some countries (such as Spain) the regulators have set up forums to discuss appropriate regulatory approaches or even the implementation of imposed remedies. These informal discussions are welcomed by operators, although a more leading role is expected from regulators. Deregulation of retail markets continued in 2009 allowing regulators to focus on the effective regulation of key wholesale markets. With regard to the wholesale markets, further deregulation took place in transit markets and at least partially in the market for trunk segments of leased lines.

NRAs are increasingly considering the acceptance of voluntary commitments/undertakings by SMP operators in order to enhance, in particular, non-discriminatory access to regulated products. It has to be stressed first that to the extent any undertakings are to be made binding by way of an administrative decision they are to be regarded as regulatory obligations. Secondly, if undertakings are aimed at facilitating the enforcement of regulatory obligations - such as the provision of access on a transparent and non-discriminatory basis – they are to be considered as directly related or ancillary to these regulatory obligations. Consequently, undertakings or their modifications must be made subject to a consultation both at national and Community level. Consultation with stakeholders The consultation mechanism at national level, as required by the regulatory framework, appears to function well in Member States. Yet, some criticism was raised by stakeholders. In Hungary, Romania and Latvia some interested parties considered that the consultations lacked the necessary dialogue with stakeholders. One of the key areas which has been subject to intensive consultation recently concerns the regulatory treatment of NGAs. Stakeholders are expecting these consultations to be carried out in full transparency and in a timely manner. Broadband Implementation Ensuring that all citizens can participate in the digital economy is increasingly becoming a political objective for governments across the EU. Consequently, national strategies have been developed in a significant number of Member States for traditional broadband but also for NGA networks with the aim of enhancing access to high-speed broadband. Due to the strategic importance of broadband services in the wider economic context, the establishment of appropriate regulatory measures in the markets for wholesale physical infrastructure access and wholesale broadband access continue to be crucial to develop sustainable competition. Almost all NRAs have regulated the broadband markets and imposed regulatory measures. However, Romania and Bulgaria have not yet assessed the markets for wholesale broadband access. Deregulation has taken place in Malta, partly in Portugal, and in the residential segment in Austria in relation to the market for wholesale broadband access. For the first time, access obligations were imposed on a cable network in Denmark. Although regulation of wholesale inputs improved the competitive situation in the broadband markets over the past years, the positive development in several Member States has stagnated or even deteriorated recently. This is partly due to the lack of effective enforcement of remedies. In some cases, certain access products were made available only recently, for example naked DSL in the Czech Republic, Spain and Cyprus. The relevant reference offers for bitstream or LLU products, such as for ADSL or VDSL, are sometimes delayed (e.g. in Italy, Germany, Belgium, Bulgaria, Luxembourg, Slovakia where the bitstream regulated product only became available in 2009) and operators in some cases need to negotiate the concrete access conditions on a commercial basis, leading to significant disputes and lack of legal certainty. Reference offers need to be adapted regularly, for example in 2009 they were modified in Cyprus, Slovenia, Greece, Lithuania, Luxembourg, Spain or Hungary. In other cases, the regulatory prices were not determined by regulation (e.g. in the Czech Republic for bitstream) or they needed to be re-examined (e.g. in Poland, Greece, Italy, Luxembourg, Sweden). Some Member States have reduced the prices for LLU and, currently, the EU average monthly prices for full and shared LLU are €8.55 and €2.24, respectively. Ancillary services to LLU and bitstream access also need to be fully taken into account by the NRAs in order to ensure that the access products can be appropriately taken up (see for example some collocation problems reported in Slovakia). In addition, the current market trend towards bundled products is significantly affecting the competitive dynamics in the broadband sector and is creating an additional regulatory challenge to NRAs. Therefore, it is necessary to examine to what extent the wholesale access products available enable alternative operators to duplicate economically the incumbent bundles or to offer the same products (and in particular IPTV). During 2009, some NRAs continued to analyse the incumbent's offers in these respects (e.g. Ireland, Austria, Spain) and in some cases more efforts or even a revision of the methodology employed was requested by the alternative operators. Furthermore, NRAs have also been evaluating alleged cases of margin squeeze by the incumbent operator, such as in Denmark or the Czech Republic. Next Generation Access Networks (NGAs) Investments in NGA networks have progressed in 2009 in a number of Member States both by the incumbent and also alternative operators. Furthermore, cable operators have been upgrading their networks towards Docsis 3.0 standard (e.g. Hungary, Netherlands, Portugal, United Kingdom, Poland, Slovenia). In order to foster NGA deployment, legislative measures have been taken in some Member States to facilitate access to physical infrastructure (not limited to the incumbent's infrastructure) and facility sharing such as in Portugal or Austria. However, few NRAs have yet determined the regulatory approach towards NGA and operators are requesting more transparency and legal certainty. Some NRAs have advanced in defining the regulatory approach (e.g. France, Portugal, Spain) and others are consulting with stakeholders on the current challenges or the most appropriate regulatory approach (e.g. Austria, Poland, Italy). In terms of concrete regulatory measures in respect of fibre, there is a need for further consistency. Some NRAs have included fibre in the relevant wholesale markets and imposed obligations (e.g. the Netherlands, Finland, Latvia, Estonia, Slovenia where they have notified such a measure even though the remedies on fibre are not yet effective) while others have excluded fibre from the market or have not imposed regulation on it (e.g. France, Germany, Italy, Cyprus, Greece, Luxembourg, Portugal). The Netherlands and Slovenia have imposed an obligation of unbundling fibre loops. In Spain, the NRA did not differentiate on technologies but on speeds and imposed a bitstream obligation limited to the provision of speeds up to 30 Mbps. Furthermore, some other NRAs have differentiated the remedies imposed over fibre and copper networks (e.g. in Estonia different remedies have been imposed, in the Netherlands, Slovenia and Finland different pricing principles apply to fibre and copper loops). In addition, access to passive infrastructure (particularly ducts) or in some cases to dark fibre as a last resort has been imposed by many NRAs as a remedy in the market for wholesale infrastructure access, in order to facilitate network deployment by alternative operators (e.g. Denmark, Greece, Estonia, Slovenia, Portugal, Germany, France, Spain). In Spain a reference offer on access to ducts was approved during 2009, and in Portugal the already existing obligation under the terms of the concession contract has been complemented by an obligation following the finding of significant market power in the market for physical network infrastructure access. Due to the lack of a regulatory offer, access to civil infrastructure had to be negotiated in Germany on a commercial basis. In some other Member States (such as the UK) there is currently no regulated access to ducts or dark fibre. Also, and as already indicated in the previous Report, in some cases measures have been taken in relation to in-house wiring by means of symmetric obligations such as in France, Portugal and Spain, or as asymmetric obligations (imposed on SMP operators only) such as in Slovenia, even though these obligations are not yet effective. Generally, operators request transparency and legal certainty from the NRAs in relation to NGA deployment (e.g. in Hungary, Portugal, Belgium, Germany, Slovenia, Spain, Italy). In particular, alternative operators call for a transparent migration process from copper to NGA. The deployment of fibre networks is likely to modify the current network topology and access points (in particular in relation to LLU), thus affecting the investments made. It is necessary that NRAs adopt a proactive regulatory approach which promotes investment by the incumbent and alternative operators, whilst preserving the investments already made by alternative operators in LLU. Some NRAs have imposed transparency obligations or established forums for the incumbent to disseminate its plans to alternative operators in relation to its network roll-out (e.g. in Spain – as regards the deployment of remote nodes- or Denmark, Belgium, and current plans for a similar approach in Austria). In order to achieve further consistency and an appropriate and predictable regulatory approach towards NGAs, as well as to encourage NRAs to advance in this process, the Commission will adopt a Recommendation on regulated access to Next Generation Access Networks in the course of 2010. Mobile Implementation Mobile Termination Rates

There still remains significant divergence in applied cost accounting methodologies and thus in levels of mobile termination rates across the Member States which is why the Commission adopted a Recommendation on termination rates in May 2009. The Recommendation provides a methodology for setting termination rates at the level of costs of an efficient operator. Many NRAs completed their second round market analyses of the mobile termination market and some have even carried out their third (e.g. Austria). NRAs have set glide paths to reduce rates further over the coming years and generally some further progress was made during the year in terms of setting mobile termination rates at levels approaching the efficient costs. Most NRAs do not yet have LRIC models in place. However, rates are being increasingly set based on 'bottom-up' LRIC models, although those models are not yet in line with the Recommendation. On the other hand many NRAs (e.g. Belgium, France, Poland, Austria, Spain, Portugal) have indicated that they intend to develop efficient operator cost models and intend to comply with the Commission Recommendation. As a general comment the Commission reiterated its view that the termination rates should be set at the levels reflecting forward-looking costs of an efficient operator. Whilst it is still common to allow smaller operators and late entrants to apply higher termination rates, correcting asymmetries in rates seems to be a common trend and in a number of cases the Commission has called on NRAs to phase out asymmetries (e.g. Denmark, Romania, Spain). In some cases rates are still set using benchmarking (e.g. Estonia, Malta, Luxembourg, Portugal). In commenting on benchmarking, the Commission has stated that inappropriate benchmarks imply persistent competitive distortions and invited NRAs to use the benchmarks only of those countries which already apply the rates of an efficient operator. Overall the effects of regulation of mobile termination rates has lead to a reduction in the overall average rate for the EU which now stands at 6.70 €-cents, down from 8.55 €-cents in October 2008. Although SMS traffic is currently not regulated with the exception of France, NRAs have intervened informally in some cases to try to reach lower rates which would better reflect the underlying costs (Finland, Poland). Call access and origination The mobile access and call origination market is regulated only in three Member States. In Cyprus, the NRA reviewed the market and finding that the incumbent still had SMP. The NRA maintained all remedies imposed in the first round analysis, yet withdrew the carrier selection obligation. It introduced an obligation for MVNO access. In Spain, the mobile access market is the only market that the NRA has not yet reviewed. Following the access obligations imposed by the regulator on the three MNOs present in the market in 2006, several undertakings are currently providing mobile services in the market. In Slovenia, the Commission endorsed the NRA's plan to require Slovenia's largest mobile operator to continue to provide its competitors with access to its network at regulated prices. Roaming In general the Roaming Regulation appears to be implemented well in most Member States with only a few difficulties reported. In most cases it seems that prices have been set close to the caps and, with only few exceptions (Hungary and Romania), retail data roaming prices have not yet fallen despite the lower wholesale charges. A number of Member States have reported that operators claim that meeting the deadline for implementation of the cut-off limit (March 2010) is difficult. In most countries alternative offers to the Eurotariff exist. One country (Luxembourg) reports continued problems with inadvertent roaming. Fixed Implementation Retail calls regulation The trend towards deregulation of fixed retail markets continued during 2009 as more NRAs found these markets to be competitive (Italy, Austria, Czech Republic, Romania, Malta, Spain, Germany, the Netherlands, and with the exception of a few product markets, also in the United Kingdom) although regulatory issues remain in some Member States. In Italy, the NRA maintained the obligation to notify prices and conditions 30 days in advance of the commercial launch of retail services, cost accounting, as well as the obligation not to unreasonably bundle retail offers. In Austria, whilst the NRA withdrew existing regulation in the retail calls markets for residential customers, it defined as susceptible to ex ante regulation the market for national and international publicly available telephone services for non-residential customers. In Estonia, the first round of market analyses resulted in non-SMP findings on fixed retail call markets. However, following concerns about excessive pricing the competition authority launched an investigation on that issue, which resulted in the incumbent offering lower prices from January 2010. However, the final decision has not yet been issued. In the Netherlands, following the latest market decision of December 2008, retail markets were deregulated, as a first step for the consumer market since beginning 2009, and as a second step for the business markets as from 1 January 2010. In Germany the NRA decided to de-regulate the fixed national calls markets and the wholesale market for transit services. Interconnection Actions by NRAs in relation to fixed termination have resulted in a modest reduction in the levels of average fixed termination rates however the levels of such rates still remain diverse. In general there were no significant changes in approaches with most NRAs continuing to apply cost-orientation to fixed termination rates, although cost-accounting methodologies are not always yet in line with the Commission Recommendation. A number of NRAs updated their Reference Interconnection Offers in the course of 2009. The question of inclusion of IP products within defined markets has arisen in a few countries. In Germany, while the incumbent launched a double-play all-IP retail product, the NRA also included all-IP access lines in its draft remedies for the market for access to the public telephone network at a fixed location. In Slovenia, formal disputes between the incumbent and two alternative operators concerning the level of interconnection rates for IP traffic, resolved via mediation, have not yet provided the necessary technical solution. In Spain, the NRA broadened the scope of regulation by including IP interconnection. Regulation was withdrawn in some Member States from the wholesale transit market (Germany, Netherlands, Slovakia, Spain). In contrast, in the UK, the NRA re-consulted on modified proposals concerning the market for wholesale transit services proposing to continue to find that the incumbent has SMP in the single transit market and to impose a range of regulatory remedies on it.



Leased lines In the retail leased lines market, regulation was withdrawn in several countries (Finland, Czech Republic, Denmark, Germany, Italy, the Netherlands, Spain). At wholesale level, a number of NRAs found the market for trunk segments of leased lines to be at least partially competitive and proposed withdrawal of the existing regulatory obligations (Denmark, Italy, Poland (connections between 145 larger cities), Slovakia and Spain (except for ten undersea routes). Regulation on the termination segments was maintained (Italy, some submarkets of terminating segments of leased lines in Austria, Spain). Broadcasting Implementation

Regulation of broadcasting markets Broadcasting transmission markets are no longer susceptible to ex-ante regulation according to the Commission Recommendation on relevant markets. Nevertheless, several NRAs notified or adopted new decisions in 2009. This was the case in France (regulation of non-replicable sites in the market of transmission of programmes in digital terrestrial mode), Austria (definition of markets for multiplexing broadcasting signals, analogue terrestrial FM radio transmission, and access to broadcasting facilities), Sweden (free-to-air digital television, and analogue terrestrial radio transmission), Lithuania (analogue and digital terrestrial and cable transmission), and Spain (terrestrial analogue and digital transmission market, with the imposition of additional obligations). In some cases, it was found that markets were considered to be competitive and regulatory obligations were lifted (Czech Republic, Sweden with regard to the pay-TV market). In the Netherlands, the NRA continued the regulation of analogue cable transmission and imposed on the two largest cable operators the obligation to provide analogue signals, including access to the transmission platform for the purpose of resale. This kind of wholesale line rental offers for cable transmission are expected to be made available soon to alternative providers, which would then be able to include analogue television in the provision of their services to the customer. The Commission noted, with regard to these notifications, that the proposed obligations should not hamper the investment in, and the development of, digital services and infrastructures. Digital switchover Member States have been invited since the Commission Communications of 17 September 2003 and 24 May 2005 to establish switchover strategies, and to switch off analogue broadcasting at the latest by 1 January 2012. While some Member States already completed analogue switch-off (Denmark, Germany, Netherlands, Finland, Sweden), most Member States are actively preparing this process. By taking further switch-off decisions, by city or region, or by carrying out pilots, Member States should be able to complete the whole process within the following two years. Most Member States have further advanced the switchover date to 2010 (Spain in April, Latvia in June, Estonia in July, Malta and Slovenia before the end of the year) or to 2011 (Hungary, Czech Republic, Austria, Cyprus, France) and a few are waiting until 2012 (Bulgaria, Greece, Lithuania, Portugal, Romania, Slovakia and the UK). Poland is the only Member State that has scheduled the switch-off for July 2013. In practically all Member States, national plans or strategies have been defined and concrete promotional measures have been taken (e.g. subsidies for equipment of low-income households, national information campaigns, dedicated websites). In Poland, a draft plan for the introduction of DTTV was approved by the Council of Ministers in December 2009. Where the introduction of DTTV has already started, coverage percentages are steadily increasing, attaining 70% or more of the population (e.g. France, Lithuania, Slovakia, United Kingdom). Take-up of DTTV by households amounted for example to 37% in Spain and the United Kingdom and 42% in France. Analogue and digital simulcast seems in some cases to hamper smooth transition to digital terrestrial broadcasting. Further measures had to be taken to speed up the switchover. In Slovenia, subsidies were provided to certain providers having to broadcast in analogue and digital techniques simultaneously. In Hungary, a fine was imposed on the single digital terrestrial television provider for not complying with its obligations with regard to the availability of service and the provision of information. In the meantime, most Member States continue adopting new legislation regarding the necessary procedures for the granting of broadcast licences. In 2009, national regulatory authorities further carried out or completed tenders or auctions for the allocation of multiplex capacity (Flemish Region of Belgium, Latvia, Portugal, Slovakia), or were preparing for it (Italy, Denmark). In Spain, following a controversial decision of August 2009, DTTV licence holders have been allowed to provide also pay-TV services. Pursuant to the Authorisation Directive, Member States are obliged, when assigning radio frequencies, including for broadcasting purposes, to follow open, transparent and non-discriminatory procedures. Selection criteria must be objectively justified, non-discriminatory, proportionate and transparent. The Commission will continue monitoring legal and procedural arrangements during the transition towards full implementation of digital television as to their compliance with Community law. The consumer interest Tariff transparency and quality of service The requirement to provide transparent and up-to-date information on tariff plans, prices, and service terms and conditions is one of the fundamental pillars of EU consumer protection rules in the area of telecommunications. In addition, the rules entail specific requirements related to consumer contracts and quality of service. Consumers continue to face difficulties in comparing complex tariff plans and contractual conditions. This was evidenced also by the second Consumer Markets Scoreboard (2009). Therefore, the necessity to further advance or to reinforce measures on transparency and quality of service, in order to ensure that consumers can take a better informed decision, is widely recognised. Several Member States have taken concrete action in this respect, introducing new legislation and regulation aiming at easier access to information for consumers. Such was the case at least in Romania, Portugal, France, United Kingdom, Spain, Lithuania, Poland, and Hungary. Besides amendments to the national legislation, a variety of other measures on particular issues have been taken by several Member States. In Portugal, for example, certain quality of service parameters were redefined for fixed telephony services. The drive for more transparency in this area in Denmark led to discussions on a possible introduction of a service quality index. As regards quality of service in general, the most notable attention was paid to internet services, and in particular the level of broadband speeds actually provided. One of the most innovative approaches in this context is a deployment of IT tools which allow end-users to test their actual broadband speeds. This form of consumer tools, available for example in Denmark, Latvia, Lithuania, Italy and Greece, are becoming a popular instrument for consumers to verify whether the actual broadband speed delivered corresponds to the advertised speed level and to what they are actually paying for. In Italy, consumers are now able to withdraw from their contracts in case of divergence with the declared connection speed. The Slovenian NRA issued a recommendation on the provision of broadband speeds, and the Portuguese NRA published a report on the quality of service for access to internet services, highlighting the upload speeds and network latency as the main differences between fixed and mobile networks. The United Kingdom NRA carried out a broadband speeds survey comparing the service provision of the largest internet service providers. In Hungary, several operators were subject to fines for a failure to provide correct information to consumers on broadband speeds and data limits. The EU framework encourages provision of information to allow for a development of independent evaluation mechanisms enabling cost comparisons of alternative usage patterns. Web-based interactive platforms or other, simpler online tools, have been developed in a number of Member States to date. A 'tariff simulator' is available in Belgium, and a new specific website for consumers to check information on roaming has been launched by the Portuguese regulator. Where these websites are already in place for some time, efforts have been dedicated to update, improve or expand the scope of information provided (Denmark, Malta, Slovenia, Sweden, Lithuania, Hungary, UK). An online price comparison tool is under preparation in Romania. Some of the online price guides cover a full range of telecoms services, such as fixed and mobile voice, broadband, and TV. Spain is publishing a comparison of retail broadband offers and quality of service data for different services. While these projects are mostly run by the national regulators, there are some led by the industry, subject to certification from the NRA. This has lead to the development of several national price comparison services in the United Kingdom, and is leading to development of such services in Poland. Transparency with regard to premium rate and value added services remains an issue of discontent in many countries. The Dutch NRA has undertaken an exercise of enforcing transparency obligations with respect to certain categories of the most expensive premium rate numbers and with respect to correct use of premium numbers, withdrawing those where abuse was suspected. In Germany, price caps were imposed on calls to consumer hotlines; France now obliges service providers to inform consumers of the price for calls to value added services by means of a free short message. Measures to improve transparency with respect to call charges for the widely used non-geographic number ranges were introduced in the United Kingdom; Belgium reduced price caps for mobile calls to certain expensive ranges of numbers and aligned them with fixed calls. Spain adopted a new code of conduct for premium data services, which inter alia reinforces users' information rights, as well as the right to be disconnected from these services. In Portugal, new legislation entered into force where subscribers can opt-out from receiving value-added SMS and MMS. Consumers are often confused about contractual terms and conditions. To address the most frequent sources of concerns, the Dutch legislator set clearer conditions for termination of indefinite contracts, Spain adopted a Charter of user's rights, with provisions related to more details in contracts, a more efficient procedure for complaints, contract cancellation and rights for mobile prepaid users, and the Slovenian regulator adopted new guidelines on prevention of bill shocks. Overall, the progress in some areas for a number of Member States has been notable and welcome. However, the efforts to tackle the identified deficiencies could be stepped up in many countries. The process of enhancing transparency and quality of service, given its wide-ranging nature, should be regarded as an ongoing and evolving process which has to be monitored and responded to as the market develops and as the move towards the strengthened rules in the revised framework approaches. Universal Service

Four universal service elements, namely (i) access at a fixed location to telephony services, fax communications and functional internet, (ii) comprehensive directory and directory enquiry service, (iii) availability of public payphones, (iv) and special measures for disabled, those on low income and with special needs, comprise the set of minimum telecommunications services that have to be available to all end-users at an affordable price and specified quality. These elements should be under regular review. Member States, on the basis of the national conditions, decide what elements are not satisfactorily provided by the market under normal commercial conditions and therefore have to be provided by designated undertaking(s). There are currently three Member States where the provision of these minimum services is carried out without a formal designation: Germany, Luxembourg and Sweden. In the Czech Republic, provision of complementary services to access provision, such as phased payment for a new connection, free itemised billing and selective call barring, were removed from the scope of designations. Several Member States carried out new designation procedures for some or all elements where previous obligations had expired. The French and the Slovenian fixed incumbent have been designated again to provide access at a fixed location, while another market player was designated for the provision of comprehensive directory and directory enquiry services. The incumbent operator was designated to provide special terminal equipment for disabled users in the Czech Republic. Similarly, the universal service obligation was extended for the designated undertaking without a transparent designation procedure in Hungary (via legislation). In Greece, Italy, Bulgaria, the Netherlands, Portugal, and Belgium (other than social tariffs), universal service is provided on the basis of a transitional regime where undertakings involved have not been designated on the basis of the EU regulatory framework. In these instances, the Commission notes that there is a need to carry out a designation procedure respecting the principles envisaged by the EU framework as soon as possible. Preparations for new designations are ongoing in Portugal, Malta, Greece and Spain. Apart from new designations, the obligations in place have been reconsidered in several countries, in particular as regards public payphones. The decreasing trend of their usage has led to reductions in density criteria in the Czech Republic, Latvia, and Lithuania. Reductions in this context are further considered in Slovakia and Austria. In contrast, additional mandatory services, such as maritime services, ISDN and leased lines, are provided under the universal service umbrella in Denmark. The possible inclusion of broadband services within the scope of universal service elements is increasingly becoming a point of interest. Besides France and Spain, other Members States such Cyprus and Romania have initiated considerations in this regard. However, it is only Finland which has so far actually taken concrete measures to initiate a designation procedure for universal service broadband of 1 Mbps. At the same time, the financing of this service foreseen in the legislation, if any, is to be covered by public funds. For further illustration of considerations in this respect, the UK Government announced a 'universal service commitment' to ensure at least 2 Mbps to all users by 2012 with the help of public funding. The Commission is carrying out a public consultation on the future direction of universal service provision in line with the revised framework in the course of 2010. The financing mechanism envisaged to cover the net cost of universal service provision, where an unfair burden for the designated undertaking was established, entails two options: funding via a sector-specific fund made of contributions from market players, or public funding. A vast majority of Member States foresee the former financing option, while in Finland and Sweden only public funding is envisaged in the legislation. Malta, Portugal and Czech Republic allow both sector-specific funding and public funding. Several Member States have received new requests for compensation, or are evaluating earlier requests received. Even if the provisions for financing are in place, the financing mechanism for universal service is not activated in the majority of Member States. Such a compensation mechanism has been activated in the Czech Republic, France, Italy, Romania, Spain, Latvia, and Belgium (for social tariffs). In Austria, market players voluntarily pay out compensation to the designated undertaking on the basis of commercial agreements without activating an official compensation mechanism. The net cost calculation and establishment of an unfair burden appears to be a complicated and time-consuming process for the majority of the countries involved. Due to various administrative delays, court proceedings, delays in contributions, or updates of net cost calculation methodologies, compensation is only received by the designated operators in France, Czech Republic, Spain and Romania. Nonetheless, in the Czech Republic, following a court's decision of 2009, the net cost has to be revisited for the period of 2001-2006 as the contributing operators had not been granted the status of a party to the administrative proceeding concerning the net cost calculation. Furthermore, the Romanian compensation mechanism is under scrutiny by the Commission services for compliance with the framework. Where the net cost figures have been finalised, the total sum has a decreasing trend in most cases. The latest available net cost figures are the following: Belgium € 48.4 million (2003), Czech Republic € 13.77 million (2006), Spain € 71.1 million (2007), Latvia € 0.54 million (2008), Romania € 0.47 million (2008), France € 22.9 million (2007), and Italy € 41 million (2003). The net cost calculations are currently ongoing in Poland, Portugal and Slovakia, to determine whether such costs represent an unfair burden on the designated undertaking. With regard to the process, the Commission recalls the need to take into account all tangible and intangible benefits when determining the net cost, and to maintain a high level of transparency for all parties involved in the compensation mechanism. Infringement proceedings related to incorrect implementation of universal service provisions were still pending against Belgium, Portugal and Spain. Moreover, the Danish f