Opinion of the Economic and Social Committee on the 'Draft Commission Directive amending Directive 90/388/EEC in order to ensure that telecommunications networks and cable TV networks owned by a single operator are separate legal entities` (98/C 407/21)

On 4 March 1998, the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned directive.

The Section for Transport and Communications, which was responsible for preparing the Committee's work on the subject, set up a study group and appointed Mr von Schwerin as rapporteur.

At its 357th plenary session (meeting of 9 September), the Committee appointed Mr von Schwerin as rapporteur-general and adopted the following opinion by 85 votes to three with seven abstentions.

1. Introduction

1.1. Commission Directive 90/388/EEC of 28 June 1990 on competition in the markets for telecommunications services () threw certain services open to competition and obliged Member States to take the measures required to gradually lift restrictions on these services.

1.2. On 18 October 1995 the Commission adopted the Cable Directive 95/51/EC () in which the Member States were required to make cable TV networks available for the telecommunications services that had already been liberalized.

The Member States were also required to ensure, in cases where a telecommunications organization also operated a cable television network, that separate accounts were kept for the supply of public telecommunications networks, cable TV networks and telecommunications services.

1.3. The Cable Directive and the Competition Directive 96/19/EC () called on the Commission to examine the following two aspects prior to the full liberalization of the market in 1998:

- the effects on competition of the joint provision of telecommunications and cable TV networks by a single operator; and

- the restrictions on the provision of cable TV capacity over telecommunications networks.

1.4. The Commission fulfilled these obligations with the publication on 7 March 1998 of its Communication concerning the review under competition rules of the joint provision of telecommunications and cable TV networks by a single operator and the abolition of restrictions on the provision of cable TV capacity over telecommunications networks ().

2. Commission proposal

2.1. The Commission proposal stipulates that telecommunications organizations which have special or exclusive rights to provide cable TV networks are to be obliged by the Member States to operate these cable TV networks as separate legal entities.

2.2. The aim of the Commission is to increase competition - and especially network competition - in the Member States. This applies to both telephone services and broadcasting where the networks belong to different owners.

2.3. The Commission - drawing on studies commissioned by it () - considers that the ownership of telecommunications and broadband cable networks by a single operator has a negative effect on innovation, competition and infrastructure development and that accordingly the technical development of network infrastructure is hampered by the existence of firms owning both telecommunications and cable TV networks. It gives the following reasons for this:

- the dominant firms in many EU Member States have a very much better starting position than new entrants on the market;

- there are restrictions on the use of telecommunications networks for the provision of cable TV capacity;

- separate accounting where competing networks are provided by one and the same operator, as under Directive 95/51/EC, has not provided the necessary safeguards against all forms of anti-competitive behaviour;

- the firms concerned face a conflict of interests, since any substantial upgrading of their telecommunications network or cable TV network could lead to a loss of customers for the other network.

3. General comments

3.1. The Committee notes that the Commission continues to press on resolutely with the liberalization of the telecommunications sector and supports the Commission's aim of using EU-wide regulatory measures to promote growth and job creation.

3.2. The Committee considers that regulatory action by the Commission - and thus also with regard to cable TV networks -

- will help to establish the information society as a social phenomenon and improve the quality of life;

- will strengthen economic and social cohesion throughout the Community;

- will promote firms' competitiveness and readiness to innovate; and

- will help to safeguard and create jobs.

4. Specific comments

4.1. The Committee is unable to recognize from its examination of the draft directive and the aforementioned studies () that the legal separation of telecommunications and cable TV networks gives a decisive boost to the development of technical infrastructure. The Committee would point out that in the United States, where local competition is known to be limited, the telephone giant AT& T was allowed to buy out the cable TV operator TCI. The process has thus been reversed there, and the reasons for this should be taken into account in Europe too.

4.2. The Committee points out that the regulatory action taken by the Commission fails to take account of the highly diverging media laws in the Member States.

4.3. The Committee agrees with the Commission that it would be desirable - irrespective of the question of ownership - not to delay the establishment of new advanced communications services so that users do not have to pay the price for technological progress being hampered.

4.3.1. The European Commission states in the preamble to its draft that its reason for using Article 90 TEC in conjunction with Article 86(b) TEC is that ownership by a single operator is likely to lead to further anti-competitive behaviour.

4.3.2. The Committee feels that this interpretation of Article 86(b) is unduly wide. The legal framework of Article 86(b) shows this clearly ().

4.4. Directive 95/51/EC (see footnote 2, p. 115) obliges Member States to notify firms operating both telecommunications and cable TV networks of the need for separate accounts. This requirement has been in force since 1996. Even though the studies commissioned in this area have been taken into account, there has so far been no adequate comprehensive analysis of the experience gathered - particularly at sectoral level.

4.5. So as to ensure that Article 90 TEC is observed, the Commission makes provision for the legal separation of telecommunications and cable TV networks, though they can as a rule still have the same owner. According to the preamble, this requirement would be met if a telecommunications organization were to entrust a fully-owned subsidiary with the operation of the cable network. The Commission regards legal separation as merely one possibility. It announces in the preamble that further measures may be taken vis-à-vis the Member States on a case-by-case basis. The Committee has its doubts about further Commission measures. It would point out to the Commission that this merely causes legal uncertainty and runs counter to the Commission's aim of promoting innovation, competition and infrastructure development in the telecommunications sector.

4.6. The Committee feels that the further options mentioned in the preamble - such as the compulsory selling-off of the cable business - are out of all proportion.

In this connection, the Committee considers that, under the terms of Article 222 TEC, the Member States' systems of property ownership should not be prejudiced.

4.7. The Commission's Green Paper of 3 December 1997 on the convergence of the telecommunications, media and information technology sectors and the implication for regulation describes the technical convergence brought about by the use of digital technologies, which will lead to the convergence of the markets.

The Committee thinks that the concept of convergence should also be applied to the cable sector. Legal separation of telecommunications and cable TV networks will confine the firms affected to one part of the converging markets - which, in view of the internationalization of this market, will put European firms at a competitive disadvantage.

5. Conclusions

5.1. The Commission indicated, in the course of discussion, that Article 9 of their proposal may be amended when the definite text is produced in order to give recognition to Articles 86b and 90 and the texts of existing Directives. It is regretted that the Commission has not been more informative. If that had been the case, this might have led to some different views from the Committee in its opinion.

5.2. The Committee welcomes the Commission's aim of promoting growth and job creation by taking regulatory action at European level. As pointed out in the general comments, a regulatory framework extending to the cable sector, too, will play a decisive role with regard to safeguarding and strengthening European firms' ability to innovate and also with regard to employment and future working and living conditions in Europe.

5.3. In view of existing legal provisions (), the Committee feels that the proposed directive does not adequately serve these aims. It leaves a number of questions open with regard to the principle of proportionality, and creates at least in part - legal uncertainty.

Brussels, 9 September 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ L 192, 24.7.1990, p. 10.

() OJ L 256, 26.10.1995, p. 49.

() OJ L 74, 22.3.1996, p. 13.

() OJ C 71/4 (98/C 71/04), 7.3.1998, p. 4.

() Arthur D. Little International 'Cable Review - Study on the competition implications in telecommunications and multimedia markets of (a) joint provision of cable and telecoms networks by a single dominant operator and (b) restriction on the use of the telecommunications networks for the provision of cable television services`. 1997 and Coudert, 'Study on the Scope of the Legal Instruments under EC Competition Law available to the European Commission to implement the Results of the ongoing review of certain situations in the telecommunications and cable television sectors`, 1997.

() 'Article 86: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: b) directly or indirectly imposing unfair purchase or selling price or other unfair trading conditions;`.

() Article 2 TEC : The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.

And Article 117 TEC : Member States .... believe that such a development will ensue not only from the functioning of the common market, which will favour the harmonization of social systems, but also from the procedures provided for in this Treaty and from the approximation of provisions laid down by law, regulation or administrative action.