EUROPEAN COMMISSION Brussels, 3.10.2016 SWD(2016) 303 final/2 CORRIGENDUM

Annule et remplace le SWD(2016) 303 final.

Suppression des liens vers des documets externes. COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposals for a Directive of the European Parliament and of the Council establishing the European Electronic Communications Code (Recast) and

a Regulation of the European Parliament and of the Council establishing the Body of European Regulators for Electronic Communications {COM(2016) 590 final}

{COM(2016) 591 final}

{SWD(2016) 304 final}



Contents Introduction 1What is the problem and why is it a problem? 1.1What was concluded from the evaluation/fitness check of the existing regulatory framework? 1.2What is the problem? What is the size of the problem? 1.2.1Obstacles to unconstrained connectivity 1.2.2A regulatory framework not fit to rapid market and technological changes 1.2.3Regulatory redundancies and inefficiencies and lack of coherence in the Single Market 1.3What are the main drivers? 1.4Who is affected by the problem, in what ways, and to what extent? 1.5Baseline: How would the problem evolve, all things being equal? 1.6Why should the EU act? 2Does the EU have the right to act? 2.1Why could Member States not achieve the objectives of the proposed action sufficiently by themselves? 2.2What would be the added-value of action at EU-level? 3What should be achieved? 3.1What are the general policy objectives?

3.2What are the more specific objectives? 3.2.1Contribute to ubiquitous very high capacity connectivity in the single market 3.2.2Competition and user choice in the single market: 3.2.3Simplification of the regulatory intervention and single market coherence: 3.3How do they link to the problem? How do the objectives relate to each other, i.e. are there any synergies or trade-offs? 3.3.1Synergies between objectives 3.3.2Trade-offs between objectives 3.4Are these objectives consistent with other EU policies and with the Charter for fundamental rights? 3.4.1Coherence with other EU policies 3.4.2Coherence with the Charter for fundamental rights 4Options, impacts and comparison of options by policy area 4.1.1Access regulation 4.1.2Options 4.1.3Discarded options 4.1.4Impacts 4.1.5Comparison of options 4.1.6The preferred option 4.2Spectrum 4.2.1Options 4.2.2Discarded options

4.2.3Impacts 4.2.4Comparison of options 4.2.5The preferred option 4.3Universal Service 4.3.1Options 4.3.2Discarded options 4.3.3Impacts 4.3.4Comparison of options 4.3.5The preferred option 4.4Services and end-user protection 4.4.1Options 4.4.2Discarded options 4.4.3Impacts 4.4.4Comparison of options 4.4.5The preferred option 4.5Institutional governance 4.5.1Options 4.5.2Discarded options 4.5.3Impacts 4.5.4Comparison of options

4.5.5The preferred option 4.6Who would be targeted by the different policy options? 4.7Applying the Think Small Principle 4.8Positive and negative impacts, direct and indirect, changes in impacts, potential obstacles 4.9How the preferred options relate to the specific objectives 4.9.1Contribute to ubiquitous VHC connectivity in the single market 4.9.2Competition and user choice in the single market 4.9.3The REFIT potential: simplification of the regulatory intervention and single market coherence 4.10The legal form of the preferred options 4.11The impact of the preferred options 4.11.1Methodology 4.11.2Impacts of preferred policies on fixed and wireless broadband availability and quality 4.11.3Impact of improved broadband quality and electronic communication service development on TFP 4.11.4Implications for jobs and growth 4.11.5Impact on competitiveness 4.11.6Potential for disruptive change through innovation 4.11.7Conclusions 5How would actual impacts be monitored and evaluated? 5.1Plan for future monitoring and evaluation - consider what should be monitored and evaluated and when. 5.1.1The European Digital Progress Report

5.1.2Eurobarometer annual household survey 5.2Core monitoring indicators for the main policy objectives and the corresponding benchmarks against which progress will be evaluated; 5.2.1Benchmarks 5.2.2Summary 5.3Monitoring of the preferred policy option: 6 ANNEXES .............................................................................................................. 199 6.1 ANNEX 1 - Procedural Information ............................................................. 199 6.1.1 Identification; .................................................................................. 199 6.1.2 Organisation and chronology: ......................................................... 199 6.1.3 Regulatory Scrutiny Board .............................................................. 199 6.1.4 Evidence .......................................................................................... 200 6.1.5 External expertise ............................................................................ 200 6.2 ANNEX 2 - Stakeholders and Public Consultation ....................................... 201 6.2.1 The stakeholders engagement strategy ............................................ 201 6.2.2 The outcome of the public consultation .......................................... 203 6.3 ANNEX 3 - Discarded options ...................................................................... 224 6.3.1 Access regulation ............................................................................ 224 6.3.2 Spectrum .......................................................................................... 226 6.3.3 Universal Service ............................................................................ 226

6.3.4 Services and end-user protection options ........................................ 227 6.3.5 Institutional governance .................................................................. 228 6.4 ANNEX 4 - Who is affected by the preferred options and specific impacts on stakeholders ................................................................................................. 229 6.4.1 Implications for telecommunications network operators and service providers ............................................................................................................. 235 6.4.2 OTT providers and non-telco .......................................................... 244 6.4.3 SMEs ............................................................................................... 247 6.4.4 Consumers ....................................................................................... 252 6.4.5 Member States' authorities .............................................................. 256 6.4.6 National regulatory authorities (NRAs) and spectrum regulatory authorities (SRAs) .............................................................................................. 260 6.5 ANNEX 5 - Analytical models used in preparing the impact assessment. .................................................................................................... 264 6.5.1 Modelling the gains from intervention ............................................ 264 6.5.2 Assumptions and limitations of the modelling approach ................ 264 6.5.3 Impact of the proposed policy options on the KPIs ........................ 265 6.5.4 Impact of the KPIs on some macroeconomic variables .................. 266 6.5.5 Overall macroeconomic, social and environmental impacts ........... 270 6.5.6 Simulation results, based on the preferred policy scenarios............ 273 6.5.7 Earlier literature on modelling e-communications and ICT ............ 283 6.5.8 Econometric modelling ................................................................... 285 6.5.9 Elaboration of the methodology ...................................................... 286

6.5.10 List of abbreviations and equations in the CGE model ................... 297 6.6 ANNEX 6 - Data and problem evidence ....................................................... 306 6.6.1 Introduction ..................................................................................... 306 6.6.2 The state of play on connectivity and the telecom sector ................ 307 6.6.3 Technical annex on technologies and medium ................................ 325 6.7 ANNEX 7 - Impact on competitiveness and innovation .............................. 327 6.7.1 Impact on competitiveness .............................................................. 327 6.7.2 Potential for disruptive change through innovation ........................ 328 6.8 ANNEX 8 – Options diagrams ...................................................................... 332 6.8.1 Access options ................................................................................. 332 6.8.2 Spectrum options ............................................................................. 333 6.8.3 USO options .................................................................................... 333 6.8.4 Services options ............................................................................... 333 6.8.5 Governance ...................................................................................... 334 6.9 ANNEX 9 - The connectivity strategy: a European Gigabit Society ............ 335 6.9.1 The public consultation on internet speeds and the new ambitions ......................................................................................... 335 6.9.2 Connectivity and its importance ...................................................... 336 6.9.3 Towards the Digital Single Market and new connectivity ambitions ......................................................................................... 340

6.9.4 Technological developments ........................................................... 340 6.9.5 Some future developments .............................................................. 343 6.10 ANNEX 10 – Problem drivers ...................................................................... 346 6.10.1 The lack of incentives to deploy networks in the absence of infrastructure competition or in rural areas ..................................... 346 6.10.2 Inefficient allocation mechanism for public funding ...................... 347 6.10.3 Fragmented regulated and commercial offers for businesses across the EU ................................................................................... 348 6.10.4 Minimum harmonisation, differentiated rules ................................. 349 6.10.5 Differentiated rules leading to uncertainty on spectrum assignment ....................................................................................... 350 6.10.6 Technological and market changes ................................................. 351 6.10.7 Increasing adoption of bundles ........................................................ 353

6.10.8 Suboptimal design of market review cycles and Inconsistent remedies under current rules (art.7)................................................. 354 6.10.9 Obsolete and redundant rules .......................................................... 355 6.11 ANNEX 11 - 5G spectrum requirements for connected car (use case) ........ 357 6.12 ANNEX 12 – Comparison of impacts by stakeholders ................................. 359 6.13 ANNEX 13 - Report from the Expert Group meeting .................................. 375 6.14 ANNEX 14 – The state of play and the EU dimension of connectivity ....... 385 6.14.1 Costing the gap and the financial endowment of current initiatives ........................................................................................................................... 385

6.14.2 International comparisons ............................................................... 386 6.14.3 Towards a connectivity objective ................................................... 388 6.14.4 What is the EU dimension of the problem? .................................... 389 6.14.5 Baseline analysis: how would the problem evolve without intervention ...................................................................................... 391 6.15 ANNEX 15 - Glossary and Bibliography ...................................................... 399



Table of figures Figure 1- Problem tree Figure 2 – eSkills in the EU, DESI 2016 Figure 3 - Summary of future wireless evolution Figure 4 – IoT connected devices: cellular and non-cellular in billions Figure 5 - Timing of 800MHz spectrum awards Figure 6 - Average price paid in the 800MHz (€/MHz/pop) and LTE (4G) Coverage in EU MS. Figure 7 - OECD wireless broadband take-up (subscriptions/100people) Figure 8 – Bundles in the EU in 2015 Figure 9 - Homogenous provisions on contract with specified terms (Art 20 USD) Figure 10 - Spectrum sharing per different 5G use case Figure 11 - Europe IP Traffic and Service Adoption Drivers Figure 12 - Projected take-up of NGA by technology (to 2025)

Figure 13 - Fixed broadband subscriptions to at least 100 Mbps, EU and selected MS. Figure 14 - Model of market potential – Germany 2025 Figure 15 - Intervention logic diagram Figure 16 - Incumbent and entrant network access infrastructure 2014 Figure 17 - Mapping initiatives in EU28. Figure 18 - Duration of market review procedure Source: Deloitte based on NRA survey Figure 19 - Ethernet leased line 5km local access pricing benchmarks (Source: WIK based on Reference Offers as of October 2014) Figure 20 - Ethernet leased lines: on-net provisioning timescales within the SLA Figure 21 - Technology mix under different scenarios Figure 22 – Broadband in Japan Figure 23 - Real labour productivity (preferred options vs status quo) Figure 24 -Trends in labour productivity – international comparisons Figure 25 - Overview of competitiveness impacts Figure 26 - EU innovation capacity in comparison with other regions Figure 27 - Projected FTTH/B take-up (as % BB) Figure 28 - Broadband take-up by technology in Sweden Figure 29 - Fixed broadband price baskets 2012 Figure 30 - Overview of the quantitative modelling framework -------------------------- 271 Figure 31 - Overview of the impact mechanisms of the preferred policy options. ----- 272 Figure 32 – Broadband speed increases under different scenarios ----------------------- 273

Figure 33 – Production factors ---------------------------------------------------------------- 275 Figure 34 – GDP by final use components -------------------------------------------------- 275 Figure 35 – Current account balance, % GDP ---------------------------------------------- 276 Figure 36 – Gross value added by sectors in 2025 ----------------------------------------- 276 Figure 37 - Digital Economy and Society Index (DESI), Connectivity, 2016 ----------- 308 Figure 38 - Total telecommunication services revenues per region, billion EUR, 2012-2016------------------------------------------------------------------------------------------------ -309 Figure 39 - Share of fixed and mobile CAPEX in Europe, 2015 ------------------------- 309 Figure 40 - Total telecom carrier services revenues by segment, 2012-2016 ------------ 310 Figure 41 - NGA broadband coverage in the EU, 2010-2015----------------------------- 311 Figure 42 - Next generation access (FTTP, VDSL and Docsis 3.0 cable) coverage, June 2015------------------------------------------------------------------------------------------------ 311 Figure 43 - Fibre to the premises (FTTP) coverage in the EU, 2011-2015-------------- 312 Figure 44 - Fibre to the premises (FTTP) coverage, June 2015 -------------------------- 312 Figure 45 - Mobile broadband coverage in the EU, 2011-2015 -------------------------- 313 Figure 46 - 4G (LTE) coverage, June 2015 ------------------------------------------------ 313 Figure 47 - Percentage of households with a fast broadband (at least 30Mbps) subscription at EU level, 2010-2015 ---------------------------------------------------------- 314 Figure 48 - Percentage of households with an ultrafast broadband (at least 100Mbps) subscription, July 2015 -------------------------------------------------------------------------- 314 Figure 49- Share of fibre connections in total fixed broadband, July 2015 ------------- 315 Figure 50 - Fixed broadband subscriptions by headline speed at EU level, 2008-2015 315 Figure 51 - Fixed broadband subscriptions by headline speed, July 2015--------------- 316 Figure 52 - Mobile broadband penetration at EU level, January 2009 - July 2015 ---- 316

Figure 53 - Mobile broadband penetration at EU level, January 2009 - July 2015 ---- 317 Figure 54 - Mobile data traffic per type of device and region, Megabytes per month, 2015 - 2020 ----------------------------------------------------------------------------------------- 318 Figure 55 - Percentage of M2M modules of device connections by region, 2015 - 2020 ----------------------------------------------------------------------------------------------------- 319 Figure 56 - M2M traffic as a percentage of total mobile data traffic by region, 2015 - 2020------------------------------------------------------------------------------------------------ 319 Figure 57 - Fixed broadband household penetration by income quartiles at EU level, 2011-2015 ----------------------------------------------------------------------------------------- 320 Figure 58 - Household fixed broadband penetration and share of broadband access cost (standalone 12-30Mbps download) in disposable income, 2015 -------------------------- 320 Figure 59 - Percentage of households subscribing to bundled services at EU level, 2009-2015------------------------------------------------------------------------------------------------ 321 Figure 60 - Popularity of different services in bundles at EU level, 2015 --------------- 321 Figure 61 - Popularity of different bundles (% homes with subscriptions) at EU level, 2015------------------------------------------------------------------------------------------------- 322 Figure 62 - Mobile broadband prices (EUR PPP) - handset use in the EU and the US, 2015------------------------------------------------------------------------------------------------- 322 Figure 63 - Mobile broadband prices (EUR PPP) - handset use, 1GB + 300 calls, 2015 --------------------------------------------------------------------------------------------------------- 323 Figure 64 - Mobile broadband prices (EUR PPP) - laptop use in the EU and the US, 2015------------------------------------------------------------------------------------------------------- 323 Figure 65 - Mobile broadband prices (EUR PPP) - laptop use, 5GB, 2015 ------------- 324 Figure 66 - Real labour productivity (preferred options vs status quo) ------------------ 327 Figure 67 - Trends in labour productivity – international comparisons ----------------- 327 Figure 68 – Key applications and technological developments --------------------------- 340 Figure 69 – Network features and speeds ---------------------------------------------------- 341 Figure 70 – Cost scenarios for Southern Primorska region -------------------------------- 342 Figure 71 – benefits from adopting a cloud solution --------------------------------------- 343 Figure 72 – Cisco VNI forecasts -------------------------------------------------------------- 344

Figure 73 - Internet of Things Units Installed Base by Category (Millions of Units) - 344 Figure 74 – Latency and speed needed by applications and services -------------------- 345 Figure 75 - Example of differences in timing and duration of licenses for major EU operators ------------------------------------------------------------------------------------------ 351 Figure 76 – Use of Instant Messaging in EU member States ----------------------------- 352 Figure 77 - Mobile and Fixed revenues in the EU (million Euros) ---------------------- 352 Figure 78 – Adoption of bundles in the EU, 2010-2014 ---------------------------------- 353 Figure 79 – Adoption of bundles per MS, 2009-2015 ------------------------------------- 354 Figure 80 - Total spectrum requirements for motorway use case ------------------------ 357 Figure 81 - % of FTTB connections on total subscriptions (OECD) -------------------- 386 Figure 82 – Next generation access (FTTP, VDSL and Docsis 3.0 cable) coverage, June 2015----------------------------------------------------------------------------------------------- 387 Figure 83 - Projections for NGA (>30Mbps) take-up 2015-2025 ----------------------- 389 Figure 84 – GDP contributions from the Digital economy ------------------------------- 390 Figure 85 - Broadband trends in Europe following the LLU Regulation (2000) ------- 391 Figure 86 - Europe IP Traffic and Service Adoption Drivers -----------------------------392 Figure 87 - Projected take-up of NGA by technology (to 2025)-------------------------- 393 Figure 88 - Model of market potential – Germany 2025 --------------------------------- 395

Table of tables Table 1- State of Play on USO providers in the EU 28 Table 2 - Overlap between key provisions of the USD and horizontal rules

Table 3 - Estimated costs of the current institutional set-up for access Table 4 – Mapping efforts at ARCEP (indicative) Table 5 – Effects on stakeholders from access options Table 6 – A comparison of options - access Table 7 – Benefits for verticals Table 8: Effects on stakeholders – spectrum options Table 9 - A comparison of options for universal service Table 10 - Comparison of options - Services Table 11 - Comparison of options – Must carry and EPG Table 12 - Summary of governance options Table 13 - Comparing the impacts of governance options Table 14 – Summary table on the scope of rules and impact on selected stakeholders Table 15 - Impact of assessed scenarios on GDP, consumption, investment and employment (source: Ecorys) Table 16 - Monitoring indicators by policy objective Table 17 – Summary of potential benchmarks Table 18 – Operational objectives for preferred options Table 20 - Summary stakeholder impacts ............................................................... 233 Table 21 - Practical implications of preferred options for telecommunication network and service providers ..................................................................................................... 244 Table 22 - Summary of impacts on OTT ....................................................................... 248 Table 23 - Practical implications of preferred options for SMEs ................................ 251

Table 24 - Practical implications of preferred options for consumers ........................... 255 Table 25 - Practical implications for Member States ..................................................... 260 Table 26 - Practical implications for NRAs/SRAs ....................................................... 263 Table 27 - Percentage deviations in the all fibre scenario as compared to the baseline in the main macroeconomic variables. .............................................................................. 277 Table 28 - Percentage deviations in the all fibre scenario as compared to the baseline in the gross value added in 2025. ....................................................................................... 278 Table 29 – Impact from the preferred policy option ...................................................... 279 Table 30 - Percentage deviations in the services scenario as compared to the baseline in the main macroeconomic variables. ............................................................................... 281 Table 31 - Percentage deviations in the services scenario as compared to the baseline in investment, labour and consumption by clusters of EU Member States in 2025. .......... 282 Table 32 - Impact of assessed scenarios on GDP, consumption, investment and employment .................................................................................................................... 283 Table 33 - EU average of Connectivity Indicators in DESI 2016 .................................. 308 Table 34 - . Revenue growth rates, 2012-2016 .............................................................. 310 Table 35 - Table of mediums and technologies ............................................................ 325 Table 36 - Overview of competitiveness impacts .......................................................... 330 Table 37 -Potential socio-economic impacts of broadband deployment in Rural, Remote and Sparsely populated areas ......................................................................................... 337 Table 38 - Total spectrum requirements relative to percentage of spectrum sharing scenarios based on theoretical model ............................................................................. 357 Table 39 - Summary stakeholder impacts – access options ........................................... 360 Table 40 - Summary stakeholder impacts – spectrum options ....................................... 362

Table 41 - Summary of impacts on stakeholders – universal service options .............. 365 Table 42 - Summary stakeholder impacts – services options. ...................................... 367 Table 43 ---Summary stakeholder impacts – Must carry and EPG obligations ............. 369 Table 44 - Summary stakeholder impacts – Numbers. ................................................. 370 Table 45 - Costs of institutional options per stakeholder ............................................... 372 Table 46 – Summary of governance costs by option ..................................................... 373 Introduction When the current framework for regulation of electronic communications in the EU came into force in its original version in 2002, liberalisation was recent, former monopolist operators had still very high market shares in traditional telephony services, while the evolution of internet and broadband was still at an early stage and the telecom sector largely relied on copper networks to offer its services. A key objective of the 2002 framework, consisting of (i) sector-specific economic regulation based on the principles of EU competition law and (ii) rules safeguarding end-user interests, was to promote competition via regulated access to incumbents' networks and market entry as a means to make markets contestable, to achieve efficient market outcomes and, in particular, to maximise consumer benefits. While the general competition objectives were maintained in the 2009 revisions to the EU Framework, more emphasis was placed on fostering efficient investment and innovation and a specific reference was also made to fostering infrastructure-based competition to deploy Next Generation Access networks (NGA). The 2009 review also aimed at furthering the internal market by reinforcing the institutional set-up and strengthened a number of end-user rights. In 2010 the Digital Agenda for Europe introduced non-binding targets of universal access to connectivity at 30 Mbps by 2020 to ensure territorial cohesion in Europe and a penetration target of 100 Mbps (50% of subscriptions in Europe by 2020) to anticipate future competitiveness needs. Since then, the electronic communications sector has significantly evolved and its role as an enabler of the online economy has grown. Market structures have evolved, with monopolistic market power becoming increasingly limited, and at the same time electronic communications and the telecoms sector in particular have now acquired a vital importance for most sectors of the overall economy. Consumers and businesses are increasingly relying on data and internet access services instead of traditional telephone and other communication services. This evolution has, on the one hand, brought formerly unknown types of market players to compete with traditional telecom operators (e.g. service providers offering a wide variety of applications and services, including communications services, over the internet, so called over-the-top -players (OTTs)) and, on the other hand, it has increased the demand for high-quality fixed and wireless connectivity with the rise in the number and popularity of online content services, such as cloud computing, the Internet of Things (IoT), Machine-to-Machine communication (M2M) etc. Electronic communications networks have evolved as well. The main changes include: (i) the ongoing transition to an all-IP environment,(ii) the possibilities provided by new and enhanced underlying network infrastructures, which can support the practically unlimited transmission capacity offered by fibre optical networks, (iii) the convergence of fixed and mobile networks towards seamless service offers to the end-users regardless of location or device used and (iv)the expected introduction of innovative technical network management approaches, in particular Software Defined Networks (SDN) and Network Function Virtualisation (NFV). These usage and operational changes have exposed the current rules to new challenges which are likely to increase in importance in the medium and long term, and cannot therefore be excluded from the scope of the present impact assessment. The review of the regulatory framework for electronic communications needs to be seen in light of the priority of the Juncker Commission to create a connected Digital Single Market (DSM). The DSM strategy recognised the importance of the paradigm shifts that the digital sector is exposed to and stated that individuals and businesses should be able to seamlessly access and exercise online activities under conditions of fair competition. According to the Commission Communication, the DSM Strategy will be built on three pillars. The second pillar specifically focuses on the review of the telecoms framework and states that "The Commission will present proposals in 2016 for an ambitious overhaul of the telecoms regulatory framework focusing on (i) a consistent single market approach to spectrum policy and management (ii) delivering the conditions for a true single market by tackling regulatory fragmentation to allow economies of scale for efficient network operators and service providers and effective protection of consumers, (iii) ensuring a level playing field for market players and consistent application of the rules, (iv) incentivising investment in high speed broadband networks (including a review of the Universal Service Directive) and (v) a more effective regulatory institutional framework". The prerequisite to achieve this goal is to ensure access to unconstrained connectivity based on ubiquitous, very-high-capacity fixed and mobile broadband infrastructures. The increase in data consumption and the process of aggregation and conversion between increasing (wireless) data usages into fixed networks will require the provision of Giga-Bit connectivity ever closer to the end-user. In order to achieve this, the review will focus on investments in Very High Capacity networks through direct market incentives, in order to maximise the benefits for the European digital economy and society. Such a necessary prioritisation requires the endorsement of Giga-Bit connectivity needs and ambitions to be achieved by 2025 (i.e. building on existing targets for 2020), as a measurable and achievable focus point within the broader connectivity ambition for the European digital economy and society. The proposal for the review of the regulatory framework for electronic communications is accompanied by the 'European Gigabit Society Communication', which sets forth specific objectives to be achieved by 2025, namely (i) Gigabit connectivity to a set of focal points (schools, medium-sized and large enterprises, transport hubs, main providers of public services), (ii) 5G coverage for all urban areas and all major terrestrial transport paths, and (iii) an upgradable connectivity of at least 100Mbps downlink for all European households. It proposes a set of complementary initiatives to help attain these objectives, to be primarily achieved by the market with the requisite policy, regulatory and financial support at the EU, national and local levels. In particular, the review and the accompanying legislative proposal is the key instrument for facilitating the market to achieve the set objectives. The 'European Gigabit Society Communication' is also complemented by the '5G Action Plan'. Timely deployment of 5G is considered a strategic opportunity for Europe and a key asset for global competitiveness. The Action plan aims at a swift and coordinated introduction of 5G in Europe, in view of reaping all its anticipated benefits. While the revised framework for electronic communications is expected to already support improved conditions for the deployment and take up of 5G, the Action Plan proposes complementary and targeted operational measures, aimed at leveraging the anticipation effect on industry and investors generated by the proposed new framework. It calls for cooperation among stakeholders, including Member States, in order to establish a coordinated calendar, plan trials, identify and allocate the necessary spectrum bands, etc. The emphasis on connectivity as a new objective of the framework should not of course downplay the other existing objectives such as competition, internal market and end-user protection which will remain valid and on which the framework has delivered to various extents, as analysed in the REFIT exercise carried out in parallel with this IA report. 1What is the problem and why is it a problem? 1.1What was concluded from the evaluation/fitness check of the existing regulatory framework? In the context of the REFIT programme, the current regulatory framework has been evaluated not only in terms of achievement of the original goals, but also in view of potential simplification and reduction of the regulatory burden. The main findings can be summarised as follows (see specific Staff Working Document on the subject). Relevance: the analysis showed that the specific objectives of the framework - promoting competition, realising the single market and protecting consumers' interest – remain as valid as before, with an increased relevance for the single market objective. Connectivity has emerged as the underlying driving force for the digital society and economy, underpinned by technological changes and evolving consumer and market demands. There is therefore a widely recognised need to consider adjusting the current policy and regulatory tools to further support the deployment of infrastructure and take-up of corresponding services in line with future needs in view of the structural evolution of the sector, its importance within the larger economy, and the political commitment of the Juncker Commission to deliver the DSM.

Most regulatory areas remain as relevant (if not more) than in 2009 – in particular spectrum regulation and access regulation. While the relevance of certain specific components of the universal service regulation is being put into question, the concept of a safety net ensuring that all citizens are included in a fully developed digital society is gaining relevance. Similarly, while the specific provisions under the consumer protection objective might have to be adjusted in view of technological market or legislative changes, the basic needs to which the provisions respond remain unchanged and their specific objectives remain relevant. Effectiveness: while the specific objectives of the framework (competition, single market and consumer protection) have remained unchanged by the 2009 review, the specific aims of this last reform include aligning spectrum management with market demands to realise its full potential to contribute to innovative and affordable services making access regulation more predictable, while adding some emphasis on network investment and ensuring better consumer rights. The regulatory framework has had an impact on the competitiveness of the sector, which in turn has delivered overall significant consumer benefits, in particular basic broadband, lower prices, and increased choice. The contribution of the framework - mainly through access and spectrum regulation, but also with the support of market entry provisions – to deliver competition is undeniable and widely recognised even if sometimes difficult to measure. As regards the contribution of the framework to the Single Market objective, the results are rather modest. Regulatory consistency has been achieved only to a limited extent, affecting the operations of cross-border providers and reducing predictability for all operators and their investors. More importantly, the cooperation and consistency tools available led to a situation where best regulatory solutions have not always been followed, with impact on consumer outcomes. Finally, the achievements of the framework in promoting consumer interest are significant, in tackling certain sector-specific consumer protection issues and in ensuring a safety net so that all citizens can benefit from electronic communications services. However it is also clear that not all consumer interest rules are still fit for purpose, in the context of technological, market, and legislative developments, and that simplification can be achieved. At the same time, consumer surveys continue to report a relative dissatisfaction, which requires attention. In terms of specific regulation areas, access regulation delivered competition, though more at service level than at network level. While investments in VHC networks have advanced, they have not taken place across all Member States at the pace envisaged by the public policy agendas and more importantly at the pace to meet the future connectivity needs for a fully-fledged DSM. Access regulation has also become more predictable, thanks to the reinforced EU-level consistency check, which however does not adequately cover remedies, with the effect that significant regulatory inconsistency remains on the single market. While progress were made in the field of spectrum (e.g. the release of a significant amount of spectrum for wireless broadband as well as achievements in the field of technical harmonisation, which were praised in the public consultation by Member States and operators), they were more limited than wished in the last review. In particular the impact of the current spectrum regulation on competition and single market outcomes - with direct consequences for consumers in terms of availability of innovative and affordable services - is put into question by the current evaluation, with the example of the delayed 4G deployment in most parts of the EU. Indeed, the majority of respondents (spanning from telecom and non-telecom associations to virtual mobile operators, converged operators and vendors) in the public consultation considered that the lack of coordination of selection methods and assignment conditions has impaired the development of electronic communications services. Operators have also criticized the ineffectiveness in addressing interference issues and ensuring usage efficiency. The regulation of numbers proved generally unproblematic at national level. However, the provisions have not been particularly supportive to the single market in particular given that there is emerging demand for using numbers outside the country where they have been assigned (extraterritorial use of numbers) and for which the current framework does not provide clear rules. . While universal service rules were effective, reviewing its specific components appears necessary. Similarly, in order for the consumer protection rules to remain effective, they need to be revised to remove redundancies, where identified, with horizontal rules and to safeguard end-user interest in light of market and technology developments (e.g. increasing use of communications services provided over internet access, so called Over-the-Top communications services . As far as network and service security rules are concerned, their adoption has contributed to an improved situation in the EU, but their impact remains unequal across the MS, not least due to the respective scope and definitions of national implementing provisions. Efficiency: The framework often allows ample flexibility to national regulatory authorities (NRAs) to adapt their decisions to national circumstances, and the actual administrative costs and burdens depend to a large extent on the solutions adopted in each Member States. This flexibility allows for cost optimisation for and by national administrations. At the level of operators, costs and burdens are not evenly spread across the stakeholders. Access regulation is considered burdensome by incumbent operators, yet nothing more than what is necessary to reach the competition objective by alternative operators Most operators refer to consumer protection rules as being over burdensome especially in view of the differing implementation across Member States and of the overlapping horizontal legislation. While this suggest a need for simplification and reduction of burden in specific areas, consumer organisations recall the value of certain sector-specific rules and of the discretion left to Member States to complement minimum harmonisation in a fast moving sector. Several areas were identified for reducing administrative burden while preserving the effectiveness of the provisions. The level of complexity of access regulation is considered in most cases necessary to ensure that regulation affecting operators directly is fit for purpose and not unnecessarily burdensome on operators. This is in particular the case of "stable" markets, where simplified procedures can be envisaged without affecting the quality of the regulation (e.g. the case of the termination markets). In a similar vein, it can be questioned, based on the actual implementation experience, whether the very short cycles of market reviews are truly necessary. Achieving more regulatory consistency in areas such as spectrum or authorisation requirements might in addition reduce the administrative burden of businesses operating across several Member States. EU added value: the framework has played a role in the broader development of national regulatory regimes and market developments that favour a pro-competitive offer of electronic communications services across Europe. It has contributed to major positive outcomes for consumers and businesses, across and within Member States. Moreover, it has levelled up national regulation in the area of electronic communications, including in areas which were previously not even tackled by some Member States, such as consumer protection, where there are, however, too many overlapping or varying provisions and simplification can be achieved. Coherence: not many coherence issues were identified during the evaluation work. Generally speaking, the various instruments making up the regulatory framework for electronic communications have reinforced each other in the pursuit of its objectives. As an illustration, provisions on authorisation enable pro-competitive market entry. Access regulation and spectrum management contribute to positive outcomes for consumers, to the point where commercial offers render regulated universal services redundant or obsolete in certain instances. Some issues of internal inconsistencies have been identified. Two external consistency issues require however attention in the review process namely the coherence between regulations aimed at incentivising competitive network rollout and the EU financing and state aid rules in the field, as well as the potential overlaps between sector specific and horizontal consumer interest legislation. Provided that detailed analysis of the exact scope of the provision in place concludes that sector specific rules have become redundant, those particular provisions can be withdrawn, leaving sector specific rules only to address those areas where such rules are still warranted, in line with the REFIT principles. The evaluation has identified several areas where simplification is possible and the administrative burden could be reduced without compromising – in some cases even improving - the effectiveness of the provisions: e.g. longer ex ante market regulation cycles, universal services adjustments, streamlining certain overlapping consumer protection provisions. This aspects is more widely analysed in Section 1.2.3 and in section 4.9.3 where the preferred policy option is analysed from the perspective of meeting the objective of simplification and administrative burden reduction. 1.2What is the problem? What is the size of the problem? As anticipated by the DSM strategy, the traditional telecom sector is under increasing pressure to (i) serve increasing user demand for data connectivity, (ii) anticipate future demand and socio-economic needs and (iii) react to new internet-based competitors. These aspects are important since investments in networks are becoming instrumental for productivity gains not only in the telecom sector, but especially in several downstream sectors (transport, health etc.) and for the functioning and growth of the entire European economy, as shown by the macro-economic modelling described in Annex 5. In this regard, the Commission has identified three interrelated problems that need to be addressed: - The obstacles to unconstrained connectivity based on ubiquitous, Very High Capacity (VHC) fixed and mobile broadband infrastructures serving the Digital Single Market, attested by: the low coverage and take up, especially for VHC networks; unsatisfactory connectivity offers across the EU for businesses; and a lack of timely and appropriate spectrum management. - A regulatory framework not fit for rapid market and technological changes, reflected by: discrepancies between rights and obligations for the provision of equivalent services; gaps in consumer protection in some areas; and persisting barriers to switching, in a market increasingly characterised by the bundling of offers. - Regulatory redundancy, inefficiencies and lack of coherence in the Single Market; unnecessary administrative burden and high compliance costs. Figure 1 illustrates the problems underpinning the review of the electronic communications framework and describes the problem drivers, (with market and regulatory failures further elaborated in section 1.3 and annex 10), the problems themselves (presented below) and the consequences of those problems in a no change scenario (described in section 1.5 ). As shown by the colours in the picture, problems are interrelated and tend to have similar drivers or consequences.

1.2.1Obstacles to unconstrained connectivity This section analyses the obstacles to unconstrained connectivity in the EU. These factors prevent the achievement of ubiquitous and performing fixed and mobile broadband infrastructure that is a necessary component for global competitiveness and lies at the heart of the DSM strategy. When considering the problems of suboptimal investment and the need for connectivity it is important to take into account that albeit networks are often national or local in nature (and will in some cases get even more local in the future with the proliferation of small fibre operators as it has already happened in Sweden) the problem of suboptimal investment is a European problem, as even local networks are financed from international and cross-border capital markets; furthermore, the deployment throughout Europe of networks with similar (high) connectivity characteristics is vital for the development and widespread take-up at European scale of the sorts of consumer and industrial applications and services on which the DSM will thrive. So despite the often local nature of the networks, connectivity and investment have a clear internal market dimension and the review should strive to induce policies which are more favourable to investment without jeopardising the existing objectives. The causes of suboptimal investment are explored in more detail in section 1.2.1.1 , below while the size of the investment gap and the inadequacy of public sector financing to take on even the current deployment challenge and to meet the current DAE target is explored in more detail in a dedicated annex 14. The same annex also includes international comparisons on connectivity and the EU dimension of the connectivity problem. 1.2.1.0Low coverage and take up and the reasons for suboptimal investment, As recognised in the evaluation report in section 7.1.1., the level of investment has been suboptimal. As of July 2015, only 71% of Europeans have access to NGA networks (above 30 Mbps), and the figure is as low as 28% in rural areas. The take-up rate of NGA was around 30% of the overall subscriptions in 2015 The trend of the take-up rate for NGA networks shows that Europeans are rapidly replacing their basic broadband connections with NGA: while in 2013 the only 15% of European subscribed to NGA above 30Mbps, the same figure was 21% in 2014 and 30% in 2015 (see annex 6 for more detailed statistics). . Figure 13 shows how demand for 100 Mbps turns into take-up in countries where networks are widely available. The Impact Assessment support study has estimated that the EU is very likely to miss the target of 50% take-up of 100 Mbps networks by 2020, according to current trends. The main findings are reported in annex 14 and in figure 87 included therein. The same study shows that basic NGA at 30 Mbps is not enough to meet the near future connectivity needs (see also annex 9). Causes of suboptimal investments There are a number of causes for investment in connectivity being suboptimal. These causes can be regrouped in two main sets: (i) causes that are of a macroeconomic or socio-economic nature and therefore exogenous to the regulatory framework that is the object of this review (e.g. the financial crisis took a toll on telecom companies' CAPEX as well) and (ii) some are of a regulatory nature (level of uncertainty due to price regulation; deterrent effect to incumbent first movers because non-discriminatory access requirements mean they cannot differentiate on the basis of their investments, whereas competitive pressure on them is often insufficient to force investment, especially in less dense areas; access-based alternative operators often have insufficient scale to invest alone) and therefore can be considered as endogenous to the framework. The corollary of the previous statement is that the proposals that will be presented in the forthcoming sections can only affect to a given extent the level of investment, although they will be significantly beneficial to investment and will make an important contribution by reducing risk the operators face and increasing their expected return on investment. Investment is not suboptimal everywhere, as clearly evidenced by the different degrees of coverage in Europe (see figure 42 below). The evaluation identified in section 6.2. that: Telecom network CAPEX in Europe was 43 bn EUR in 2013. CAPEX figures have remained relatively stable over the last four years despite the fact that in the same period NGA coverage increased from 29% to 68%. Mobile CAPEX spending represented 59% of total spending. Capital expenditure/revenue ratio is a better measure of assessment of capital expenditure. In a context of declining revenues in the sector, there has been an increase in this ratio, from 11.7% in 2009 to 14% in 2013. In other words, telecom operators increased the proportion of their investment through the period. In terms of endogenous factors, investment may have been restrained by the fact that average revenue per users went down in Europe for a number of years. According to a study quoted in the evaluation (Section 6.2.), Average Revenue Per User (ARPUs) of the top seven mobile operators in the EU would have gone down 34.8% between 2006 and 2013, with a 5% decrease in investment. This does not mean that investment and competition are at odds with each other. Under the current regulatory framework, as shown in the evaluation report (see in particular section 7.2.3.1) investment has been uneven across the EU and divergences have begun to emerge between and within different countries in the path to upgrading broadband networks to provide ultrafast speeds and meet increasingly demanding quality parameters. Some of the countries in Eastern Europe which had relatively lower standard broadband coverage have relatively high coverage of FTTH, as do countries that have pushed for infrastructure competition such as Spain, Portugal and Sweden, while certain countries with high NGA coverage overall including Belgium, the UK and Germany, have very limited deployment of FTTH. This reveals a second ‘gap’ amongst EU countries whereby the quality of NGA infrastructures varies depending on whether an ‘upgrade’ of existing networks or FTTH deployment strategy was pursued. Basically in some countries operators are deploying NGA but not VHC networks. The result is that the Digital Agenda Target of 50% of 100 Mbps is at risk of not being met (see figure 83). Of course, infrastructure competition will not be possible everywhere, but regulation should promote it when possible. In this respect, the support study SMART 2015/0002 suggests in its analysis of business and regulatory models suggests that the geographical dimension of the deployment problem may be addressed by a combined approach:

1.The problem in dense urban areas is to encourage feasible infrastructure investment and foster competition; 2.The problem in less dense (but economically viable, i.e. that can guarantee return on investment in the long term) zones, is to encourage first movers without losing the effects of competition by ensuring wholesale access on lines favouring future investment; 3.The problem in rural and ‘challenge areas’ which are not traditionally economically viable is attract new business models that have a different risk/return profile and give support when needed. Different requirements are likely to be needed for business access, as the market can involve different scale economies and customer distribution (as well as different operators) than the residential mass-market. In terms of exogenous factors, beyond the macroeconomic (GDP, country risk etc.) investment may in some instances be sub-optimal (or in less performing technologies) due to the expected lower take up. Demand and low take-up can also certainly condition investment. As explored in the access study, (SMART 2015/002) that states "Take-up may also be restricted in cases where there is low demand for high speeds. Indeed, low take-up even in the presence of fast infrastructures is cited by several stakeholders (NB mostly incumbents) as a key problem in the market today". However, the forecast run by IDATE in the same study have shown the insufficiency of networks to meet future demand, so in the medium run this may be a problem, as demand keeps booming and infrastructure cannot be upgraded in the short term. This is also part of the reason why a European Gigabit Society strategy is needed, since a policy and non-binding strategy can be better suited than regulation at taking into account demand-side aspects (e.g. promotion of connectivity for schools, in order to integrate connected learning tools with education). The importance of demand is another reason to maintain the important role of competition in the regulatory mix, as competition on very high capacity networks should not only ensure that prices are attractive to end users, and not too distant from those for traditional copper networks, but also that there is more commercial innovation in building demand. The level of e-skills is certainly affecting demand for NGA services as illustrated by Figure 2 below. The public consultation showed that in relation to different treatment of legacy copper networks (whether pure copper access networks or upgraded FttC networks with copper sub-loops) to incentivise upgrades, operators invoked the principle of technological neutrality and leaving the market to decide how to best meet demand. However, a number of contributors consider that copper-based solutions will not represent a credible alternative in the long term. Investors in FTTH solutions and some access seekers call for a recognition that the risk involved in rolling out fibre to the premises is higher than upgrading copper, so that regulatory incentives, if any, should not include FttC solutions. Regulators also argue that any risks specific to a particular new investment network project should be considered if wholesale tariffs are subject to regulation, in order to allow the operator a reasonable rate of return on adequate capital employed (ROCE) and return on investment (ROI). On a more critical note, there was some discussion in the Expert Group on 30 May 2016 over what the review of the framework should aim towards as regards objectives for connectivity overall and whether or not there should be an emphasis on very high speeds potentially delivered via fibre connections (See Annex 13 for more details). It was noted by some experts that FTTH may not be necessary to fulfil many of today’s needs at household level; even when considering multiscreen 4K TV content (see also the access study, SMART 2015/0002); while the longer-term needs of a significant proportion of the population are likely to be much greater. It follows that, from a short term perspective, the added value of VHC may not currently be so high in the eyes of consumers, with consequential effects on their willingness to pay for it at least in the short term. While these causes can and will be partially addressed in the review, it is also important to acknowledge that a certain amount of public funding will remain necessary to improve the business case for operators and promoters in the most difficult areas. Public funding dedicated to high speed broadband networks is available, including EU funding in amounts which have been increasing throughout the multi-annual financial frameworks. The current levels of public funding remain however largely insufficient to meet the challenge presented above. 1.2.1.1Low coverage and take up in mobile As regards mobile, 4G coverage of households is almost universal in some Member States, but it is still substantially below that of 3G (HSPA). Although the user experience for mobile communications is very much determined by territorial coverage, LTE deployments have focused mainly on urban areas, as only 36% of rural homes at EU level are covered against a total coverage of 86% (see annex 6, figure 46 for Member States information). The technical availability of mobile signals (i.e. LTE/4G coverage available in a territory) does not necessary mean that the quality of service (including user experience) is optimal. Truly ubiquitous coverage (i.e. everywhere) and capacity (i.e. peak speed up to 10Gbps) is a necessary condition for the success of 5G. 5G networks will not only provide very high peak downlink speeds in ultra-dense environments but also provide mobile broadband services to a range of vertical industries, notably, for automotive, healthcare, transport and utilities. These vertical industries will require sufficient capacity and reliability and other application-related parameters (e.g. latency) to meet their robust performance requirements. Although 5G will coexist with other legacy infrastructures (2G and 3G) as well as with upgraded 4G networks, capital-intensive 5G networks architectures will require high capacity connection to base stations and, thus, involve a greater number of base stations as well as denser networks that will increase the backhaul traffic. 5G connectivity will increase mobile data traffic, through 3 main scenarios, i) enhanced mobile broadband (eMBB), ii) massive M2M communications and/or iii) ultra-reliable low-latency communications. These will pose challenges for backhaul links due to the fact that, on the one hand, network architectures become much denser by means of, e.g., small cell deployment, and a significantly higher number of backhaul links will be required. On the other, since the capacity of individual cells increases thanks to advances in technology, the corresponding backhaul links also require more capacity to manage data coming from technologically advanced cells. Indeed, with regard to facilitating deployment of denser networks, many respondents in the public consultation pointed to obstacles to the roll-out of small area access points needed for mobile services. A development that is critical to estimating the costs of future connectivity of 5G is the increased prevalence of small cells. Although these are already being deployed for 4G services to increase capacity of networks, the very high data and bandwidth requirements of 5G will require a much larger number of small cells. The 5G Manifesto for a timely deployment of 5G in Europe, endorsed by key industry and telecom players, underlines the need for improved regulatory conditions of spectrum in terms of local installation of cells to facilitate the construction of denser networks Along these lines, many market actors and public authorities consider that a general authorisation regime for small cells would foster innovation and competition both for services and end-devices.



Figure 3 - Summary of future wireless evolution Source: Analysis Mason, 2016

Despite the fact that the specificities of the future 5G architecture are still unknown today and standards still need to be defined, a Commission study uses a standalone small-cell deployment scenario as a cost proxy and estimates 5G deployment costs in the order of magnitude of 120 billion EUR for 95% of EU28 population coverage . Hereby the costs for only the wireless infrastructure amounts to 38 billion EUR, while the 81 billion EUR for fibre infrastructure used for front/backhaul in this standalone scenario could be reduced due to synergies with fibre rollout for other purposes. In order to provide full coverage of transport links, their model predicts an additional 104 billion EUR, the wireless infrastructure accounting for 64 billion EUR without any further synergies possible for fibre rollout in the corresponding scenario. 1.2.1.2Lack of timely and appropriate spectrum affecting investment The lack of sufficient connectivity to meet future demand and to allow development of services, is especially notable in wireless connectivity networks that rely on access to spectrum. Demand for spectrum is growing significantly driven by both existing and new services and applications. It is estimated that up to 56 GHz will be needed to meet the demand of 5G users and applications (e.g. the connected car, health related services, smart cities). Mobile data traffic in Western Europe (and the US) is expected to grow 6-fold from 2015 until 2020, which represents a higher growth compared to South-Korea (x5) and Japan (x4). Indeed, mobile data traffic will grow twice faster than fixed IP traffic from 2015 to 2020. In terms of traffic, the average smartphone user in Western Europe will generate 4.6 GB of mobile data traffic per month in 2020, up by 353% from 2015. In terms of devices, laptop users will generate 4.4 GB and tablet users more than 6 GB (see Annex 6). IoT devices are expected to surpass mobile phones as the largest category of connected devices in 2 years. Between 2015 and 2021 IoT connections will increase at a compounded annual growth rate (CAGR) of 23%, over that time, Western Europe will add the most connections, led by growth within the connected car 5G vertical. Source: Ericsson Mobility Report, June 2016 Timely award of sufficient spectrum (i.e. 5G pioneer bands below 6GHz such as 700MHz, 3.4-3.8 GHz, 4.2GHz and new higher frequency millimetre bands) is critical to the launch of 5G – its architecture will require a radio-frequency bandwidth of at least 100MHz to be accommodated for enhanced broadband 5G services and, in parallel, involve more base stations (including small cells) for radio access and denser connectivity to backhaul 5G increasing traffic. Forecasted data for mobile broadband traffic confirm this trend of potential increase of wireless traffic, the growing need of wireless connectivity is due not only to wireless broadband but also M2M communications enabled by 5G networks. While M2M modules currently generate 3% of total mobile data traffic in Western Europe, by 2020, this figure will go up to 11.6%, while M2M modules will represent more than half of the total connected mobile devices. The US and Japan will show similar figures, while in South Korea both traffic and number of M2M devices will be significantly higher proportionally. In order to meet these connectivity requirements timely access to spectrum needs to be assured. In some Member States, there have been significant delays in making necessary spectrum resources (i.e. bands technically harmonized at the EU level) available to market operators, the main reason being the lack of consistency in spectrum governance across the EU (see Annex 2). Taking 4G licences in the 800MHz band as an example, the figure below depicts the difference in timing of spectrum availability across the EU countries which stretched over 5 years with some countries still in the process of awarding 800MHz licenses, despite the envisaged deadline in the Radio Spectrum Policy Program already having expired in January 2013. Figure 5 - Timing of 800MHz spectrum awards Source: Commission Services The result of the slow coming into service of spectrum resources is that it affects possibilities and incentives for operators to invest in the development of their networks (see Annex 2 on Public Consultation). The results of the Public Consultation showed that although the current technical harmonisation is seen to be working relatively well, there is criticism on the current institutional system's capability to bring spectrum resources to the market in a coordinated and timely manner. Similarly, the differences in fees and auction prices paid across MS that, in addition, create discrepancies between markets and operators and contribute to the fragmentation of the European mobile market. In some cases, the auction processes (especially those with high reserve prices) appear to be driven by fiscal considerations rather than the objective of optimal use of the spectrum resource for connectivity. Thus, short term considerations (i.e. delicate national budgetary situations) play against long-term economic investment considerations needed to promote network roll-out. As illustrated in Figure 6 , the LTE coverage in some EU Member States (AT or IT) is negatively correlated to the average price paid for the 800MHz in EUR/MHz/pop, whereas in other Member States (SE, DK or FI) the correlation is positive. The more capital is required to acquire a licence the less capital is available for investment in the network, and the lower the coverage.

Source: Commission Services

Consequently, the coverage of 4G services in the EU has been slow; it started to develop late and with great differences across national markets. However, it reached 86% in 2015 up from 27% in 2012. While LTE - 4G coverage, which allows users to profit from ubiquitous mobile internet services of up to 30Mbps, is almost universal in some countries (the Netherlands, Sweden, Portugal) reaching only 60% in others (Croatia, Romania). These differences amongst Member States are even more marked when looking at rural LTE coverage which continued to vary from close to 100% in Denmark, the Netherlands and Sweden to no coverage in Bulgaria, Cyprus and Malta in mid-2015; the EU average is 36% (see Annex 6). Compared with other regions of the word, Europe lags behind in the roll-out (85.6% of households at EU level by 2015) and take-up of 4G/LTE. Leading markets for 4G (Japan, South Korea, Canada and the USA) have substantially higher connection rates than in the EU. Whilst Japan is leading the way with regards to mobile broadband (take-up and coverage). Japan is closely followed by the Nordic countries (Finland, Sweden and Denmark) and Estonia. Australia is the 6th best performer, followed by Korea and the United States.



Source: OECD Operators' incentives to invest in network deployment especially in the more capital-intensive future 5G networks are influenced by factors such as the lack of predictability of spectrum availability or broad synchronisation of spectrum release and licence durations relative to the required investments cycles. Consistently with the above analysis, the 5G Manifesto with European industry endorsement seeks sufficient spectrum bands to be licensed on time if 2020 target launch date for 5G is to be met. It also emphasises that the spectrum aspects of the DSM - namely, harmonisation and predictability of spectrum policy across Member States (including spectrum availability, licensing procedures and costs, licence terms, and liberalisation and renewal of existing spectrum) – are essential to encourage more investment into the mobile sector, particularly in 5G networks. As indicated in the evaluation (section 7.2.3.2.), the harmonisation approach of the current framework has not achieved sufficient convergence of the actual conditions attached to individual licences or of the underlying motivations to impose such conditions, thereby creating regulatory uncertainty and possibly impacting effective access and use of spectrum and market investment incentives. 1.2.1.3Unsatisfactory connectivity offers across the Union for businesses The DSM strategy also focusses on business and SMEs. Business customers typically require higher quality of service levels than residential customers, and may also require higher performance levels as regards certain technical characteristics. A survey conducted for SMART 2014/0023 confirmed that business customers value symmetrical speeds, low contention, short latency, and unlimited data volumes that can only be guaranteed by fixed VHC connections. They also require short provisioning and fault repair times, and service level guarantees. Mobile broadband is not considered a substitute as it does not sufficiently meet the higher expectations of business customers with regard to these aspects. However it has also to be said that interviews conducted for the support study suggest that the technical requirements of business customers may over time converge with the growing ones of residential customers. The widening use of telework practices could boost the need for symmetric gigabit connectivity and therefore the need for VHC networks to be made available to ever more end users. This could in theory also enable business users to benefit from any infrastructure-based competition or co-investment in mass-market FTTH networks. Whereas large companies tend to solve the connectivity problem through ad-hoc leased lines, SMEs are often struggling to meet their connectivity requirements. Moreover, the wider diffusion of the collaborative economy and the increasing number of micro enterprises that operate in it also fosters higher connectivity requirements. Multi-national businesses require not only the availability of connections in dispersed locations, but also uniform conditions for provisioning, repair and quality guarantees. In a 2013 study “Business communications, economic growth and the competitive challenge”, WIK estimated the cost of non-creation of a single market enabling the seamless provision of business communications services in Europe at €90bln per annum over time in terms of non-realized efficiency and productivity gains. The lack of availability of harmonised conditions for business accessing connectivity across borders has its roots in the national focus of the institutional regulatory set up and of the rules intended to address cross-border market failures, such as the lack of availability of a business grade product for which demand exists. Although rules for cross-border harmonisation exist, they require relatively complex and often non-binding procedures to deliver consistent outcomes. This has failed to provide the consistency demanded by multi-national business users operating across the single market. The evaluation (section 7.2.2.) and the public consultation evidenced how cross-border providers deplore the lack of consistent access products (in particular when it comes to the wholesale inputs needed to serve the high end business market), the multiplicity and great diversity of market entry provisions (e.g. authorisations, rights of ways) and, in solving disputes across borders, etc. The lack of available business connectivity products on a cross-border basis is one of the reason why the framework contribution to the Single Market objective, was rated more critically than the other objectives with most stakeholders considering that this is the least accomplished objective of the framework, referring to the lack of regulatory consistency and to the persisting barriers to operating across borders. 1.2.2A regulatory framework not fit to rapid market and technological changes This section deals with the problems brought about by the significant market and technological developments that have taken place since the last review, changing the way citizens and businesses communicate, and bringing the need to adapt current rules to these changes. 1.2.2.0Uncertainty about rights and obligations for provision of equivalent services

The evaluation report noted that Over-the-Top players (OTTs) are not subject to sector-specific rights and obligations, even when their services are used by the end-users to cover the same or similar communications needs as the traditional electronic communications services. Many stakeholders (BEREC, several Member States, most operator associations, most incumbents, some cable players, all user associations and some broadcasters) referred in the public consultation to the need to review the current definition of ECS, owing to the increasing uncertainty on the scope of the definition of ECS related to "conveyance of signals", the inconsistent regulatory obligations for similar services and the convergence of communications services. New online players -often global- have emerged offering communication services which many users perceive as comparable to traditional electronic communications services such as voice telephony and SMS. These so called Over-The-Top-players (OTTs) provide their services in the form of applications running over the internet access service and are in general not subject to the current EU telecom rules. Some of such OTT communications services make use of telephone numbers and can for this reason be considered to fall under the framework, but the point is contested and de facto the rules of the framework have not been applied to them. Traditional electronic communications services, however, clearly fall under the scope of the EU Regulatory Framework, since they incontestably fulfil the definition of "Electronic Communications Services" (ECS), a legal term contained in the Framework Directive (Art. 2(c)). Under the interpretation offered by the European Court of Justice, ECS covers communication services of providers that bear the responsibility for the conveyance of signals over the underlying electronic communications network vis-à-vis end-users. Being responsible implies that the service provider must have a certain degree of control over the conveyance of signals. Operators of traditional electronic communications services usually also own and run (parts of) the underlying network, which consequently puts them into a "controlling" position. Conversely, providers of OTT communications services usually do not own or operate any network infrastructure and cannot in principle fully control the signal in the same way, as this is carried over the internet access service on a ‘best-effort’ basis (unless they negotiate a managed service with network operators). These differences have led national regulatory authorities to adopt diverging interpretations on the consideration of OTT communications services as "Electronic Communications Services" (ECS).The generic OTT label hides different types of communications services which may e.g. offer the option to use the E.164 numbering system (e.g. Skype out) in order to interconnect with traditional telecom service providers. In order to be able to technically make use of numbers, such OTT operators need to e.g. conclude wholesale termination agreements with traditional ECS operators in order to terminate a call. So by being able to offer OTT communications services which - from a user perspective - can "interact" with phone numbers, such OTT operators factually market their services as being equivalent to and cheaper than traditional telecommunication services and end users can come to rely upon them having equivalent functionalities. Other OTT communications services may not give the possibility to use numbers, yet they nevertheless provide communications services that consumers may in certain situations also see as functionally substitutable to traditional services. Such disruptive innovations, while very convenient and financially beneficial to end users, bring the need to analyse their impact on existing competition conditions and possible distortive effects stemming from differentiated regulatory treatment, as well as the adequacy of existing regulation in a changed environment. Providers of traditional communication services, which mainly provide both networks and services, including internet access services and some specific services, have to comply with sector-specific obligations related to e.g. contractual rights, transparency, quality of service, contributions to universal service funds, access to emergency services ("112") and caller location information. Pure OTTs, on their side, are subject to horizontal legislation only and not to these sector-specific obligations, even when their services are used by the end-users to cover the same or similar communications needs. Moreover, traditional providers are often subject to sector-specific administrative charges and taxes. Finally, they have to comply with specific data protection obligations under the ePrivacy Directive, beyond the Data Protection Regulation, which applies also to OTTs. At the same time, the EU regulatory framework offers providers of traditional communication services certain rights which could be considered as an advantage in comparison to OTTs, such as e.g. access to the (international) E.164 numbering plan. Such access to the numbering regime provides a global reach through phone numbers and the interconnection agreements between traditional telecom providers ensure a global network effect for telephony and SMS. The differentiated regulatory treatment outlined above creates uncertainty about rights and obligations for provision of equivalent services that needs to be addressed by the review. Firstly, the question arises to what type of communications services the framework should extend. Secondly, what sector-specific end-user protection rules are still warranted or have become obsolete. Thirdly, whether underlying public interest such as e.g. security and privacy would require extension of some of the sector-specific rules to OTTs. 1.2.2.1Gaps in consumer protection in some areas. Sector-specific end user protection rules complement general consumer protection and aim at a high level of consumer protection in the electronic communications sector. These sector-specific rules cover in particular areas such as contractual information, transparency, quality of service, contract duration, switching, privacy and security, and access to emergency numbers. The functioning of the provisions concerned is discussed in more detail in various sections of the evaluation SWD. Many providers of electronic communications networks and services, a few broadcasters, vendors and OTTs consider however that certain sector-specific end-user rights’ provisions are not relevant anymore and should be repealed, mainly in the area of those contract rules which are covered by various other Directives. European and national consumer associations, on their side, have not identified any provision to be repealed, and would prefer to keep current sector-specific end-user in order to supplement the framework and general consumer protection rules which do not address sector-specific issues. Although the rapid adoption of alternative OTTs communications services that are not subject to these sector specific rules suggests that end-users generally feel confident in using these services without sector-specific protection, there may be areas where the users of these new services are exposed to the same risks that sectorial rules were designed to address, for instance regarding security and confidentiality of communications or transparency and contractual information. This brings the need to assess to what extent the rules on consumer protection which would still seem to be necessary should be extended to all or some new market players. This was confirmed in the public consultation where, despite the fact that most stakeholders (Member States, telecom operators and their associations, broadcasters, vendors and OTT providers) argued that the current framework has contributed to effectively achieving the goal of ensuring a high level of consumer protection across the EU, many of them also considered that the current regulatory framework has failed to deliver consumer protection with respect to emerging services based on new technological developments and outside (or not clearly within) the remit of the sector-specific rules. In particular, most responding Member States support specific requirements to be applied to all communications services irrespective of the provider ("traditional" telecom operators or "new" OTTs) in order to avoid risks of (a) insufficient customer protection, (b) a lack of clarity, and (c) confusion among consumers who might mistakenly believe that their communication is protected by sector-specific rules. Consumer representatives supported this view, calling for an extension of existing rights for communications services. The majority of communications service providers, including OTTs, would prefer that end-user rights rely on horizontal regulation (consumer and data protection), together with competition law tools, with a minimum set of rules applying to all players. Concerns about security of communications have risen in parallel with the adoption of new services in the economy and society as a whole. In 2014 a total of 137 "major incidents" (in terms of either duration or percentage of users affected) were reported, affecting in comparable percentages fixed telephony, mobile telephony, fixed Internet and mobile Internet. Although there are no comparable figures, security incidents have also been reported for alternative OTTs communications services. Over half of respondents to the public consultation considered that current rules have been effective in achieving their objectives and more than a third considered it important to involve the complete Internet value chain under the security rules. This would help to increase consumers' trust in the use of communications services regardless of the underlying technology. End-users of OTT messaging services are currently less protected because there are no security duties applicable to OTT communications that are comparable to those applying to telecoms services. OTT communications services are not considered as digital services under Article 3(11d) and Annex III of the NIS Directive, nor are they covered by the current Articles 13a and 13b Framework Directive. If security is considered as an important value, it is reasonable to consider whether it should apply in a similar way to all comparable communications services. Another important requirement is confidentiality of communications which currently applies to electronic communications services only. The exact delineation of the services subject to any confidentiality obligations, and the scope of such obligations, is a matter for the review of the e-privacy Directive which may build on the definitions developed in this review. Current adoption of new communications services has not led to any particular needs thus far in the area of interconnection and interoperability. The variety of available means of communications, ease in switching between various OTT communications services (because of multi homing, for instance) have ensured de facto end-to-end connectivity for end users via various communications services (in addition to traditional numbers-based telephony and messaging) and consumer choice. However, in view of the increasing importance of communications platforms which benefit from network effects, it appears opportune to have tools available in case healthy functioning of markets or innovation is threatened, in particular if network effects would impede entry and innovation in the market and limit consumer choice in the use of different services. Alternatively, a significant fragmentation in the services employed, combined with a possible marginalisation of the interconnection/interoperability ecosystem based on public numbering plans, could frustrate the objective of end-to-end connectivity of the entire population. Either such scenario would in turn hamper the creation of a fully functioning single market for communications services. The public consultation showed divergent views on this issue, with mobile operators and certain incumbents calling for a phasing out of the ex-ante regime in place, arguing that the IP-based delivery of voice services is modifying market circumstances. MVNOs have an opposing view on the matter, on the ground that terminating networks will always remain a bottleneck. OTTs consider that interconnection rules are needed to avoid discrimination. Rules regarding contracts and switching are complementary to competition: they ensure that consumers derive maximum benefits from a competitive market: from making the right purchase, to ease of switching to other providers when desired. These rules have thus enhanced competition on prices, quality and service innovation and have fostered innovative commercial offers. Regarding contract information, the majority (86%) of the respondents to the public consultation consider that the same level of protection vis-à-vis contracts should apply to all communication services, including those offered by OTT providers. Good and reliable quality of service is of particular importance for the internet access service, through which many communications services are made available to consumers. This is reflected in the increasing attention that consumers pay to factors other than price when subscribing to an internet access service. In particular, data show that after price, the two factors that consumers consider for their purchase decision are the maximum download and upload speed of the service and the maximum amount of data that can be used. Similarly, an increasing number of consumers perceive that the possibility to keep their phone number when switching provider is an important facility that they would like to use for other components of the communication services, such as e-mails, contents, photos and content stored online by the communication service provider. The public consultation indeed supported these findings, with consumer protection bodies and Member States in favour of keeping sector-specific end-user rights applicable to communication services, while alternative telecom operators suggested that full harmonisation is needed for contractual information, transparency measures, contract duration, switching, and bundles. Telecom operators associations, most incumbents, several alternative players and most cable operators think there is no need for additional sector specific consumer protection rules and that any potential issues should be dealt with horizontally. However, these stakeholders acknowledge that there may be several issues that need attention. Some of these would include bundling of contracts and their impact on switching (see section 1.2.2.3 below). All these changes to the market place raise questions about notably the scope of application of the regulatory framework as well as the type of regulatory intervention prescribed by the latter to ensure consumer protection in some areas. 1.2.2.2Rules unfit to bundles for switching purposes Technology developments have fostered the convergence of different technologies and services enabling the delivery of seamless services to end-users in the form of bundles. The rapid adoption of bundles in the EU has brought significant benefits to users in terms of convenience and price; however, it has also affected market structure and market conduct and created new transparency, comparability and switching problems for consumers, which poses longer term risks for competition on prices and quality of service.

A bundle refers to a package of several different services sold together as a single plan: landline calling, Internet access, mobile services, pay-tv. A bundle can also include products, most frequently a terminal device The aim for vendors is to increase average revenue per user (ARPU) by increasing the number of subscriptions sold to customers, and to secure customer loyalty. Mobile customer churn rates decrease when their mobile plan is bundled with a fixed Internet access and pay-tv plan. 50% of all EU households purchase bundled communications services in 2015, up from 38% in 2010. The most popular bundle is Fixed telephony + Internet followed by the triple play Fixed telephony + Internet + TV. Internet access (either fixed or mobile) is present in 80% of all service bundles, fixed telephony in 64%, TV in 54% and mobile telephony in 46%.

Bundles have both benefits and disadvantages for consumers. By integrating several services in a single offer, with unified billing and customer care service, they can be more convenient and less expensive for consumers. A 2011 Eurobarometer survey on e-communications measured that 68% of households with a bundle considered that bundles are more convenient because there is only one invoice and 52% of them found that bundles are cheaper, while households without a bundle at the time invoked as the main reason for not having a bundle the fact that they provide packaged service they don't really need. Yet bundles can also make transparency and price comparison more difficult and potentially lead to lock-in effects, since bundles make it more difficult for consumers to switch providers of certain services within the bundle. This problem is clearly identified in the evaluation report, which indicates that this market has the largest proportion of consumers among the surveyed markets who say they tried to switch provider but faced obstacles while attempting (7%). From those customers who wanted to switch their internet service provider (42% of participants), 15.1% found it easy, 7.2% switched but found it difficult, 2.4% tried and gave up, and 3.6% did not even attempt to switch as they thought it might be too difficult . Regarding transparency and price comparison, as shown in the evaluation report (see section 7.23.9.), the latest data available show that although more than two thirds (68%) agree that it is easy to compare the services and prices of bundled offers of other providers, 24% of consumers do not yet think it is easy to do so and also note that there has not been any improvement in this area since the previous survey. Respondents in Italy (88%), Greece (84%) and Bulgaria (82%) are the most likely to agree that it is easy to compare, while the most critical countries are Denmark, where far fewer (31%) agree this comparison is easy, followed by Luxembourg (57%) and the Netherlands (59%). Easiness of comparison and take-up of bundles are not directly correlated, since adoption rates in the latter group of countries is above the EU average, with 87% of households in the Netherlands subscribing to a bundles of services. Yet data show a relative correlation between easiness of comparison and actual switching of bundle service provider for some countries, with Greece (80%) and Italy (70%) on top, while Luxembourg (40%) has one of the lowest rates in switching. A majority of respondents to the public consultation, including several Member States, almost half of the NRAs, mobile and certain fixed operators and the European consumer association advocate that the scope of current rules on switching needs to be adjusted due to bundles. Bundles are a cause of concern and the TV service should not hinder switching of broadband services. Consumers' view, shared by many others, is that consumers should be able to terminate any individual service within a bundle (equipment linked to one service should not lock-in consumers to other services), and renewal of one service should not be used to renew the entire bundle. On the opposite side to this view are a few Member States, operators' associations and a large number of fixed operators, which think that additional rules would represent a disproportionate burden on telecom operators, as OTTs are currently not obliged to offer unbundled services. Moreover, they argue that the market is competitive, there is no evidence of harm (on the contrary, consumers value bundles), and competition rules together with horizontal consumer protection should suffice. Besides the three major problems described above (different rules for equivalent services, gaps in consumer protection and rules unfitted to bundles for switching purposes), technology and market changes have also prompted the need to consider the advisability of adapting other sets of rules. For instance, must-carry obligations on providers of electronic communications networks for the transmission of specified radio and television broadcast channels could be examined in view of the increasing use of OTT services for accessing audio-visual content, as well as the prevalence of catch-up or other video-on-demand services accompanying traditional broadcast channels and broadcast distribution platforms. OTT services are not covered by 'must-carry' obligations. While there is a majority view in the public consultation that transmission obligations imposed on electronic network operators ('must-carry' rules) and rules related to electronic programme guides should be adapted to new market and technological realities, there is sharp disagreement how such adaptation should be conceived. Extension of current rules is supported by most broadcasters whereas most telecom operators are in favour of reducing the scope of the rules. Another area where adjustments may be necessary is numbering. While the evaluation showed no significant problems with the implementation at national level, it made it clear that changes may be needed to cope with future competition issues in the machine-to-machine market, e.g., connected cars, logistics, etc. with particular view to their increasing cross border aspects,. M2M growth rates are expected to be many times higher than those of the pure voice communications, changing the pattern and intensity of demand for numbering resources. The public consultation showed consensus that to cope with the numbering needs of M2M in the future, a clear framework for extra-territorial use of numbers is necessary to ensure sufficient numbering resources. As rules regarding extraterritorial usage are not governed by the regulatory framework, they may differ per Member State, entailing a risk of regulatory fragmentation. In this respect, existing coordination efforts in CEPT to prevent regulatory fragmentation may not prove sufficient to comply with the requirements of the Single Market. More specifically, administrative limitations of extraterritorial use may raise concerns with regard to compliance with EU Law notably with the requirements of Article 56 TFEU concerning the freedom to provide services. At present, the scope of entities that can be beneficiaries of assignment of numbers vary per Member State and is often limited to specific categories of electronic communications service providers, In this respect, the current beneficiaries, e.g. most mobile network operators, expressed concerns over implementation and security issues, such as fraud, exhaustion of national numbers, and interoperability and end-to-end connectivity aspects. Mainly respondents beyond the telecom sector noted the increasing cross border aspects and the need to adapt to market changes. Rules on access to emergency services are a very important issue too, as indicated in the evaluation report. In the public consultation, the telecom industry highlighted the importance of reliable access to emergency services that, in view of the technical standards and legal arrangements in place, can be provided only through ECS today. However, they argue that access to 112 obligations should be imposed on OTTs as well, if technically feasible. A large number of stakeholders consider that, although it would not be technically feasible to subject all OTT services to the obligation of providing access to emergency services, all the voice services perceived by the users as substitutive to the current PSTN voice service and which also give access to E.164 numbers should be subject to the same obligations regarding the access to emergency services. Finally, obligations related to Universal Service may no longer be in line with current levels of availability and use of communications networks and services, as evidenced by the evaluation of the regulatory framework. 1.2.3Regulatory redundancies and inefficiencies and lack of coherence in the Single Market This section analyses the regulatory set up and regulation areas where objectives can be achieved in more efficient ways. This problem is clearly identified in the evaluation report . 1.2.3.0Unnecessary administrative burden The better regulation principle is about regulating only when necessary and in a proportionate manner. The evaluation has identified several areas where the administrative burden could be reduced without compromising – in some cases even improving - the effectiveness of the provisions.

Access regulation is an area where a certain level of simplification could take place in terms of process, intervention triggers or the relevance of access products for safeguarding competition, without compromising however the results achieved. The current regulatory framework implies a considerable amount of intervention intensity at both Member States and EU level, given, for example, the need to carry out and consult on market analyses every 3 years as well as the complexity of regulating ex ante the terms of provision of a significant number of different access products based on such analyses, in particular as several access products may be required for each regulated market. Moreover, the procedures as such could be simplified for certain very stable markets such as the markets for call termination, without compromising the outcomes. Evaluation findings indicated that there is room for reducing the regulatory burden on national administrations/institutions and operators, or redirecting efforts to priority tasks, while at the same time increasing the predictability and the stability of the framework. Based on the actual implementation experience, it appears that the current cycles of market reviews are unnecessarily short and that lengthening them would increase the regulatory certainty and reduce the administrative burden for NRAs,