Opinion of the Economic and Social Committee on the 'Proposal for a European Parliament and Council Directive on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP)' ()

(96/C 153/05)

On 20 September 1995, the Council decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Transport and Communications, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 14 February 1996. The Rapporteur was Mr Hernández Bataller.

At its 333rd Plenary Session (meeting of 29 February 1996), the Economic and Social Committee adopted the following Opinion by a majority with four abstentions.

1. Background

1.1. Council Resolution 93/C 213/01 of 22 July 1993 on the review of the situation in the telecommunications sector and the need for further development in that market supported the Commission's intention to prepare, before 1 January 1996, the necessary amendments to the Community regulatory framework in order to achieve liberalization of all public voice telephony services by 1 January 1998. Member States with less developed networks were granted an additional transition period of up to five years.

1.1.1. This Resolution also considered the liberalization of all public voice-telephony services, whilst maintaining universal service, as a goal for the Community's telecommunications policy in the longer term.

1.2. Council Resolution 94/C 48/01 of 7 February 1994 on universal service principles in the telecommunications sector recognized:

a) the importance of maintaining and developing a guaranteed universal telecommunications service, based on the principles of universality, equality and continuity, and delivering such services to all users at an affordable price - which would require the establishment of a number of common principles;

b) that this service may, where justified and subject to the approval of the national regulatory authority, be financed through internal transfers, access fees or other mechanisms which take due account of the principles of transparency, non-discrimination and proportionality.

1.3. The Committee welcomed () the Commission's Action Plan on Europe's Way to the Information Society.

1.4. Council Resolution 94/C 379/03 of 22 December 1994 on the principles and timetable for the liberalization of telecommunications infrastructures reaffirmed the need to liberalize the provision of telecommunications infrastructures by 1 January 1998. For this, the appropriate regulatory framework was to be set up.

1.5. In line with the Commission Communication () of 25 January 1995, the Council adopted Resolution 95/C 258/01 of 18 September 1995 on the implementation of a future regulatory framework for telecommunications, in which it required the adoption of legislative measures centring as a matter of priority on, inter alia:

- the maintenance and development of a minimum supply of services throughout the Union and the definition of common principles for financing the universal service;

- the establishment of a common framework for the interconnection of networks and services.

1.6. The proposed Directive aims to guarantee free access to networks and services and ensure the right of market players to interconnect with third party networks and services wherever reasonably justified.

1.6.1. The features of the proposed harmonized framework for interconnection are:

- application of the open network provision principles of transparency, objectivity, and non-discrimination, in accordance with the principle of proportionality;

- priority given to commercial negotiations between interconnecting parties while reserving some conditions to be set a priori by national telecommunications regulatory authorities;

- clear responsibilities for national regulatory authorities, in accordance with the principle of subsidiarity, including effective mechanisms for dispute resolution.

2. General comments

2.1. The Committee welcomes the Commission's presentation of a proposal for a Directive which develops the principles of Open Network Provision (ONP) to regulate the activity of the various players in the telecommunications networks and services sector, against the background of full competition that will be in place from 1998 as a result of deregulation of telecommunications services and infrastructure.

2.1.1. It must be ensured that differences in national rules are kept to a minimum on the basis of a legislative framework applicable across the EU. If they are not, there is a danger of interpretations that differ from one Member State to another in an area of activity which affects every part of Europe.

2.1.2. The Committee is, however, concerned that the proposed Directive is rather ambiguous, especially concerning the definition of public networks and services.

2.1.3. In various rules the issues of interconnection and interoperability are dealt with in conjunction with the provision of universal services. These are two quite different subjects, and it would be wise not to mix them up. Such juxtaposing of disparate elements is found on various occasions in the Directive, and may in future lead to problems when operators have to interpret the provisions in practice.

2.1.4. The ESC takes the view, therefore, that it would be better if a Directive of this importance were clearer and actually defined and delimited the terms used. Its structure should also be more methodical and logical.

2.1.5. The Committee notes the process of liberalizing telecommunications in the EU. It hopes that, in future, liberalization in this area is founded on efficiency, competitiveness, solidarity, while at the same time respecting the 'European Social Model' and ensuring adequate protection for consumers.

2.2. Application of rules on competition

2.2.1. Concerning the conditions set out in the Directive for subjecting market players to fair competition, the Committee does not subscribe to the unequal treatment which is to be found throughout the Commission proposal.

2.2.2. The ESC () has taken the view that liberalizing competition increases the importance of establishing basic principles for fair competition, particularly in the area of interconnection of networks.

2.2.3. The text of its relevant Opinion is as follows ():

'In order to ensure fair competition and full implementation of competition rules, it is of prime importance to bring about an orderly transition from the present monopolies to a competitive market, regardless of whether these are private or public undertakings in accordance with Article 222 of the Treaty. This is the only way to prevent abuse of the market and to ensure that suppliers do not carry the burden alone. It is also important that companies in protected monopoly sectors (energy, other local monopoly sectors) do not cross-subsidize their activities in the telecommunications sector by using income from these monopolies. The Committee feels that it is essential to introduce some kind of control mechanism here.

The regulatory conditions laid down according to objective, non-discriminatory and transparent criteria must be binding on all future network operators in the interests of equal opportunities and viable competition.'

2.2.4. The extension of competition to the whole sector must mean that there are no restrictions on the entry into the market of new economic operators, other than those justified on grounds of objective, transparent, proportionate and non-discriminatory criteria relating to the availability of shared resources.

2.2.5. The Committee takes the view that, notwithstanding the measures that the Commission may adopt to encourage new operators, the measures contained in the rules on the liberalized telecommunications sector need to be balanced, non-discriminatory and should maintain equality of opportunity for all market players, including those which are already operating in this market.

2.2.6. The Committee calls for the Commission to propose codes of conduct which set objective limits for fair and unfair competition.

2.3. Universal service

2.3.1. The Committee would reiterate that 'before liberalization of the entire voice-telephony service, it is necessary to define the scope, organization and financing of the universal service' ().

2.3.2. The ESC takes the view () that 'whilst the universal service concept needs to be defined, it is also necessary to establish links between the ideas of "basic service" and "universal service". This means that the latter will have to evolve and keep pace with technological developments'. Universal service should also be treated as an 'essential social concept'. The necessary mechanisms to safeguard this concept must therefore be put in place.

2.3.3. The Committee has pointed () out that maintaining, developing and financing a universal telecommunications service are key factors in the future development of telecommunications in the Community. Users, therefore, have a right to expect a universal service which meets their needs and which evolves further as technology advances.

2.3.4. The Committee would again state () that all users have a right to fair access, on equal terms, to modern information and telecommunications services.

2.3.5. It must be remembered that universal service provision contributes to attaining the goals of socio-economic cohesion and regional equality in the Community.

2.3.6. The Committee would wish for more clarity in references to universal service in the text of the proposal.

2.3.7. The ESC regrets that it has not, as yet, been in agreement with the Commission on extending the scope of application of universal service.

2.3.8. The Commission has made it known that it is studying the question of the definition of universal service and will publish a communication with its relevant proposals in March. The Committee will then put forward its view of the concept, scope and limits of universal service.

2.4. Public nature of networks and services

2.4.1. The Committee notes with concern the ambiguity present in the Directive regarding the definition of public networks and services.

2.4.2. 'Public' should be used to set a break-off point in the vertical provision of services (integrated from the physical infrastructure itself to the provision of the service to the end user).

2.4.3. The Directive should opt for a more precise definition, possibly with a view to giving the idea of 'public' a sense of the intended purpose, e.g.:

- 'A public network is one which may be used by any physical or legal person.'

- 'A public service is one to which any person has equal right of access.'

This logic makes availability the defining factor of whether a good is of public interest.

2.5. Organizations which have 'significant market power'

2.5.1. The Committee takes the view that the idea of organizations which have 'significant market power' should be defined at Community level. This should take account of the existing Community case law on competition.

2.5.2. The description of such organizations - which must fulfil stricter obligations than other players - is confusing. The dividing line could be based on various different criteria: turnover levels, impact on the economy of the country concerned, technical criteria in respect of geographical or demographical coverage, portfolio of services, and so on.

2.5.3. The ambiguity is, in any case, too great since this classification is not fixed, but may vary in time or simply as a result of interconnection agreements contracted between these organizations. This may lead to unstable or contradictory situations concerning contracts if, for instance, a market player is able to negotiate contracts as a party without significant market power and, as a consequence, becomes a player with significant market power. The resulting obligations would then place it in the non-significant category again.

2.5.4. The content of Article 17 of the Directive opens up the possibility that the classification of organizations which have 'significant market power' may be given by national authorities, and thus may vary from one Member State to another and possibly lead to distortion of competition.

2.6. National regulatory authorities

2.6.1. Various parts of the Directive rest on the assumption that there are national organizations which will yield to the higher authority of the Commission. No consideration is given to the impact that the creation of a European regulatory body might have, even though this is a possibility which should currently be under discussion.

2.6.2. Concerning the principle of subsidiarity, the Directive should provide for the Commission to assume responsibility in certain cases. This means that a higher European-level Authority will be needed to settle complaints from operators.

2.6.3. As the mechanisms for settling disputes are exclusively based on voluntary agreement, there may be gaps in the application of the rules. Criteria in respect of objective and mandatory procedure therefore need to be established.

2.6.4. The Committee calls for National Regulatory Authorities (NRAs) to be set up in each Member State, functioning independently of the national telecommunications organizations.

2.7. Telecommunications networks

2.7.1. The Directive holds what may be an over-simplified view of what telecommunications networks actually are. The networks are now virtual rather than physical and the channels along which information flows cross various providers without any break in continuity. Against this background, it is very difficult to estimate costs and perhaps the Directive should set out some criteria on rationality and, in particular, homogeneity between providers.

2.7.2. Care should be taken in deciding on interconnection obligations. If not, they may become so unattractive that new players are discouraged from entering the sector, and so would check the development of full competition in it. Maintaining the concept of an open network for all operators is essential to the public interest.

3. Specific comments

3.1. Article 5 (Interconnection and universal service contributions)

3.1.1. Article 5 describes how costs associated with the universal provision of certain services may be shared.

3.1.2. The first paragraph of Article 5 limits possibilities for financing to networks and services identified in Annex I, Part 1 (telephony). This is an arbitrary limitation.

3.1.3. It smacks somewhat of unequal treatment that while universal service imposes costs on any organization, such costs may only be shared with organizations operating public networks. For this reason, it would be better to widen the scope to include all players that operate networks.

3.1.4. The Committee takes the view that other factors need to be considered, such as the investment advantages, the availability of equipment and the commercial benefits associated with being an operator responsible for providing a universal service. Being present everywhere has advantages: turnover levels (large-scale investment made profitable by high turnover, together with low marginal costs, and so on), customer service, and the possession of a brand name familiar to everyone which makes investing in advertising unnecessary. An effort should be made to put a value on these advantages, even though this is very difficult.

3.2. Article 6 (Requirements for non-discrimination and transparency)

3.2.1. Article 6 specifies the requirements for non-discrimination and transparency in relation to interconnection to networks and services provided by organizations with 'significant market power'.

3.2.2. A wording should be found to combine the ideas of price and quality, leading to similar and comparable provision in respect of an organization's own services and those of other players.

3.2.3. The ESC takes the view that support should be given to the respect of the principles of non-discrimination and transparency, and that this should apply equally to all market players, without exception.

3.2.3.1. In particular, rules on interconnection should apply in every case of interconnection, regardless of the type of service provider.

3.2.4. The Committee considers it necessary to define the notion of strategic information, since this is a point on which agreement between all parties will be difficult. The required measures to ensure transparency should, in any case, be applied without violating business confidentiality and secrecy.

3.2.4.1. The ESC takes the view that the proposed requirement to provide detailed financial information clashes with the confidentiality aspect. For this reason, the Committee considers that this requirement should be limited to European-level disputes.

3.3. Article 7 (Principles for interconnection charges and cost accounting systems)

3.3.1. Article 7 is an important rule, since it describes the principles to which those organizations having 'significant market power' must adhere when setting interconnection charges.

3.3.2. The obligatory introduction of transparent cost accounting and interconnection charges determined by costs should be extended to all organizations which operate public telecommunications networks. It seems arbitrary to restrict them to organizations with 'significant market power', which is a notion that has yet to be defined.

3.3.3. In paragraph 2, more details should be given regarding the existence of shared resources, an infrastructure which is used to provide various services, whether together (when equipment is shared) or at different times (when equipment is mobile). It may be that it is difficult to estimate the cost incurred in providing services to a new connection - and for its operation - so the proof of charges should be flexible and adjustable to the particular circumstances of each case.

3.3.4. Regarding paragraph 3, it should be pointed out that the amount of detail or unbundling should always be guided by what is reasonable, and should never require levels of detail that will mean disproportionate additional cost (in equipment, administration and red-tape). Mandatory levels of detail should be homogeneous and comparable for all market players.

3.3.4.1. This is vital both for the reorganization of the market in telecommunications and to comply with the spirit of the Directive itself.

3.4. Article 8 (Accounting separation and financial accounts)

3.4.1. Article 8 applies requirements for accounting separation to vertically-integrated organizations with significant market power or to those which enjoy special or exclusive rights in other (non-telecommunications) sectors, in order to avoid unfair cross-subsidization from one activity to another.

3.4.2. Accounting separation, if required, should apply equally to all players, regardless of their market share.

3.5. Article 9 (General responsibilities of the national regulatory authorities)

3.5.1. In the Committee's view, it makes no sense for the national regulatory authorities to determine the technical requirements. It might be sufficient for them to guarantee quality levels and demand that approval and interoperability criteria should be met.

3.5.2. Interconnection should, in any case, be based as far as possible on business negotiation. The national regulatory authority should intervene at the justified request of one of the parties.

3.6. Article 10 (Essential requirements)

3.6.1. Article 10 deals with essential requirements for interconnection agreements: security of network operations, maintenance of network integrity, interoperability of services, and data protection.

3.6.2. In the case of security of network operations, the text of the Directive is inadequate. It should define a set of rational criteria for the capacity to survive in emergencies, and require that the necessary means to meet these be provided.

3.6.3. Clear, objective and measurable criteria need to be set out to justify financial compensation. These criteria must give the provider the choice of the best way of fulfilling them at a reasonable cost justified by the risk of breach of contract.

3.6.4. Regarding the integrity of the network, there is an ambiguity concerning the limitations that the integrity criteria may place on the negotiation of conditions for interconnection. The priority should be to guarantee integrity, and conditions for interconnection should respect that integrity. Negotiations may become impossible if one of the parties imposes conditions which are incompatible with the guarantee of integrity.

3.6.5. Concerning interoperability of services, mention should be made of the possibility of referrals to public approval bodies which would first need to give their endorsement. Internationally agreed service profiles would also be applicable.

3.7. Article 12 (Numbering)

3.7.1. The Committee takes the view that number portability is an important issue. If is not included, the user's ability to change service provider may be compromised.

3.7.2. Procedures for the allocation of numbers and numbering ranges should be transparent, equitable and timely. Allocation should be carried out in an objective, transparent and non-discriminatory manner.

3.7.3. The Committee agrees with the Commission that there is a need for a European numbering system to be set up to facilitate the introduction and use of voice telephony services at European level, including freephone numbers.

3.7.4. The Commission should, however, begin studying without delay how this could be implemented from a technical point of view, the time that it would take and the cost that it would entail.

3.8. Annex I (Specific public telecommunications networks and public telecommunications services)

3.8.1. There is too much detail on the fixed public telephone network, firstly because of the digitalization and multiplexing of physical infrastructure (see above) and, secondly, because of the mention made of fax and modem services, which would perhaps have been more appropriate in part 1 on the fixed public telephone service.

3.8.2. The definition of leased lines makes rather unusual mention of the capacity to make flexible use of bandwidth, and the possibility of influencing routing and management. The more neutral description contained in the first sentence was probably sufficient to describe this type of line.

3.8.3. A new wording should also be given to the definition of public mobile telephone networks, since although it is true that one termination point is not at a fixed location, the other point is unspecified; there is a possible confusion with the description of the fixed public telephone network with which it may in part link up and with which, in any case, it must be interoperable.

3.9. Annex II (Organizations with rights and obligations to interconnect with each other in order to ensure European-wide services)

3.9.1. As far as the local network is concerned - itself a major part of the investment - the fixed costs are the deciding factor. These fixed costs are not fully covered by the corresponding revenue (monthly payment), but are subsidized by revenue generated by use of the network (mainly, trunk calls). This situation is justifiable when there is a monopoly, but not in a free market.

3.9.2. The Committee takes the view that until tariff imbalances are redressed, it is also essential to allow all the established (cable) operators who are unable to cover their fixed costs with the revenue from monthly payments to cover them with interconnection revenue.

3.9.2.1. If this permission is not given, only subscribers to fixed network operators (mainly residential) would pay the local fixed costs and would therefore be subsidizing other interconnected operators' subscribers who would not have to pay for these fixed costs.

3.10. Annex IV (List of elements and sub-elements of the overall interconnection charges)

3.10.1. Annex IV is an indicative and non-exhaustive list of elements that may make up the charges for interconnection.

3.10.2. In spite of the indicative nature of the list, a presentation which starts from a static concept of the network or networks which are interconnected is rather inappropriate. It may well be that it is enough to add an interface and start charging for use, as described in this Annex. It may also be, however, that establishing an interconnection agreement leads to one or both interconnecting networks having to make across-the-board system alterations, with their associated investment costs. Interconnection is not neutral: formulas to spread out these costs and financial risks in a reasonable manner, and to ensure proper use for a sufficient period, should be included.

3.10.3. It will be difficult to harmonize network investments based on business strategy with those brought about by obligatory interconnection agreements with other networks. The national regulatory authorities should be able to act as referees in cases of disagreement between the parties.

Done at Brussels, 29 February 1996.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 313, 24. 11. 1995, p. 7.

() OJ No C 110, 2. 5. 1995, p. 37.

() COM(94) 682 (Green Paper on the liberalization of telecommunications infrastructure and cable-television networks).

() OJ No C 236, 11. 9. 1995, p. 38; OJ No C 39, 12. 2. 1996, p. 52.

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() OJ No C 110, 2. 5. 1995, p. 37.

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