Opinion of the Economic and Social Committee on the "Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - Towards a new framework for Electronic Communications infrastructure and associated services - The 1999 Communications Review"

(2000/C 204/03)

On 15 November 1999 the European Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 4 May 2000. The rapporteur was Mr Lagerholm.

At its 373rd plenary session of 24 and 25 May 2000 (meeting of 24 May 2000) the Committee adopted the following opinion by 94 votes to 1, with 4 abstentions.

1. Introduction

1.1. Since 1990 the Commission has progressively put in place a comprehensive regulatory framework for the liberalisation of the telecommunications market. This has been vital to the EU's global competitiveness. An advanced communications industry is a pre-condition of Europe's transition to the Information Society. Without efficient, high-quality communications, European industry, and in particular SMEs, are at a heavy disadvantage in relation to their global competitors. The introduction and take-up of new communications services can offer possibilities to reduce regional disparities by reducing the significance of distance. Sharper competition will continue to have a major impact on the development of telecommunication services and the economy as a whole.

1.2. Technological and market change in the communications sector is proceeding at an ever-increasing pace. The Internet is to a large extent overturning traditional market structures. Improvements in processing, access and basic transmission technologies are reducing the cost and increasing the capacity of communications infrastructure. Wireless applications are increasingly important in all segments of the market. Furthermore, the development of technologies within the media sector, in particular digital television is providing transactional "on demand" services and new services such as data, Internet and e-commerce, thereby boosting competition in the converging communications sector.

2. The Commission's Communication

2.1. The present Communication initiates a review of the current telecommunications regulatory framework. It is essentially based on the Fifth Report on the Implementation of the Telecom Regulatory Package(1); the results of consultation on the Convergence Green Paper(2); the results of consultation on the Radio Spectrum Green Paper(3), the conclusions of the report on the development of the market for Digital Television in the European Union(4) and the Report on a possible European regulatory authority.

2.2. While the existing legislative framework for the liberalisation of the telecommunications market was designed to manage the transition to competition, the new framework for communications infrastructure and associated services would focus on promoting and sustaining an open and competitive European market for communications services, to benefit the European citizen and consolidating the internal market.

2.3. In addition to a consolidated and simplified Liberalisation Directive (in accordance with Article 86), this framework would consist of a sector-specific Framework Directive; four sector-specific directives (Licensing and Authorisations Directive (inc. Scarce resources), Access and Interconnection Directive, Universal Service Directive and Telecoms Data Protection Directive) (all in accordance with Article 95); non-binding sector-specific measures; and competition law.

2.4. The Framework Directive would identify specific policy objectives for Member States; require Member States to act in accordance with the five regulatory principles; guarantee specific consumers' rights and an appropriate level of interoperability; set out the rights, responsibilities, decision-making powers and procedures of national regulatory authorities (NRAs); establish rules for the new Communications Committee and High Level Communications Group; and make provisions for recommendations, best practice guides, codes of conduct developed by interested parties, and other complementary measures.

2.5. The new framework could apply to all communications infrastructure and associated services. Within this framework:

- Internet transmission services would be treated in the same way as other transmission services;

- operators would be required to obtain licences under general authorisations instead of individual licences;

- common principles would be established for regulation of access and interconnection across all communications infrastructure;

- a Spectrum Policy Expert Group would ensure that political and not just technical considerations drive Community policy in this area;

- affordable access for all to communications services necessary for participation in the Information Society would remain a key priority;

- in addition to funding public access from State budgets, Member States would retain the option of establishing financing schemes for universal service;

- competition would be increased in the local loop;

- consistent legal measures at EU-level would encourage the development of effective competition and the deployment of pan-European services; and

- co-operation between NRAs and the Commission would be improved.

2.6. The future principles of regulatory action should be based on clearly defined policy objectives; be the minimum necessary to meet those objectives; enhance legal certainty; be technologically neutral and be regulated as closely as practicable to the relevant activities.

3. General Comments

3.1. In general, the Economic and Social Committee supports the Commission's Communication.

3.2. It particularly welcomes the commitment to base the proposed regulatory evolution on:

- the promotion and sustaining of an open and competitive European market;

- the consolidation of the internal market;

- greater reliance on competition law and simplification and reduction of sector-specific legislation accompanied by recommendations, guidelines and interbranch agreements. Apart from the need to regulate access to scarce resources, sector-specific regulation should be employed only in areas where sufficient competition is lacking and only for a transitional period;

- technology neutrality, including no Internet-specific measures. Technologically neutral regulation should not, however, lead to stronger regulation of new services but rather to the roll back of existing specific regulation of traditional services.

3.3. As the Commission further develops its detailed positions, care will be required to ensure that these principles remain at the forefront. Care may also be required to ensure that the implementation of the proposals does not proceed at the pace of the slowest Member State but instead that sector-specific regulation is replaced by general competition legislation on the various markets (geographical and services), as competition arises. This could become more of a problem with the enlargement of the EU. The enlargement can also be expected to make it necessary to provide appropriate support to some new entrants.

3.4. Transition from sector-specific telecommunications regulation to general competition law is frequently discussed on the basis of "sun-set" and forbearance clauses. For use of such regulatory techniques, however, it is necessary to apply criteria. Such criteria should be few and defined as soon as possible.

3.5. The Committee lays stress on the global character of the converging communication markets. The proposed European regulatory framework must not be seen in isolation. It is essential that the competitiveness of European players is maintained and allowed to thrive. There can be a risk that regional regulation could lead to the European regional market becoming isolated from the global market, especially if extensive regulation is allowed to curb the operation of market forces. The Committee therefore urges the Commission to take into account the impact of any measures on the global competitiveness of European industry.

3.6. However, the Committee would stress that it is important for the Commission not to confine its attention solely to the beneficial effects of increased competition, now and in the future. It cannot be ruled out that the dramatic development of electronic communications infrastructure and related services in some areas could threaten public health or the environment. The Communication makes no mention of such risks - perhaps quite naturally in view of its aims - but the Committee would anyway urge the Commission to monitor the health and environmental impact closely.

4. Specific Comments

4.1. Licensing and Authorisations

4.1.1. The Committee agrees that harmonisation of licensing conditions in both formal and practical terms is needed. The system should be based on general authorisations except where the issue concerns access to frequencies and numbers. Accordingly, harmonisation should not lead to the introduction of a more burdensome regulatory regime in markets where, for example, general authorisations do not require any pre-registration.

4.1.2. The Commission proposes to cover Internet-based communications services by the authorisation system. As a general rule, technology neutrality should prevail. Thus Internet as a technical platform to deliver communications services should not be subject to special rules. The Committee feels however that new technologies, especially in their start-up phases, should be left unregulated as far as possible, subject to respecting the required technical neutrality. Yet this is only acceptable as long as fundamental demands for consumer protection are met.

4.2. Access and Interconnection

4.2.1. In the Committee's view regulatory intervention is justified only to redress market failures in providing effective and healthy infrastructure competition. Where there is market failure the regulatory response needs to be specific to the problem, appropriate and temporary.

4.2.2. If it is deemed necessary to take short term action on regulating access conditions (such as in the case of local loop unbundling), attention should focus mainly on achieving business to business agreements. If this is not feasible, the approach to pricing unbundled access should create incentives for infrastructure investments (e.g., by time limits on specific costing mechanisms) and be applied in a consistent manner across the Member States. The development of alternative access options needs to be monitored very closely and any recommendations to NRAs on access should include avoidance of regulatory intervention whenever alternative means of access are available.

4.3. Management of radio spectrum(5)

4.3.1. The use of radio spectrum is increasingly important for telecommunications systems. The only way to solve the problem of band availability is to use modern technology to increase the efficiency of radio spectrum use for all users, not only in the telecommunication area. In the Committee's view spectrum policies must be integrated between areas such as broadcasting, telecommunications, radio location and military use. The methods for enabling several users and services to share the same spectrum band must be improved.

4.3.2. One way of improving spectrum efficiency is for allocations to be harmonised at international level. This is especially important in areas with many national borders, such as Europe.

4.3.3. Spectrum pricing is for the Committee an acceptable instrument for spectrum efficiency as long as the price levels are moderate and do not adversely affect the deployment of systems, and as long as they create a level playing field for all actors in the market, telecom operators as well as broadcasters.

4.3.4. The Committee agrees with the Commission that the Member States should be encouraged to use income from radio spectrum charges, auctions and pricing to improve spectrum efficiency.

4.4. Universal service(6)

4.4.1. Universal service as currently defined in Community legislation includes the provision of voice telephony, fax and voice band data transmission via modems (i.e. access to the Internet). Users must have access at a fixed location to international and national calls, as well as emergency services (via national numbers or the European emergency number - 112). The definition also covers the provision of operator assistance, directory services, public pay phones and special facilities for customers with disabilities or with special social needs.

4.4.2. The current regulatory framework requires NRAs to place obligations on network operators to ensure that the minimum set of services of specified quality as defined above are available to all, independent of their geographical location, at an affordable price.

4.4.3. The deregulation of the telecommunications sector accompanied by technological developments has meant major advantages for most consumers in the shape of more reliable, higher quality and less expensive services. The variety of services continues to expand. New broadband networks are now being rolled out as commercial offerings. This creates opportunities for faster Internet access, making existing information society services more attractive, and could allow for new services requiring high band-width such as video on demand. The availability of broadband services will be a key factor in ensuring that the EU can make the transition to the Information Society. One could argue that the definition and scope of universal service should be expanded to include also e.g. broadband services.

4.4.4. As regards extending the scope of universal service obligations (USO) the Committee rests on the Commission Communication dating back to 1996. This identifies the essential criteria for extending the scope of universal service as: "an analysis of the demand for and the availability of the service concerned based on the market and a political evaluation of its social and economic usefulness". The ESC considers that these criteria remain valid.

4.4.4.1. However the Committee endorses the position of the Commission which wishes to preserve at this stage the definition and the current scope of the universal service insofar as it commits itself "to proposing criteria for its possible extension in the Community legislation, as well as of the periodic review machinery owing to the dynamic and evolutionary character" of this concept.

4.4.4.2. While bearing in mind the conclusions of the Lisbon Summit, and in particular the section on "An information society for all" in the ESC Opinion on "Employment, economic reform and social cohesion - Towards a Europe of innovation and knowledge" (CES 1053/99), which highlights the extent to which the explosion of the information society and the related new economy can generate social exclusion, the Committee hopes that the Commission will define, as speedily as possible, the criteria to govern an extended legal definition of universal service. This is essential in order to be consistent with the guidelines adopted by the Lisbon European Council, to guarantee an "information society for all" and to minimise the risks of social exclusion and strengthen social cohesion, in line with Article 2 of the EC Treaty.

4.4.5. The current regulatory framework requires NRAs to place obligations on network operators to ensure that the minimum set of services of specified quality as defined above are available to all, independent of their geographical location, at an affordable price. This framework gives NRAs the option of establishing a universal service fund so as to ensure a level playing field between the different operators.

4.4.5.1. The Committee approves this principle. It had in fact suggested it in its opinion on the communication from the Commission (COM(96) 73 final) entitled "the universal service of telecommunications with a view to a fully liberalised environment". In this opinion, the ESC said that: "all telecommunication service suppliers must contribute - according to equitable and suitable distribution - a share to this service, including the financial aspects". Thus for the sake of equity, both for consumers and for the various operators, the Committee was in favour of the universal service being financed by all operators.

4.4.6. Despite technological and possibly environmental developments, it is not necessary to reconsider this principle without running the risk of accepting that whole areas of the geographical coverage of European space are excluded from technological progress. That would amount, in fact, to refusing to some citizens legitimate access to new information technology and, in so doing, to the jobs which will result from this (teleworking etc.), thus creating de facto inequality of treatment.

4.4.7. The fact that the Committee considers it unwise to extend the scope of universal services to broadband services while waiting for the Commission to propose criteria for its possible extension now, does not mean that it would not welcome Member State and Community initiatives to speed up the roll-out of broadband services.

4.4.8. Though the Committee therefore feels that the subsidiarity principle should apply for the funding of universal services and "public access" in electronic communications, it would stress that EU competitiveness hinges on a continued drive to improve quality and bring prices down in this sector. The Member States should therefore also select the most efficient and least distorting means in connection with providing and/or funding both universal services and "public access". In its view, public procurement should be considered in the first instance.

4.4.9. In this connection, the Committee would stress that it can also be necessary on other grounds for Community or national policy initiatives to promote the information society. Such initiatives should pay particular attention to the extremely important issue of educating users to avoid creating a gap between information "haves" and "have-nots".

4.4.10. As the Section for Transport, Energy, Infrastructure and the Information Society underlined in its Oulu Declaration(7) it calls on the Commission to include more information society activities among the areas covered by the structural funds, especially the European Social Fund, including both training and the integration of people from "excluded" categories of society.

4.5. The interests of users and consumers

4.5.1. In its Communication, when dealing with consumer protection and information, the Commission puts forward, amongst others, the following proposals:

- the maintenance of existing obligations with regard to complaint handling, quality of services and dispute settlement and exploration of the need for further measures;

- requiring suppliers to publish information for their customers on quality of service;

- making information on the quality and price of services more intelligible to consumers.

- update and clarify the Telecoms Data Protection Directive to take account of technological developments and to ensure it is appropriate for a converging market

4.5.2. The Committee supports the above proposals. It seems obvious that the interests of users and consumers are generally best met through competition in an open market - and that it is in the interests of all telecom operators competing over pricing to ensure that existing or potential customers are fully informed about the price and quality of their services. Transparency of the costs and the various price components is essential. The authorities already responsible in the Member States for controlling, with the backing of general consumer legislation, that consumer information provided by operators is accurate and not misleading, are the obvious bodies to be charged with the proper and continuous monitoring of consumer information in the telecom sector.

4.5.3. In the light of the dramatic pace of change in the telecom sector, with a ceaseless stream of new services and - on most markets - many new operators, many customers obviously feel confused and insecure. Successful development depends on inculcating a feeling of trust in the consumer. Hence the Committee feels that it is justified, at the present juncture, to place special demands on telecom operators in respect of consumer information. The Committee further considers it beneficial that simple and inexpensive complaint handling and dispute settlement procedures exist for users and consumers, other than via national courts, encouraging the use of the Commissions' "European consumer complaints form".

4.5.4. The Committee agrees with the Commission that the Telecoms Data Protection (TDP) Directive has been outdated due to the technological developments and should be reviewed. In this connection, it should be considered whether data protection requirements in the Directive can be safeguarded by amending the umbrella directive governing data protection in the EU instead of updating the TDP Directive as such. That solution would be more consistent with the drive to reduce sector-specific legislation and the conditions generated by convergence in the communications sector. Yet this must not be allowed to lead to delay in updating data protection in the telecom sector.

4.6. Numbering, naming and addressing

4.6.1. The regulatory framework should stimulate innovations in new services. In the Committee's view the proposal to consider mandating interoperability of Intelligent Network (I/N) databases in order to facilitate pan-European service provision might be incompatible with the principle of technology neutrality and should be re-examined.

4.6.2. If on a particular occasion there is a recognised need for regulatory intervention then the regulator should only specify requirements and leave it to the industry to find the most cost-effective technology to meet them.

4.7. Specific competition issues

4.7.1. The Commission seeks to contain the strong arguments for use of broader competition regulation in preference to sector specific regulation by proposing that the competition law concept "dominance" be used as a trigger for stronger ex-ante sector-specific obligations (to meet reasonable requests for access, cost-orientation, non-discrimination). The Committee is not convinced of the advantages of such an approach.

4.7.2. Introducing yet another market dominance concept without removing the existing concept "Significant Market Power" (SMP) interferes with the principle of keeping regulation to the minimum necessary.

4.7.3. Using competition law criteria for dominance in order to impose ex-ante regulation is not a step towards stronger reliance on competition law principles, as the Commission seems to suggest. On the contrary, the Committee finds it likely that adoption of such an approach will prolong the transition period to full reliance on competition law, and may in fact impede the operation of competition law in the sector.

4.7.4. This contradiction between the stated aims of the Review, and the effect its proposals would have in practice, seems to arise from a confusion between the application of competition law to the sector, on the one hand, and the inappropriate use of certain competition law terminology to create new regulation on the other. In competition law, a finding of dominance per se is not problematic: only if that dominance is abused, competition law is breached. Competition law is an ex post rather than an ex ante tool; its great benefit is that there are real and substantial penalties attached to its breach. Imposing ex-ante obligations on undertakings found to be dominant is not applying competition law. It is regulation by another name.

4.7.5. Ex-ante regulation should only apply where there is no effective competition. For this to happen, it is necessary to study each case in order to determine whether administrative intervention is necessary to substitute mechanisms inherent in the market itself; therefore, there should be a rigorous analysis of each relevant market. This will confirm whether the level of competition is unacceptable to the authorities and if it is due to a market failure or an undue behaviour of the players, that can justify administrative regulation of the operators in the market.

4.8. Institutional issues

4.8.1. The Committee supports deeper co-operation between the Commission and National Authorities and, in line herewith, supports the proposed setting up of a High Level Communications Group of National Regulatory Authorities and the Commission. The decision-making process of this group must be fully transparent.

4.8.2. The increased cooperation between the Commission and the national authorities should suffice to secure more consistent application of telecom legislation throughout the EU. The Committee therefore supports the Commission's position in not proposing a European Regulatory Authority.

4.8.3. In order to support a general improvement in the efficiency of use of radio spectrum governmental spectrum policies must become more flexible and open for innovation. The Committee welcomes the proposal to create a Spectrum Policy Experts Group, where proper means to achieve such a goal can be discussed.

4.9. Non-binding rules and self-regulation

4.9.1. In its Communication the Commission sets out the new regulatory framework, which has three components: binding, sector-specific legislation consisting of a framework directive and four specific directives, related non-binding sector-specific measures, and general competition law. The Committee recognises the increased need for non-legislative target actions and supports the greater reliance on sector-specific agreements and memorandums of understanding. Other (formally) non-binding provisions, such as Commission and NRA recommendations and guidelines, should be used with great caution since in practice they can become as binding as formal directives, yet without being subject to democratic control procedures. It is necessary to further harmonise the pan-European regulatory regime and to establish rapid and flexible procedures to ensure consistent application of Community law throughout the EU. The lack of harmonisation is a concern to all key actors on the telecommunications market: telecom operators, service suppliers, manufacturers, etc. Everyone in the sector therefore has a genuine interest in achieving harmonisation.

4.9.1.1. The Committee believes that non-binding codes of conduct could be a useful instrument at pan-European and Member State level once binding law has been implemented. Such codes can be used as a flexible and rapid method of regulation but, in order to ensure legal certainty and clarity, they must be based on binding norms. In order to ensure a consistent regulatory approach throughout the Union while also allowing for national adjustments, non-binding codes may be used to illustrate how certain norms should be applied.

4.9.1.2. However, it is important to be aware of the risk that non-binding codes in the form of Commission-produced recommendations and guidelines may undermine the scope for participation by the European Parliament and the Member States in the legislative process. Particularly in the case of an increased use of non-binding instruments such as Commission recommendations, care must be taken to ensure that the decision process is sufficiently transparent and comprehensible, that the Member States are included in decision-making from the outset, and above all that industry as well as other players in the sector, such as users and workers' representatives are adequately consulted.

4.9.1.3. Furthermore, non-binding codes must not open the way for Member States or NRAs to oversee re-introduction of sector-specific regulation. Flexibility has to be balanced with legal certainty and clarity. Therefore any new flexibility tool will have to be accompanied by precise guidelines and clear principles for interpretation so as to ensure a consistent approach throughout the EU and to avoid any arbitrary decisions.

4.9.2. In the Committee's view "self-regulation" has the potential to assist the telecoms sector in Europe to make the transition from a regulated ex-monopoly sector to a truly competitive industry governed by the normal laws of competitive business. Rules negotiated, applied and enforced by the industry itself may require little or no recourse to regulators other than application of normal competition law requirements. If applied across the EU such rules could also result in significant advances in harmonisation. Clearly it is essential for users to be represented properly when the sector frames its self-regulation arrangements.

Brussels, 24 May 2000.

The President

of the Economic and Social Committee

Beatrice Rangoni Machiavelli

(1) COM(1999) 537.

(2) Green Paper on the convergence of the telecommunications, media and information technology sectors, and the implications for Regulation - Towards an information society approach - COM(97) 623; ESC opinion - OJ C 214, 10.7.1998.

(3) COM(1999) 538; see also ESC opinion on the Green Paper on radio spectrum policy in the context of European Community policies such as telecommunications, broadcasting, transport, and R& D - COM(1998) 596 final, OJ C 169, 16.6.1999.

(4) The development of the market for digital television in the European Union - Report in the context of Directive 95/47/EC of the European Parliament and of the Council of 24th October 1995 on the use of standards for the transmission of television signals - COM(1999) 540.

(5) See ESC opinion on the Green Paper on Radio Spectrum Policy in the context of European Community policies such as telecommunications, broadcasting, transport, and R& D (COM(1998) 596 final); OJ C 169, 16.6.1999.

(6) See ESC own-initiative opinion on Services of general interest; OJ C 368, 20.12.1999 and ESC opinion on Universal service for telecommunications in the perspective of a fully liberalised environment (COM(96) 73 final); OJ C 30, 30.1.1997.

(7) CES 829/1999, Appendix iii to the Minutes of the 11th meeting of the Section for Transport, Energy, Infrastructure and the Information Society on 6 and 7 September 1999 in Oulu, Finland.