Commission Directive 1999/64/EC of 23 June 1999 amending Directive 90/388/EEC in order to ensure that telecommunications networks and cable TV networks owned by a single operator are separate legal entities (Text with EEA relevance)
Date: 1999-06-23
Institutions: European Commission
Subjects: legal status, telecommunications, television, transmission network

10. 7. 1999

EN

Official Journal of the European Communities

L 175/39

COMMISSION DIRECTIVE 1999/64/EC

of 23 June 1999

amending Directive 90/388/EEC in order to ensure that telecommunications networks and cable
TV networks owned by a single operator are separate legal entities

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular Article 86(3) thereof,

structures kept separate financial accounts as regards the
provision of public telecommunications networks and
cable TV networks as well as their activities as telecom-
munications service providers. It was also stated that
while Member States should at least impose a clear
separation of financial records between those activities,
full structural separation was preferable.

Whereas:

(1)

(2)

Pursuant to Commission Directive 90/388/EEC of 28
June 1990 on competition in the markets for telecom-
munications services (1), as last amended by Directive
96/19/EC (2), Member States were required to lift special
and exclusive rights for telecommunications services and
infrastructures by 1 January 1998, subject to additional
transition periods for some Member States. In particular,
Article 4, as amended by Commission Directive 95/51/
EC (3), required Member States to ‘abolish all restrictions
on the supply of transmission capacity by cable TV
networks and allow the use of cable networks for the
telecommunications services, other than
provision of
voice telephony', and to ‘ensure that interconnection of
cable TV networks with the public telecommunications
network is authorised for such purpose,
in particular
interconnection with leased lines, and that the restric-
tions on the direct interconnection of cable TV networks
by cable TV operators are abolished'.

Directive 95/51/EC addressed two problems concerning
undertakings to which Member States have granted the
right to establish both cable TV and telecommunications
networks. First, it stated that these undertakings are in a
situation whereby they have no incentive to attract users
to the network best suited to the provision of the rele-
vant service. It was pointed out that the introduction of
fair competition will often require specific measures that
take into account the specific circumstances of the rele-
vant markets. At the time of the adoption of Directive
95/51/EC, the Commission concluded that, given the
disparties between Member States, the national authori-
ties were best able to assess which measures were most
appropriate, and in particular to judge whether a separa-
tion of these activities was indispensable. Secondly, the
Commission concluded that detailed control of cross-
subsidies and accounting transparency are essential
in
the early stages of liberalisation of the telecommunica-
tions sector. Article 2 of Directive 95/51/EC therefore
required Member States to ensure in particular that tele-
communications organisations providing cable TV infra-

(1) OJ L 192, 24.7.1990, p. 10.
(2) OJ L 74, 22.3.1996, p. 13.
(3) OJ L 256, 26.10.1995, p. 49.

(3)

(4)

At the same time the Commission stated that in the
absence of the emergence of competing home-delivery
systems it would have to reconsider whether a separa-
tion of accounts was sufficient to avoid improper prac-
tices, and that it would assess whether such joint provi-
sion did not result in a limitation of the potential supply
of transmission capacity at the expense of the service
providers in the relevant area, or whether further meas-
ures were warranted. In this context the third paragraph
of Article 2 of Directive 95/51/EC required the Commis-
sion to carry out, before 1 January 1998, an overall
assessment of the impact, in relation to the aims of that
Directive, of the joint provision of cable TV networks
and public telecommunications networks through a
single operator.

This Directive is based on the assessment carried out by
the Commission pursuant to Article 2 to Directive 95/
51/EC. In preparing that assessment, two studies were
commissioned on the competition implications in tele-
communications and multimedia markets of, on the one
hand, joint provision of cable and telecommunications
networks by a single dominant operator and, on the
telecommunciations
other, restrictions on the use of
networks for the provision of cable TV services. The
studies concluded in particular that the joint ownership
of telecommunications networks and cable TV networks
by a single enterprise, without a high degree of
competition in the local access markets, slows down the
development towards a full multimedia infrastructure to
the detriment of consumers, service providers and the
European economy as a whole.

(5)

The Commission has adopted a communication on the
assessment carried out as required by Directive 95/
51/EC and 96/19/EC (4). In its review the Commission
found that the optimal development of telecommunica-
tions and multimedia markets depends on four factors:

(4) OJ C 71, 7.3.1998, p. 4.

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Official Journal of the European Communities

10. 7. 1999

(8)

innovation.

infrastructure competition,

infra-
service competition,
structure upgrade, and other types of
It
found that in the Community the joint provision of
telecommunications and cable TV services by a single
operator creates and asymmetric starting position for
dominant telecommunications operators as compared
with new entrants. This will act as a significant
constraint on the optimal development of telecommuni-
cations markets. This analysis was also endorsed by the
European Parliament
in its resolution of 9 February
1999 (1), concerning the draft of this Directive.

organisations

telecommunications

Most Member States have adopted measures granting to
the
or
exclusive rights for the provision of cable television
networks. The rights can take the form either of an
exclusive licence or of a non-exclusive licence where the
number of licences is restricted otherwise than according
to objective, proportional and non-discrimintory criteria.

special

(6)

(7)

The Treaty, and in particular Article 86 thereof, entrusts
the Commission with the task of ensuring that, in the
case of public undertakings and undertakings enjoying
special or exclusive rights, Member States comply with
their obligations under Community law. Pursuant
to
Article 86(3) the Commission can specify and clarify the
obligations arising from that Article and, in that frame-
work, set out the conditions which are necessary to
allow the Commission to perform effectively the duty of
surveillance imposed upon it by that paragraph.

is because

Most European telecommunications organisations are
still State-controlled companies and thus public under-
takings
as defined in Commission Directive 80/
723/EEC (2), as last amended by Directive 93/84/EEC (3).
In addition, whilst Community law provides for the
withdrawal of exclusive rights for the provision of tele-
it does not
communications networks and services,
prevent
from
telecommunications
organisations
continuing to benefit
from certain special rights as
defined by Directive 90/388/EEC, as amended by
Directive 94/46/EC (4), beyond the date of full liberalisa-
tion. This is, for example, the case in the area of radio
frequencies used for the provision of telecommunica-
tions networks and broadcasting transmission capacity.
telecommunications organisations
That
continue to enjoy rights to use radio frequencies which
they have historically been granted otherwise than
according to objective, proportional and non-discrimina-
tory criteria. Such regulatory advantages strengthen the
those operators and continue to have a
position of
substantial effect on the ability of other undertakings to
compete with the telecommunications organisations in
the area of telecommunications infrastructure. Accord-
ingly,
remain
undertakings covered by Article 86(1) of the Treaty.
Moreover, certain Member States were granted addi-
tional
implementation periods, which have not yet
elapsed, for the abolition of exclusive rights for voice
telephony and for the establishment and provision of
public telecommunications networks.

telecommunications operators

those

(1) OJ C 150, 28.5.1999, p. 33.
(2) OJ L 195, 29.7.1980, p. 35.
(3) OJ L 254, 12.10.1993, p. 16.
(4) OJ L 268, 19.10.1994, p. 15.

(9)

Article 82 of the Treaty prohibits one or more undertak-
ings holding a dominant position from abusing that
dominant position within the common market or a
substantial part of it.

(10) Where Member States have granted a special or
exclusive right to build and operate cable TV networks,
to a telecommunications organisation in the same
geographic area where it is dominant on the market for
that
services using telecommunications infrastructure,
telecommunications organisation has no incentive to
upgrade both its public narrowband telecommunications
network and its broadband cable TV network to an
integrated broadband communications network (‘full-
service network') capable of delivering voice, data and
images at high bandwidth.
In other words, such an
organisation is placed in a situation whereby it has a
conflict of interests, because any substantial
improve-
ment in either its telecommunications network or its
cable TV network may lead to a loss of business for the
other network. It would be desirable in those circum-
stances to separate the ownership of the two networks
into two distinct companies since the joint ownership of
the networks will lead those organisations to delay the
emergence of new advanced communications services
and will thus restrict technical progress at the expense of
the users, contrary to Article 86(1) of the Treaty, read in
conjunciton with point (b) of the second paragraph of
Article 82. As a minimum, all Member States should,
however, ensure that telecommunications organisations
which are dominant in the provision of public telecom-
munications networks and public voice
telephony
services and which have established their cable TV
networks under special or exclusive rights operate cable
TV networks in a separate legal entity.

(11) Moreover, where Member States grant to an undertaking
the special or exclusive right
to establish cable TV
networks in the same geographical area as the one
where it already provides public telecommunications
networks, different forms of anti-competitive behaviour
are likely to occur unless sufficient transparency of the
operations of
the undertkaings is ensured. Notwith-
standing the requirements of Community law with
regard to accounting separation, some of which only
entered into force with the implementation of
the
package of general measures opening up the Commun-
ity’s telecommunications markets in most Member States
from 1 January 1998,
in situations where serious
conflicts of interest exist as a result of joint ownership,

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of

provision

such separation has not provided the necessary safe-
guards against all forms of anti-competitive behaviour.
In addition, the separation of accounts will only render
financial flows more thansparent, whereas a requirement
for separate legal entities will lead to more transparency
of assets and costs, and will facilitate monitoring of the
profitability and the management of the cable network
operations. The
telecommunications
networks and cable TV networks are related activities.
The position of an operator on either of those markets
has an impact on its position on the other, and the
supervision of its activities on those markets is more
difficult. In addition, where a dominant telecommunica-
tions organisation has any cable TV interests, this has a
discouraging effect on any other company because of
the financial strength of the telecommunications oper-
ator. Also, the future financial prospects of a cable TV
network which has not yet been built are uncertain for a
company that is not yet established on the telecommu-
nications or pay-TV services market. Consequently, it is
essential
telecommunications organ-
isation organises its cable TV network activities in such a
way that it can be monitored in order to ensure that it
does not use its resources so as to abuse its position.
During the crucial phase of the full opening of the secor
to competition, a legal separation between the operation
of the public switched telecommunications network and
the cable TV network, including backbone links, of the
the minimum
telecommunications organisations
requirement in order to ensure compliance with Article
86. In order to achieve this transparency, it is necessary
that the networks be operated by separate legal entities
which may, however, in principle be jointly owned. The
legal separation would therefore be
requirement of
complied with if the cable TV operations of a telecom-
munications organisation were transferred to a fully-
owned subsidiary of
the telecommunications organ-
isation.

that a dominant

is

(12)

The Commission will examine on a case-by-case basis
whether it would be compatible with the principle of
proprotionality to require individual Member States to
take further measures. The decisions to be taken in
respect of specific cases could provide for measures
the cable operator to the
including the opening of
participation of third parties, or the requirement to sell
off that entity altogether.

(14)

accordance with Community law and should not, there-
fore, be governed by this Directive: this is, furthermore,
in keeping with the principle of separating the provi-
sions dealing with transmission from those dealing with
content, which is an essential point of the Commission
Communiction of 9 March 1999 (1) on the results of the
public consultation on the Green Paper entitled ‘The
convergence of
the telecommunications, media and
information technology sectors'.

Taking into account current market evolution as well as
the introduction of new technologies, competition in the
local loop may emerge in certain Member States. In such
an event, it would be necessary to review whether the
maintenance of the legal obligation to separate legal
entities for the telecoms and cable TV networks owned
by a single company would still be necessary in view of
the attainment of the objectives pursued. Given that the
market situation is different in each Member State and is
likely to envolve differently, such a review process
should be carried out in a sufficiently flexible way to
take into account the situation in each national market.
National regulatory authorities should have the right to
request the Commission to perform such a reassessment,
in particular when asked to do so by the relevant oper-
ator. Such a request should include a detailed description
of
the market structure in the
Member State concerned. In such a case, given the legiti-
mate interest of competitors in the relevant markets, the
information provided should be made available to any
interested party on demand, due regard being had to the
legitimate interest of undertakings in the protection of
their business secrets.

the development of

(15) Directive 90/388/EEC should therefore be amended

accordingly.

(16) Member States should refrain from introducing new
measures with the purpose or effect of jeopardising the
aim of this Directive,

HAS ADOPTED THIS DECISION:

Article 1

Article 9 of Directive 90/388/EEC is hereby replaced by the
following:

‘Article 9

Each Member State shall ensure that no telecommunica-
tions organisation operates its cable TV network using the
same legal entity as it uses for its public telecommunica-
tions network, when such organisation:

(a) is controlled by that Member State or benefits from

special rights; and

(b) is dominant

the common
in a substantial part of
market in the provision of public telecommunications
networks and public voice telephony services; and

(c) operates a cable TV network established under special
or exclusive right in the same goegraphic area.'

(13)

The distribution of audiovisual programmes intended for
the general public via telecommunications networks, and
the content of such programmes, will continue to be
subject to specific rules adopted by Member States in

(1) COM(1999) 108 final.

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Article 2

Article 3

The Commission shall review the application of this Directive
when it considers that the requirements of this Directive have
been complied with and the objectives pursued attained, and in
any case not later than 31 December 2002.

Member States which consider
sufficient
competition in the provision of local loop infrastructure and
services in their territory shall inform the Commission accord-
ingly.

there

that

is

Such information shall
include a detailed description of the
market structure. The information provided shall be made
available to any interested party on demand, regard being had
to the legitimate interest of undertakings in the protection of
their business secrets.

The Commission shall decide, within a reasonable period after
having heard the comments of these parties, whether the obli-
gation of legal separation may be ended in the Member State
concerned.

Member States shall supply to the Commission, not later than
nine months after this Directive has entered into force, such
information as will allow the Commission to confirm that
Article 1 has been complied with.

Article 4

This Directive shall enter into force on the 20th day following
the European
that of its publiction in the Official
Communities.

Journal of

This Directive is addressed to the Member States.

Article 5

Done at Brussels, 23 June 1999.

For the Commission

Karel VAN MIERT

Member of the Commission