Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions - Fifth report on the implementation of the telecommunications regulatory package
Date: 1999-11-10
Institutions: European Commission
Subjects: consumer protection, harmonisation law, national implementing measure, regulation of telecommunications, single market, telecommunications industry, telecommunications policy, telephone charges, trade licence, universal service

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  10.11.1999 
COM(1999) 537 final 

Communication from the Commission to the 
European Parliament, the Council, the 
Economic and Social Committee and the 
Committee of the Regions 

Fifth  Report on the Implementation  of the 
Telecommunications Regulatory  Package 

INTRODUCTION  AND EXECUTIVE SUMMARY 

This  report  examines  the  state  of  implementation  of  the  current  telecommunications 
regulatory  framework  prior to the Commission review of its operation  and the  introduction 
of proposals to adapt it to market and technological developments. The report 

>  assesses  the  extent  to  which  the  principles  of  the  harmonisation  directives1  have  been 

transposed into national law 

>  analyses the way in which the transposed national rules apply those principles in practice 

>  backs up this assessment with an overview of the current status of the telecommunications 

services markets in the Member States. 

The report concludes by 

> 

identifying  the  major  outstanding  barriers  to  the  achievement  of  a  single  European 
market, and 

>  setting  out  a  number  of  elements  which  will  need  to  be  taken  into  account  in  the 
legislative process  leading to the revised regulatory framework,  the Commission's  vision 
of which is set out in the Communication on the review2. 

The key conclusion  is that, twenty-one  months  after  the introduction  of full  competition, 
the  regulatory  framework  now  in  place  drives  telecommunications  services  markets  in 
the Member  States with  an accelerating  growth  rate, large numbers  of market  entrants 
and falling  tariffs. 

The national  markets  will be worth  around  EUR  161 billion  in  19993, just  under  7%  up on 
1998; the value of mobile  services will have increased  on average by around  16%. There  are 
now more  than  240  operators  actually providing  long  distance  and  international  calls  in 
the Member States, and more than 220 providing local calls; more than  180 operators  offer 
national  and  international  and  375  offer  local  network  services4.  Many  more  licences 
have  been  issued  in  these  market  segments,  indicating  further  increases  in  activity  in  the 
future.  The number  of Internet  hosts per thousand  inhabitants  is estimated  to have  grown 
at an average of 125% across the Union from January  1998 to July 19995. 

Residential  tariffs  over  the  period  1997  to  1999  are  down  in  most  Member  States  for 
international  calls, on average by 40%6; business  tariffs  for similar calls are also down in 

Transposition  of  the  liberalisation  directives  has  been  completed  by  all  Member  States  with  the  exception 
of  Portugal  and  Greece,  which  are  due  to  liberalise  fully  on  1  January  2000  and  31  December  2000 
respectively. 
Communication  on  the  Review  of  the  Regulatory  Framework  for  Electronic  Communications  Services, 
COM(1999)539. 
Voice  telephony,  mobile,  network  and  data  services.  Source:  EITO  (European  Information  Technology 
Observatory),  1999. 
Source: National  Regulatory  Authorities. 
Source: Internet  Software  Consortium. 
Source: Eurodata  Foundation.  Ten minute  calls. 

most Member  States, on average by 25% over the same period. Tariffs  for  10-minute regional 
and long-distance calls have decreased by  13% and 30% respectively. 

Underpinning  these  figures  are effective  licensing, interconnection,  tariff,  numbering  and 
frequency  regimes  in the Member States, supervised by regulatory  authorities  on the basis 
of Community and WTO principles. 

There  remain  important  problems  to  be  resolved,  in  terms  both  of  failures  to  implement 
fully  the  Community  framework  and  of  possible  limitations  in  the  framework  itself.  These 
have  in  some  cases  resulted  in  considerable  barriers  to  the  creation  of  a  single  market  for 
telecoms  services  in Europe. There is in addition  a sense on the part  of some consumers  that 
the benefits  are not always clear. The regulatory package, which evolved over a period  often 
years, has  also  inevitably  been  overtaken  in  some  areas  by  the  rapidity  of  the  technological 
and market change it was designed to promote. The task therefore  is to pinpoint those aspects 
of  the  current  framework  which  remain  to  be  fully  implemented  and  those  on  which  the 
review  of the  regulatory  framework  needs to  focus.  If in  its  input  to  the  Communication  on 
the  review  the  report  concentrates  to  a certain  extent  on present  weaknesses  this  should  not 
obscure the successes that have been achieved. 

The main messages for the review are: 

>  The  comparatively  low  level  of harmonisation  in particular  of the  Community  licensing 

and interconnection regimes represents a barrier to the single market. 

>  The wide divergences in the way in which Community rules are implemented  at national 

level raise further barriers. 

>  The  national  regulatory  authorities  are  close  to  national  markets  and  perform  an 
essential  task  in  assisting  in  achieving  uniform  implementation  of  the  Community 
framework.  Their  role  is  hampered,  however,  by  disparities  in  the  powers  and 
resources  with  which  they  are  equipped,  the  way  in  which  regulatory  tasks  are  shared 
with  other  bodies,  and  differences  in  the  procedures  in  place.  NRAs  need  to  be  more 
active in particular in securing interconnection  agreements. 

>  The  lack  of  a  proper  national  implementation  of  the  regulatory  framework  for  cost 
accounting  in many Member  States seems to be contributing  to extensive price  squeezes 
in particular  between  retail  and  interconnection  tariffs,  and  to  excessive tariffs  for  leased 
lines. 

>  There is currently a lack of competition in the local access market in all Member States, 
although  steps  are  being  taken  to  issue  wireless  local  loop  licences  and  to  use  national 
regulation  to  provide  alternative  ways  of  accessing  the  'last  mile'.  Moreover,  CATV 
networks remain controlled by the incumbent operators in certain Member States. 

> 

In  view  of  concerns  in  the  market  that  universal  service  funding  schemes  constitute  a 
barrier  to  market  entry, there  is a need  for  a rigorous  assessment  of  the real  net  costs  of 
universal  service  provision.  There  is no  evidence  that  voice  telephony  tariffs  applied  by 
the  incumbents  have  actually  been  rebalanced.  Rebalancing  is  necessary  to  avoid  price 
squeezes between  interconnection  charges  and retail  rates and to promote  competition  in 

access  markets  (including  price  unbundling).  Given  the  absence  of —  comparable  —  cost 
accounting  systems,  verification  of  whether  or  not  rebalancing  has  actually  occurred  is 
currently difficult  or impossible for the Commission. 

>  There  are  disparities  in  consumer  protection  across  the Union  due to  differences  in  the 
way  in  which  consumer  interests  are  dealt  with  by  individual  Member  States  and 
differences  in treatment depending on the telecommunications service in question. 

>  Finally, the current  framework  does not explicitly  address issues  such as special  schemes 
for  Internet  access,  or  the  safeguards  to  be  applied  to  avoid  possible  distortions  of 
competition arising from the integration of voice/data and fixed/mobile  services. 

TABLE OF  CONTENTS 

INTRODUCTION  AND EXECUTIVE SUMMARY 

1.  OBJECTIVES AND METHODOLOGY 

STATUS OF TRANSPOSITION OF THE LIBERALISATION  AND HARMONISATION 

2. 
DIRECTIVES 

ANALYSIS OF PRACTICAL APPLICATION  OF THE LIBERALISATION  AND 

3. 
HARMONISATION  DIRECTIVES 

National  regulatory authorities 
Licensing 
Interconnection/special  access 
Universal service and user/consumer protection 
Tariffs/accounting systems 
Numbering 
Frequency 
Rights of way 
Local access competition 

4. 

STATUS OF THE EU TELECOMMUNICATIONS  SERVICES MARKET 

5.  CONCLUSIONS  AND PRINCIPLES FOR CONSIDERATION IN THE 1999 REVIEW 

ANNEX  1 

REGULATORY  FRAMEWORK -  OVERVIEW OF MAIN PROVISIONS 

ANNEX 2 

TRANSPOSITION  OF HARMONISATION  DIRECTIVES 

ANNEX 3 

EFFECTIVE APPLICATION -  ANALYSIS BY MEMBER  STATE 

ANNEX 4 

TELECOMMUNICATIONS  MARKET ANALYSIS 

1 

5 

7 

9 

5 
8 
10 
12 
15 
17 
18 
20 
22 

27 

31 

1. 

OBJECTIVES AND METHODOLOGY 

In  1993 the European  Community  and its Member  States committed themselves, in line with 
the Treaty  and  in  advance  of  agreement  on the global  opening  of markets  under  the GATS7, 
to  the  liberalisation  of the  European  telecommunications  services  sector  on  1 January  1998. 
The necessary  Community  legislation was made up primarily  of a series of directives  having 
as their objective the creation of a single market for telecommunications  services8 in Europe. 

The  move  to  a  liberalised  and  harmonised  Community  market  was  driven  by  a  number  of 
well-documented  phenomena,  in particular the  globalisation  of markets  and rapid  advances 
in technology.  Other events, such as the rapid rise in mobile penetration  rates, the spread of 
the  Internet,  and  the  convergence  of  the  telecommunications,  broadcasting  and 
information  technology  sectors,  were  largely  unforeseen,  at  least  at  the  outset  of  the 
process. Underpinning  the resulting regulatory  framework  was the political  objective,  set out 
in the Treaty  in terms  of the need  to  secure  growth,  employment  and  competitiveness  and 
protect  the  interests  of  consumers,  of  ensuring  a wide  choice  of  providers  and  services, 
innovation,  competitive  prices  and  quality  of  service.  The whole  process  of  liberalisation 
and  harmonisation  has  been  accompanied  by  the  ongoing  enforcement  of  the  competition 
rules laid down in the Treaty9. 

In  view  of  the  importance  of  the  telecommunications  regulatory  package10  to  users, 
consumers,  service  providers, manufacturers  of  equipment  and  the  wider  EU  economy,  and 
the need  to ensure  compliance  with  the  WTO/GATS  agreement,  the Commission  took  steps 
before  the  date  of  full  liberalisation  to  secure  full  implementation,  in  line  with  the  Council 
Resolution  of  21 November  1996". The pillars  of this  monitoring  and  enforcement  exercise 
have  been  the  series  of  reports  to  the  Council  and  European  Parliament  submitted  by  the 
Commission  from  May  199712  and  the  Commission's  use  of  the  Article  22613  infringement 
procedure to enforce  compliance14. Early implementation reports  focused  on the transposition 
into national law of the key elements of the directives; more recently, not least in this Report, 
attention has moved to the effective  application  of nationally transposed rules. 

The  adoption  of  this  Report  meets  the  requirement  in  the  Interconnection,  Licensing, 
amended  Leased  Lines, amended  ONP Framework and amended Voice Telephony  Directives 

General  agreement  on trade  in services, Telecommunications  agreement  in force  5 February  1998. 
The  parallel  liberalisation  and  harmonisation  of  the  provision  of  telecommunications  equipment  is  not 
included  in the scope of this  Communication. 
In particular  Articles  8land  82 (formerly  85 and  86). 
A  full  list  of  the  directives,  decisions  and  recommendations  making  up  the  telecoms  regulatory  package  is 
given  in Annex  2 to the Fourth  Report. 
Council  Resolution  of 21 November  1996 on new policy priorities regarding  the  Information  Society,  OJ C 
376,  12.12.1996. 
First  Report  on  the  Implementation  of  the  Telecommunications  Regulatory  Package,  29 May  1997, 
COM(97) 236;  Second  Report,  8 October  1997, COM(97) 504, Third  Report,  18 February  1998, COM(98) 
80; Fourth  Report,  25 November  1998, COM(98) 594. 
Formerly  Article  169. 
There  are  currently  57 proceedings  running  in  relation  to the  Council  and  European  Parliament  Directives 
adopted  pursuant  to Article  100a  (now  Article  95) and 30 in relation  to the  Commission  Directives  adopted 
pursuant  to Article  90 (now Article  86). 

to report to the Council and European Parliament15 on their functioning.  It also coincides with 
the  launch  of the  Commission's  review  of the current  regulatory  framework  in pursuance  of 
the requirement  in the directives  to  assess any adaptations  necessary  in the light of  technical 
and market  developments. The Communication  on the review,  in looking  forward  to  propose 
principles  for  a  regulatory  framework  for  the  foreseeable  future,  must  be  based  on  an 
overview  of the extent  to which the current  framework  has been  successfully  transposed  and 
applied, the  shortcomings  in implementation  of the EC  framework  at national  level, and  any 
failings  in that  framework. 

The  conclusions  of  the  Report  are  complemented  by  the  messages  flowing  from  the 
consultations  on  the  Convergence16  and  Radio  Spectrum17  Green  Papers  and  the  report  on 
Digital Television in the European Union18. 

The  Commission's  assessment  in this  Report  is based  on  a series  of  meetings  held  between 
June  and  September  1999  with  representative  groupings  and  associations  of  new  entrant 
operators19, pan-European  operators  and groupings20, user  and consumer groups21, incumbent 
operators  and  representatives  of  the  National  Regulatory  Authorities  (NRAs)  and  relevant 
ministries, covering all fifteen  Member States. In addition, detailed market data were received 
from  each of the NRAs. 

The  situation  taken  into  account  in  the  Report  is  that  at  1 October  1999".  Comments 
received  from  Member  States  on  Annex  3  up  to  12  October  have  been  taken  into 
account. 

The  Commission  has  used  in  this  Report  the  methods  of  assessment  of  transposition  and 
effective  application  of nationally  transposed  rules  set  out  in  the Fourth  Report.  As  regards 
transposition  of the directives, the Commission has carried  out  an article-by-article review of 
the key provisions of the main harmonisation directives. The Commission's  assessment of the 
extent  to  which  nationally  transposed  measures  are being  applied  effectively  in  the  Member 
States has been made on the basis of an analysis of compliance with the indicators, set out in 
the Fourth Report, reflecting  the most important principles and requirements of the regulatory 
package. 

The Commission  intends, pending  adoption  of the revised  regulatory  framework,  to  continue 
the  reporting  process  in  order  to  consolidate  the  gains  already  made  and  to  identify  areas 
where rapid initiatives in the form of recommendations or other action may be necessary. 

Article  22  of  the  Interconnection  Directive  97/33/EC  (OJ  L  199, 26.7.1997); Article  23  of the  Licensing 
Directive  97/13/EC (OJ  L  117, 7.5.1997); Article  14 of the Leased Lines Directive  92/44/EEC  and  Article 
8  of  the  Framework  Directive  90/387/EEC,  as  amended  by  Directive  97/51/EC  (OJ  L  295,  29.10.1997); 
Article 31 of the amended Voice Telephony Directive 98/10/EC (OJ L 101,  1.4.1998). 
COM(1999)  108 of 5 March  1999 reporting on the consultations associated with COM(97) 623. 
COM(1999) 538 reporting on the consultations associated with COM(1998) 596. 
COM(1999)540. 
A  list  of  the  operators  represented 
http//www. europa. eu. int/comm/dg4/lawliber. libera. 
EITIRT, ECTEL, Satellite Action Plan Regulatory Working Group, ETNO, EuroISPA. 
INTUG, BEUC. 
The market  data in Annex 4 is that received  up to September  1999; each table refers  to the date of  validity 
of the data used therein. 

is  posted  on  http//www.ispo.cec.be.infosoc/telecompolicy  and 

2. 

STATUS  OF  TRANSPOSITION  OF  THE  LIBERALISATION  AND  HARMONISATION 

DIRECTIVES 

The Third Report  gave an overview of the transposition of all of the directives making up the 
regulatory  package,  and  noted  gaps  in  the  transposition  of  two  important  directives 
(Licensing,  Interconnection)  for  which  the  deadline  for  adoption  of  national  measures  fell 
shortly before  the finalisation of that report. The Fourth Report  focused  on the way in which 
the  principles  in  those  two  directives,  together  with  the  revised  Voice  Telephony  and 
amended  Leased  Lines Directives, had been taken over into national  law, and concluded  that 
the necessary measures to transpose were very largely in place in most Member States. 

The present  Report  now  gives  a consolidated  overview  of the transposition  of the  most 
important  harmonisation  directives,  including those referred  to  in the preceding  paragraph 
and  also  taking  into  account  the  ONP  Framework  Directive,  as  amended  regarding  the 
independence  of  NRAs  and  the  separation  of  the  operational  and  regulatory  functions,  the 
sector-specific  Data  Protection  Directive,  for  which  the  transposition  deadline  was  24 
October  199823,  and  the  Numbering  Directive,  the  deadline  for  which24  was  31  December 
1998. The details of transposition of these directives  are given  in Annex  2. The situation  can 
be summarised  as follows: 

The  ONP  Framework  Directive  90/387/EEC  is  substantially  transposed  by  all  Member 
States.  Its  amendment  by  Directive  97/51 /EC  is  substantially  transposed  into  the  national 
legislation  of  eleven Member  States and partially  transposed  by two  (Luxembourg,  Austria); 
two  Member  States  have  recently  notified  measures  of  transposition  which  are  still  under 
examination by the Commission's services (Greece and Portugal). 

The Leased Lines Directive 92/44/EEC has been substantially transposed by twelve Member 
States.  It  is  partially  transposed  in  two  Member  States  (Belgium  and  Luxembourg).  One 
Member  State has recently  notified  transposition measures which are still under  examination 
by  the  Commission's  services  (Portugal).  The  amendment  of the  Leased  Lines  Directive  by 
Directive 97/51/EC  is substantially transposed  into the national  legislation of eleven  Member 
States and partially transposed by one (Belgium). Two Member  States have recently  notified 
measures  which  are  still  under  examination  by  the  Commission's  services  (Greece  and 
Portugal); one Member State has not notified any transposition measures (Italy). 

The New  Voice  Telephony  Directive  98/10/EC is  substantially  transposed  into the  national 
legislation  of  ten  Member  States  and  partially  in  three  of  them  (Belgium,  Luxembourg  and 
Portugal). One Member State recently notified  measures which are still under examination by 
the  Commission's  services  (Greece).  One  Member  State  has  not  notified  any  transposition 
measures; however,  the Old Voice  Telephony Directive 95/62/EC  is substantially  transposed 
there (Italy). 

With  regard  to  the  Licensing  Directive  97/13/EC  there  is  national  legislation  substantially 
transposing  the  Directive  in  twelve  Member  States.  Two  Member  States  have  partially 

Except  for  Article  5, the deadline  for which  is 24 October  2000. 
Excluding  the Member  States  for  which  extended  deadlines  for full  liberalisation  were  granted. 

transposed  (Belgium  and  Italy)  and  one Member  State has recently  notified  measures  which 
are still under examination by the Commission's services (Greece). 

The  Interconnection  Directive  97/33/EC  has  also  been  substantially  transposed  by  twelve 
Member  States.  Two  Member  States  have  partially  transposed  (Belgium  and  Luxembourg) 
and  one  Member  State has  recently  notified  measures  which  are  still  under  examination  by 
the Commission's  services (Greece). 

The Numbering Directive 98/61/EC, amending the Interconnection  Directive 97/33/EC  with 
regard  to  number  portability  and  carrier  pre-selection,  is  already  substantially  transposed  by 
ten  Member  States  and  partially  transposed  by  three  Member  States  (France,  Italy  and 
Finland).  One  Member  State  has  recently  notified  measures  of  transposition  which  are  still 
under examination by the Commission's  services (Greece). With regard to one Member  State 
a  decision  on  a request  for  deferment  of  the  introduction  of  carrier  pre-selection  is  pending 
(United Kingdom). 

Seven  Member  States  have  substantially  transposed  the  sector-specific  Data  Protection 
Directive  97/66/EC  (Germany,  Spain,  Italy,  Austria,  Portugal,  Finland  and  Sweden).  The 
directive  is partially  transposed by  another  five Member  States (Belgium, Denmark,  France, 
The  Netherlands  and  United  Kingdom).  Three  Member  States  have  not  so  far  notified 
transposition measures (Greece, Ireland and Luxembourg). 

The  Commission  notes  the  improvements  in  transposition  in  particular  with  regard  to 
the  Licensing  Directive  (where  four  more  Member  States  have  substantially  transposed 
following  the  Fourth  Report)  and  the  Interconnection  Directive  (three  Member  States), 
together  with  the  fact  that thirteen  Member  States have  transposed  the Numbering  Directive 
substantially  or  partially  and  eleven  the  Data Protection  Directive.  The  Commission  urges 
those  Member  States  responsible  for  the small  number  of  gaps in transposition  to  take 
the  necessary  measures  rapidly,  in  order  to  secure  legal  certainty  for  market  players 
and  to  complete  the  solid  basis  necessary  for  the  future  evolution  of  the  regulatory 
framework. 

As  regards  the  liberalisation  directives,  Portugal  has  substantially  transposed  Directive 
90/388/EEC  as  amended  by  Directive  96/19/EC,  for  which  it  was  granted  an  additional 
implementation  period  by  Decision  97/310/EC  of  12  February  199725,  and  has  recently 
notified  certain  measures,  which  are  still  under  examination  by  the  Commission's  services. 
As  regards  Directive  1999/64/EC  of  23  June  199926, the  deadline  to  notify  implementation 
measures  has not yet elapsed, but  a number  of Member  States have already  initiated  steps to 
implement  it.  The  Commission  is  following  developments  closely  and  urges  Member 
States  to  promote  the  use of  CATV  networks  to increase  competition  in  the  local  loop, 
which  is the aim of the Directive. 

25  OJ No L  133, 24.5.1997, p.19 
16  OJNoL  175, 10.7.1999, P. 39 

3. 

ANALYSIS  OF  PRACTICAL  APPLICATION  OF  THE  LIBERALISATION  AND 
HARMONISATION DIRECTIVES 

In  order  to  analyse  the  effective  application  of  the  current  regulatory  package,  the  Fourth 
Report  identified  eight  key  regulatory  themes:  national  regulatory  authorities,  licensing, 
interconnection,  universal  service, tariffs,  numbering, frequency, rights of way; in view  of its 
importance in the market, an overview was also given of competition as it is evolving in local 
access.  This  section  builds  on  the  Fourth  Report  to  assess  the  practical  application  of  the 
provisions  of  the  framework  (overview  set  out  in  Annex  1),  grouped  by  theme,  in  the 
Member  States  as  at  1 October  1999. The  Commission's  assessment,  based  on  the  country 
analyses  in  Annex  3,  are  set  out  below;  in  some  cases  these  vary  from  those  in  the  Fourth 
Report  not  because  the  national  framework  has  changed  but  because  the  needs  and 
perceptions of market players have evolved considerably since October 1998. 

National  regulatory  authorities  (NRAs) 

Basis of  assessment 

The  national  regulatory  authorities  are  the  cornerstone  of  the  application  in  the  Member 
States of virtually the entire regulatory package as currently constituted, and will play a major 
part  in  framing  and  applying  the revised  regulatory  framework.  They  also play  an  important 
role in ensuring the consistent  application of the EC regulatory framework through their input 
to the  ONP  and  Licensing  Committees27, their participation  in the High  Level  Committee  of 
National  Administrations  and  Regulatory  Authorities  and,  in  the  case  of  regulatory  bodies 
separate from national ministries, their coordination in the Independent Regulators Group. 

In assessing the criterion  of independence  from operators  and structural separation  of the 
regulatory  and  control  functions,  the  Commission  has  examined  not  only  the  formal 
structures put  in place, including measures to ensure that officials  associated  with exercise of 
the  regulatory  function  are  not  associated  with  the  management  of  the  incumbent,  but  also 
such  factors  as the mechanisms  by  which  decisions  are taken,  their  timeliness, the nature  of 
the decisions reached, and the extent to which personnel  are taken over or seconded  from  the 
incumbent or other operators. 

The  Commission  has  also  examined  not  only whether  NRAs  have  the  necessary  powers  at 
their  disposal,  but  whether  staff  are  sufficiently  well-qualified  to  use  them  effectively  and 
whether  other  resources,  including budgetary,  are sufficient.  Much  also  depends  on the way 
in  which  NRAs  use  their  powers,  as  set  out  in  the  directives,  in  a  proactive  manner,  for 
example  to  stimulate  competitive  markets  and  ensure  the  fair  and  proper  development  of  a 
harmonised  European  telecommunications  market.  A  further  important  factor  is  the  clarity 
with  which  powers  are  assigned  as between  the NRA  and  other  bodies,  including  ministries 
and  the  national  competition  authority,  or  between  the  separate  regulatory  agency  and  the 
ministry  where  the  latter  is also  notified  as NRA; too wide  a dispersal  of regulatory  powers 
can  weaken  implementation.  In  some  cases  the  development  of  a  coherent  regulatory 
approach  to  the market  as regards  for  example the relationship  between  retail  tariffs  and  the 

27  Set  up  respectively  under  Article  9  of  the  Framework  Directive  90/387/EEC,  OJ  L  192,  24.7.1990  and 

Article  14 of the Licensing  Directive  97/13/EC, OJ L  117,  7.5.1997. 

underlying  interconnection  rates may be prejudiced,  or the opinion  of the separate  regulatory 
agency  may  not  be  given  due  consideration  in  the  absence  of  clear  procedures  for 
consultation  or  coordination  between  the  authorities  involved.  In  the  final  analysis,  much 
depends  on  the political  support  or otherwise  that regulators  receive  from  governments;  this 
applies  equally  in  Member  States  where  the  incumbent  is  not,  or  is  no  longer,  State-owned 
but where governments regard the incumbent as the 'national  champion'. 

The  Commission's  overall  assessment  of  the  structure  and  functioning  of  NRAs 
follows: 

is  as 

Given  the  fact  that  some  Member  States  set  up  regulatory  authorities  well  before 
liberalisation  at  EC  level,  there  is  clearly  a  wide  range  of  models  and  experience  as 
between  the  different  Member  States.  Nonetheless,  considerable  progress  has  been 
made  in  those  countries  which  were  late  in  setting  up  NRAs,  and  cooperation  with 
the  Commission  and  national  competition  authorities,  as  well  as  between  NRAs  in 
the different  Member  States, has continued at a very satisfactory  level. 

Independence  from  operators/structural  separation  of regulatory function  from  control of 
the  incumbent: 

In  one  case  the  Minister  remains  the  head  of  the  NRA  as  well  as  representing  the 
State's  interest  in  the  incumbent  (Belgium).  In  one  Member  State,  the  relevant 
Ministry  retains  the  power  to  propose  the  appointment  of  members  of  the  board  of 
the NRA  and,  along with  the Minister  of  Finance, those members  of  the board of  the 
incumbent  representing  the  State's  limited  shareholding  (Portugal);  in  another,  the 
ownership  and  regulatory  functions  reside  in  the  same  Ministry,  although  the 
Constitution  provides  for  the  independence  of  the  NRA  (Sweden).  In  one  Member 
State  (Luxembourg)  the  Government  has  nominated  as chairman  of  the  incumbent  a 
member  of  the staff  of the Ministry  responsible  for  regulation. 

Even  in  cases  where  formal  separation  between  the  incumbent  and  the  regulatory 
function  is  ensured,  new  entrants  would  seek  to  encourage  a  situation  where 
governments  do  not  intervene  to  safeguard  the  interests  of  the  incumbent,  in 
particular  in  cases  where  the  sale  of  the  State's  shareholding  is  in  prospect.  This  is 
especially  the  case  where  regulatory  functions  are  exercised  by  departments  of  those 
Ministries that  continue  to exercise  ownership  functions. 

Powers: 

There  is  a sense  among  new  entrants  in  a number  of  Member  States  that  regulators 
are  not  using  their  full  competences  to  combat  the  use  by  incumbent  operators  of 
their market power  to  delay  access by engaging  in protracted  negotiation  or failing  to 
provide  relevant  information,  or to  abuse procedures  for  that  purpose.  In some cases, 
a  concern  was  expressed  by  certain  new  entrants  that  the  NRA  does  not  make  the 
most  of  its  ability  in  exercising  all  the  powers  assigned  to  it  (Germany,  Spain, 
Sweden,  United  Kingdom).  In  one  Member  State,  the  NRA  is  considered  by  market 
players  to  focus  on  consumer  interests  rather  than  on  the  economic  impact  of  its 
decisions  (The Netherlands). 

10 

In  some  cases  the  NRA  appears  to  have  insufficient  powers  to  reach  binding  decisions 
but  rather  plays  an  advisory  role  (Belgium,  Luxembourg).  In  a  number,  the  market 
would  encourage  the  assignment  of  further  powers  (Belgium,  Denmark,  Germany, 
Greece,  France,  Austria  and  Portugal).  In  one  case  (Italy)  although  in  law  all  the 
powers  have  been  transferred  to  the  NRA,  it  is  reported  that  it  is  not  yet  fully 
operational. 

There  is a view  among  new  entrants  that  the  allocation  of  regulatory  tasks  as  between 
ministries  and  regulatory  agencies  in  certain  Member  States  lacks  clarity,  or  that 
powers  are  too  widely  dispersed  (Spain,  France,  Italy,  Austria).  This  is  clearly 
perceived  as  working  to  the  advantage  of  the  incumbent.  On  the  other  hand  some 
measure  of  coordination  is  required  in  many  Member  States  between  the  NRA  and 
the  national  competition  authorities 
the 
determination  of  undertakings  with  significant  market  power  (SMP).  This  may  be 
in  a  protocol  (The  Netherlands)  or  memorandum  of  understanding 
formalised 
(United  Kingdom).  No  such  formalised  cooperation  appears  to  exist  in  some  Member 
States  (Belgium,  Greece, Spain  and  Austria).  In  other  Member  States, varying  degrees 
of  cooperation  are  provided  for  by  law  (Denmark,  Germany,  France,  Italy,  Portugal 
and  Sweden).  In  the  case  of  Spain,  it  appears  that  there  is  a  de  facto  cooperation 
between  the  NCA  and  the  NRA.  Jurisdictional  overlaps  have  been  reported  in  two 
cases  (Ireland  and  Finland)  and  more  clarity 
their  relationship  would  be 
encouraged  by  market  players  (Luxembourg). 

in  particular 

relating 

(NCA), 

in 

to 

Increased  pro-activity  has  not  always been  favoured  by  the  new  entrants,  especially  in 
those  segments  of  the  market  where  competition  is  viewed  as  performing  well  (The 
Netherlands).  However,  in  some  Member  States  a  lack  of  pro-activity  has  been 
reported  (Belgium,  Greece, Sweden  and  Finland). 

Procedures: 

New  entrants  consider  that  delays  are  experienced  in  reaching  decisions  by  the  NRA 
in  Germany,  Greece, Italy and  Sweden. 

The  effective  enforcement  of  the  decisions  reached  by  the  NRA  could  be  a concern  in 
one  case  (Austria).  A  need  for  further  transparency  in  making  decisions  is  perceived 
by  the  market  in  Italy.  For  some new  entrants,  over-reliance  on  information  provided 
by the  incumbent  is seen as an  issue (Sweden, United  Kingdom). 

In  some  Member  States  the  procedures  for  appealing  against  decisions  by 
the 
regulator  may  create  lengthy  delays  (Denmark,  Greece,  Austria),  or  have  suspensory 
effect  (Ireland).  In  some  cases,  such  review  procedures  are  also  criticised  because  they 
constitute  merely  a  check  on  the  legality  of  the  original  decision  without  reviewing 
the merits  (Ireland,  United  Kingdom). 

Resources: 

A  common  problem  is  the  difficulty  of  recruiting  and  retaining  staff  in  a  market 
where  liberalisation  and  the  rapid  take-off  of  the  market,  including  in  some  cases  the 
market  in  telecoms  equipment,  has  led  to  severe  skills  shortages;  one  NRA  reported 

11 

that  its average retention  of personnel  is six months  at the executive  level.  In  extreme 
cases  the  NRA  is  staffed  partially  by  personnel  on  secondment  from  the  incumbent 
operator, who  sometimes  retain their contractual  link,  including pension rights. 

Operators  reported  difficulties  experienced  by  the  NRAs  in  attracting,  and  in  some 
cases  retaining,  well-qualified  personnel 
in  Belgium,  Denmark,  Ireland,  The 
Netherlands,  Finland,  Sweden  and  the  United  Kingdom,  or  in  obtaining  the 
necessary  resources  (Greece, Italy),  In most  cases the  NRAs  reject this  assessment  and 
emphasise  the quality and integrity of  staff. 

Licensing 

Basis of assessment 

In  making  its  assessment  the  Commission  has  had  regard  to  the  principle  laid  down  in  the 
directives  that  licensing  regimes  should  be  light,  favouring  general  authorisations  over 
individual  licences. 

Conditions  should be published  so as to give the fullest  possible information  to new  entrants 
and  to  enable  the  market  to  function  with  the  greatest  possible  degree  of  transparency. 
Onerous  conditions  going  beyond  those  permitted  under  the  Licensing  Directive  are  not 
acceptable. 

Procedures  should  be  transparent  and  light.  Time  limits  for  the  issue  of  licences  and 
authorisations  should  be  adhered  to  strictly  and  should  not  be  prolonged  by  adherence  to 
bureaucratic  procedures.  Fees  should  be  demonstrably  proportionate  to  the  administrative 
work involved,  and should not be  forfeit  without justification  where the operator  in question 
modifies  the service provided or withdraws from the market. 

Annex 4 sets out data relating inter alia to numbers of licences issued and fees  charged  in the 
different  Member States. 

The  Commission's overall  assessment of licensing regimes is as follows: 

There  are wide  divergences between  the  national  licensing  regimes,  ranging  from  the 
lightest  possible,  where  operators  are  free  to  enter  the  market  without  formality 
(Denmark)  or  are  required  simply  to  register  (The  Netherlands)  or  notify  (Finland, 
Sweden)  their  intention  to  do  so  (except  where  the  use  of  frequency  spectrum  is 
requested), to  the  extremely  heavy, where individual  licences  are the rule and in  some 
cases a government  minister  is required to sign every licence. 

In  the  lightest  systems  the  conditions  for  the  provision  of  networks  or  services  are 
laid  down  in  the  legislation,  providing  the  greatest  possible  transparency  (Denmark, 
Sweden).  In  others,  onerous  conditions  going  far  beyond  the  letter  and  spirit  of  the 
directives  are  laid  down  in  the  licences  themselves,  and  in  some  cases  are  entirely 
confidential  as between  the issuing authority and the operator concerned. At least  one 
regime  involves  the  submission  of  detailed  business  plans  covering  long  periods  into 
the  future  (Belgium).  Member  States  with  light  regimes  report  minimal  problems  in 
administering  them, with  maximum  benefit  to the market and  users/consumers. 

12 

Satellite  operators  in  particular  are  concerned  at  the  wide  divergences  in 
the 
interpretation  in  the  Member  States  of  the  principle  that  the  number  of  licences  may 
be limited  only  to  ensure  the  efficient  use of  spectrum. 

The  Commission's  more  specific  findings  are as  follows: 

Conditions: 

Two  Member  States  impose  licence  conditions  going  beyond  those  set  out  in  the 
Annex  to  the  Licensing  Directive  (Belgium,  France). In  France  the  condition  relating 
to  a contribution  to  research  and  development  is regarded  as an  entry  barrier  by  new 
entrants,  in  particular  small  operators.  Satellite  operators  regretted  the  fact  that  little 
use  is made  of the  one-stop  shopping  possibilities  in  the  Licensing  Directive  and  the S-
PCS  Decision. 

Time  limits: 

Procedures  are  too  lengthy  under  the  licensing  regimes  of  a  number  of  Member 
States, with  complaints  that  deadlines  exceed the  six weeks laid down  in  the  Licensing 
Directive  (Greece,  France  for  networks,  Italy),  although  in  some  cases  that  target  is 
met  notwithstanding  the  non-conformity  of  the  national  regulation  (Belgium). In  the 
case  of  Greece  the  Licensing  Directive  has  recently  been  transposed.  In  Italy  the 
deadlines  for  obtaining  satellite  licences  are  long  and  complex.  That  country  has, 
however,  begun  the  process  for  bringing  its  regulation  into  line with  the  directive.  In 
Germany,  the  licensing  procedure  in  most  cases  exceeds  six  weeks  in  practice,  and 
licences are normally  granted  only within  2 or 3 months. 

Procedures: 

In  the  majority  of  Member  States  the  procedures  for  granting  licences  appear 
transparent,  non  discriminatory  and  accessible, with  operators  praising  in  general  the 
NRAs*  transparent  approach  in  the  process.  Nevertheless  the  problem  remains  of  at 
least  one  ministry  carrying  out  a  second  evaluation  (France)  which,  in  a  certain 
number  of  cases, can  be  a source  of  inconsistent  decisions  between  the  two  regulatory 
authorities  which  share  responsibility  for  issuing  licences.  This  can  also  lead  to 
excessive  delays in  issuing licences or  a lack of transparency  in  those  decisions. 

Licensing  procedures  also  appear  to  be  protracted,  heavy  and  lacking  in  transparency 
in  Italy  (even  if  61  licences  have  now  been  granted),  and  a  clear  set  of  rules  and 
conditions  has  not  been  established  for  general  authorisations.  However,  the  Italian 
authorities  have  started  reviewing  the  licensing  regime  with  a  view  inter  alia  to 
simplifying  the  procedures. 

Fees: 

In  three  countries  (Germany,  France,  Luxembourg)  it  appears  that  fees  and  charges 
may  be higher  than  the  administrative  costs incurred  (even  if  it  should  be pointed  out 
that  there  are  large  numbers  of  operators  in  the  market  in  Germany  and  France). 
Furthermore,  potential  new  entrants  consider  that  their  level  tends  to  foreclose 

13 

market  entry.  In one country  (Luxembourg)  the level of  fees  could be considered  high 
compared  with  the  other  Member  States  in  terms  of  population  and  geographic 
coverage of  the licences. 

Even  if  the  directive allows  for  account  to be taken  of  the  need to  ensure  optimal  use 
of  scarce  resources,  licence  fees  covering  allocation  of  frequencies  appear  very  high  in 
one country  (Portugal). 

Satellite  operators  complain  that  the  level  and  structure  of  fees  vary  dramatically 
from  one Member  State to  another. 

Interconnection/special  access 

Basis of assessment 

The  terms  for  the  provision  of  interconnection,  the  physical  linking  of  (fixed  and  mobile) 
networks  and  services  so as to enable users of one to communicate  with  those  of another,  or 
to  access  services  provided  over  another,  are  of  crucial  importance  to  the  emergence  of  a 
competitive European telecommunications market. 

The  Commission's  assessment  takes  into  account  the problems  faced  by  many  new  entrants 
in  obtaining  interconnection  with  incumbent  operators,  in  particular  as  regards  protracted 
negotiations and lengthy delivery times and including outright refusal  to interconnect. 

The  level  of  tariffs  is  of  particular  importance  in  a  competitive  market,  with  unjustifiably 
high  tariffs  in  certain  Member  States,  as  well  as  relatively  high  interconnection  tariffs 
combined  with  low  end-user tariffs  tending to foreclose  market  entry.  The provision  of non 
discriminatory  tariffs,  irrespective  of  the  purpose  for  which  interconnection  is  required,  is 
important to eliminate distortions of competition. 

law,  approval  of 

Late  production  and,  where  required  by  national 
the  reference 
interconnection  offer  (RIO)  by  the  NRA  is  an  important  factor  in  delaying  new  market 
entry.  RIOs  should  not  set  out  offerings  which  do  not  meet  the  market  needs  of  other 
operators, or which preclude the provision of services already offered  by the originator of the 
RIO, or which bundle services so that new entrants are obliged to pay for services they do not 
wish  to  purchase,  rendering  the  services  they  do  offer  uneconomic.  Moreover,  in  the  event 
that  an  NRA  or  other  national  authorities  approve  or  impose  tariffs  that  may  reinforce  or 
promote anti-competitive behaviour, the Member  States themselves  are potentially  infringing 
the EU competition rules, and may be held liable for this. 

The  imposition  by  incumbent  operators  of  onerous  requirements  relating  to  the  network 
architecture  of  interconnecting  parties  should  not  be  allowed  to  foreclose  market  entry  by 
forcing  new entrants to duplicate capacity unnecessarily. 

The  NRAs  are  given  extensive  competences  under  the  directives  to  supervise  the 
interconnection  market,  including  the power  to  set  ex  ante  conditions,  amend  RIOs,  impose 
tariff  amendments,  intervene  of  their  own  initiative  in  interconnection  disputes,  scrutinise 
interconnection  agreements,  and  supervise cost accounting  and separation.  The NRAs  should 

14 

use these  powers  to  the  full  extent  necessary to  ensure  interconnection  in  the interests  of all 
users. 

Annex 4 sets out data relating inter alia to the number of interconnection  agreements in place, 
the level of tariffs  for call termination, and deviation from best current practice. 

The  Commission's  overall  assessment of interconnection  regimes is as follows: 

The  greatest  single  problem  facing  new  entrants  in  obtaining  interconnection  on  fair 
terms  is  cited  as  being  the  reluctance,  or  lack  of  empowerment,  of  regulators  to 
intervene  in  a  forceful,  timely  and  effective  manner.  As  a  result,  new  entrants  are 
faced  in  many  instances  with  RIOs  that  are  published  late  or  which  contain 
unsatisfactory  offerings,  delays  in  negotiating  terms  and  unacceptable  delivery  times. 
Many  interconnection  agreements  contain  asymmetric  conditions  in  favour  of  the 
incumbent  relating,  for  example,  to  penalties.  A  further  major  problem  is  that 
supervision  by  the  NRAs  of  cost-accounting  systems  for  interconnection  is  in  many 
cases  not  adequate,  in  terms  either  of  the  regulation  or  procedures  in  place  or  the 
wide  variation  in  tariffs  charged  throughout  the  single  market.  As  a  result  the  cost-
orientation  of  the  interconnection  and  retail  tariffs  of  SMP  operators  cannot  be 
verified.  In  particular,  price  squeezes  resulting  from  high  interconnection  tariffs  and 
low  end-user  tariffs  have the  effect  in  a number  of Member  States  of  foreclosing  entry 
in  various  market  segments. 

Intervention  by  NRAs: 

In  some Member  States where  the problem  of  obtaining  interconnection  on  fair  terms 
has  been  raised  in  the  past  (Denmark,  Italy,  Portugal),  the  situation  has  improved  in 
the  course  of  the  year,  but  the  lack  of  pro-activity  or  authority  by  the  regulator  with 
regard  to  interconnection  conditions  remains  a significant  concern  in Belgium,  and  to 
a  lesser  extent  in  Finland.  Procedural  delays  in  finalising  the  publication  of  an 
effective  RIO,  especially  as  a  consequence  of  judicial  reviews  initiated  by 
the 
incumbent  operators,  are  also  an  objective  impediment  to  the  liberalisation  pace. 
Only  in  very  few  Member  States  (Sweden,  United  Kingdom)  can  it  be  said  that  the 
Reference  Interconnection  Offer  and  the  interconnection  facilities  are  consistently 
offered  by  the  incumbents  on  a timely  basis  and  meet  the  reasonable  expectations  of 
new  entrants. 

The  publication  of  interconnection  agreements  is  intended  to  facilitate  access  to 
information;  in  practice  incumbents  often  invoke  confidentiality  clauses  or  the 
protection  of  business  secrets before  the NRA.  Additional  difficulties  may  arise  where 
the  incumbent  requires  expensive  and  lengthy  pre-tests,  or  may  impose  heavy  penalty 
clauses  in  the  arrangements  negotiated. 

Technical  conditions: 

The  technical  conditions  for  interconnection,  including  the  provision  of  adequate 
capacity  and  the  points  of  interconnection  (Pols)  available  or  mandated,  have  been 
reported  by  new  entrants  as  a  substantial  source  of  practical  difficulties,  cost  and 
delay.  It  is, moreover,  often  difficult  for  new  entrants  to  obtain  accurate  information 

15 

from  the  incumbents  concerning  the  location  of  switches  and  their  capabilities,  and 
about  the  quality  of  service  which  they  may  rely  upon.  The  timely  availability  of 
infrastructure  capacity,  in  terms  of  leased  lines  or  convenient  Pols,  is  reported  to  be 
problematic  in  Belgium,  Germany,  Greece,  Ireland,  The  Netherlands,  Austria,  and 
Finland. 

National  regulatory  regimes,  or  decisions  by  the  regulator,  sometimes  appear  to 
impose  disproportionate  obligations  on  interconnecting  parties  with  regard  to  the 
number  of  points  of  interconnection  they  are  required  to  provide.  A  solution  to  this 
problem  has  however  started  to  emerge  in  Germany.  In  Belgium  and  Spain,  where 
licensing  of  network  operators  is linked  to  infrastructure  roll-out  conditions,  there  is 
a  potential  for  the  NRA  to  impose  disproportionate  requirements  with  regard  to  the 
location  and  number  of  Pols  new  entrants  must  provide.  The  same  Member  States 
limit  the  right  of  new  entrants  to  obtain  double  tandem  interconnection,  with  the 
risks  of 
in 
objective  of  encouraging 
overloading  the  incumbent  network  from  an  interconnection  point  at  local  level 
which  was not  designed  to  absorb  nationwide  traffic.  Although  these  concerns  are  not 
in  contradiction  with  specific  provisions  of  the  EC  regulatory  framework,  they  raise 
the  issue  of  the  proportionality  of  the  requirements  which  may  be  laid  down  as 
against  the  distortion  of  competition  they  may  provoke. 

infrastructure  and 

investment 

limiting 

Direct  access to space segment: 

In  most  Member  States,  direct  access to  EUTELSAT  and  INTELSAT  space  segment  is 
still not  permitted  by  the  respective  Conventions.  The  process  of privatisation  of  both 
organisations,  to  be  completed  by  the  end  of  2001,  should  however  provide  a 
definitive  solution  to  the  problem  of  lack  of  multiple  access.  In  the  meanwhile,  the 
majority  of  Member  States  have  been  addressing  the  issue  by  means  of  side 
agreements  permitting  direct  access  in  their  countries.  These  agreements  involve 
eight  Member  States  (Belgium,  Denmark,  Germany,  France,  The  Netherlands, 
Austria,  Sweden  and  United  Kingdom)  in  the  case of EUTELSAT  and  eleven  Member 
States  (Denmark,  Germany,  Spain,  France,  Ireland,  The  Netherlands,  Austria, 
Portugal,  Finland,  Sweden  and  United  Kingdom)  in  the  case  of  INTELSAT. 
However,  representatives  of  the  satellite industry  reported  that  in  most  cases it  is still 
necessary  to  purchase  satellite  capacity  via  the  local  signatory,  with  fees  to  be  paid  to 
the  signatory  varying  between  approximately  5 to  20% (for  INTELSAT)  and  5 to  10% 
(for  EUTELSAT)  of the  space segment  cost. 

Universal  service  and  user/consumer 

protection 

Basis of assessment 

The  interests  of  users  and  consumers  are  at  the  heart  of  the  liberalisation  and  single  market 
process  in  that  the  fundamental  objective  of the EC regulatory  package  is to  secure  a choice  of 
operators  and  services,  and  lower  tariffs.  The  universal  service  requirement  exists  in  the  EU 
framework  to allow Member States to ensure that a minimum set of services, of specified  quality 
and an affordable  price, are made available to all users. 

16 

the  Commission  has  examined 

As  far  as  the  sector-specific  regulation  relating  to  universal  service  and  users/consumers  is 
concerned, 
funding 
mechanisms  which  currently  exist,  the  role  of  NRAs,  which  once  again  bear  a  large 
to 
in  relation 
responsibility  for  applying 
users/consumers, and the main practical problems facing  new entrants, users and consumers. 

in  particular  the  universal  service 

the  framework 

the  concepts 

laid  down 

in 

The  Commission's  overall  assessment of universal  service and  user/consumer  protection  is 
as follows: 

Universal  service  funding: 

The provision  of universal  service does not  appear  to be  creating  an undue burden  on  the 
designated  operators  in  the Member  States. This  is evidenced  by  the  fact  that,  while  nine 
Member  States  (Belgium,  Denmark,  Germany,  Spain,  France,  Italy,  Netherlands, 
Austria  and  Portugal)  have  introduced  legal  provisions  for  a  universal  service  funding 
mechanism,  only two  of these  (France, Italy) have been  put  into  operation.  Furthermore, 
only  in  France  has this  actually  resulted  in payment  transfers  between  operators. 

New  entrants  in  those  countries  where  a  funding  mechanism  has  been  set  up,  or  where 
the  prospect  of  such  a  fund  exists,  regard  funding  as  a  supplementary  tax  on  revenues 
and  therefore  a  barrier  to  entry,  as  well  as being  bureaucratic  and  likely  to  distort  the 
market.  In  France,  the  level  of  the  costs  which  are  to  be  recouped  under  the  funding 
mechanism,  and  the  method  of  calculating  them,  are  regarded  by  new  entrants  as 
creating  distortions  in  the  market.  This  could  also  be  the  case  in  Belgium.  The 
uncertainty  about  future  liabilities,  and  the  fact  that  the  funding  mechanism  may  be 
triggered  in  a  number  of  Member  States  once  certain  market  conditions  are  fulfilled, 
undermines  the  business  planning  and  financial  stability  of  new  entrants. 

New  entrants  consider  that  it  is  for  governments  to  fund  social  obligations  out  of 
general  taxation,  as  is  the  norm  in  other  economic  sectors.  Moreover,  in  some  Member 
States  or  geographical  areas  of  Member  States,  competitive  mobile  markets  are  moving 
towards  providing  access  at  costs  that  are  comparable  to,  or  even  lower  than,  the  fixed 
universal  service. 

In  most  Member  States, there  is little  evidence that  voice telephony  tariffs  applied  by  the 
incumbents  have  actually  been  rebalanced,  in  particular  when  looking  at  monthly  rental 
fees  charged  by  incumbents,  and  that  appropriate  cost-accounting  systems  are  in  place  to 
verify  this.  Where  tariffs  are  fully  re-balanced,  affordability  of  universal  service  can 
usually  be achieved  by  low usage  schemes. 

Consumers/users 

The  greatest  problems  affecting  consumers  appear  to  be  the  lack  of  transparency  in 
tariffs  and  in  service  information,  and  the  need to  establish  efficient  and  rapid  complaint 
handling  and  redress  mechanisms.  A  number  of  Member  States  are  now  creating 
mechanisms  for  dealing  with  problems  which  consumers  experience,  particularly  in 
relation  to  contracts  and  quality  of  service.  However,  there  is  very  little  systematic 
monitoring  of  quality  of  service  indicators  by  the  NRAs,  and  this  in  turn  makes  it 
harder  to  monitor  the  effective  achievement  of  universal  access  and  affordability.  It  is 

17 

clear  that  the  regular  publication  in  the  Member  States  of  independently  verified 
indicators  would,  in  itself,  improve both  competition  and  consumer  choice. 

A  special  problem  is the  absence  of  transparency  in  the  tariff  offerings  of  new  entrants, 
who  regularly  modify  both  tariffs  and  the  structure  of  offerings,  which  differ  widely 
from  one  operator  to  the  other,  thus  making  comparisons  difficult  for  consumers.  New 
entrants  defend  their  behaviour  by pointing  out  that  they  have  on  the  one  hand  to  react 
to  changes  in  the  incumbents'  offerings,  and  on  the  other  to  the  fact  that  they  do  not 
have  the  market  profile  or  publicity  budgets  of  the  incumbents.  In  addition,  contract 
terms  can  sometimes  include  unfair  clauses,  which  are  incompatible  with  horizontal 
Community  legislation  (e.g.  clauses  that  oblige  consumers  to  stay  with  an  operator  for  a 
minimum  fixed  time, which  contravene  the  Unfair  Contract  Terms  Directive).  A  further 
major  difficulty  for  consumers  is  billing,  which  accounts  for  the  majority  of  complaints 
to  regulators. 

Consumers  are also concerned  that  the  existing  competition  in  national  and  local  services 
in  many  Member  States  extends  only  to  business  and  not  residential  customers.  The  lack 
of effective  competition  in the  local loop targeted  to  residential  users  is having  a  negative 
impact  on  the  level of fixed  charges  and  local call charges. 

Another  potential  problem  for  consumers  may  arise  with  the  analogue  phase-out  in  the 
900  MHz  band  driven  by  the  extension  of  GSM.  Consumers  in  the  mobile  market  may 
be  faced  with  the  prospect  of  their  analogue  handsets  becoming  obsolete.  Experience  in 
some  Member  States  shows,  however,  that  operators  have  found  market-based  solutions 
that  do  not  disadvantage  consumers. 

From  a  user  perspective,  there  are very  significant  concerns  about  the  effects  of  the  cost 
of  leased  lines  in  Europe,  including  cross-border  leased  lines.  The  failure  both  of 
competition  and  of  regulators  to  bring  down  what  are perceived  to  be  patently  non-cost 
oriented  tariffs  works  to  the  detriment  of  the  provision  of  Internet  and  other  services  in 
Europe.  This  in  turn  is  to  the  detriment  of  user  access  and  choice,  in  particular  with 
respect  to  news-gathering  and  market  data  services. 

112 

The  112  European  emergency  number  is available  throughout  the  Union28,  although  in 
many  Member  States  a response  is given  only  in  the  language  of  the  country  or  region  in 
which  the  call  is  made.  A  barrier  to  free  movement  resides  in  the  fact  that  although 
consumers  in  most  Member  States  are  aware  that  they  can  use  the  number  in  their  own 
country,  many  of  them  are  not  informed  that  they  can  also  use  it  when  visiting  other 
Member  States. 

With the exception  of the incumbent  in Greece. 

18 

Tariffs/accounting 

systems 

Basis of assessment 

The Commission has examined whether restrictions remain on tariff rebalancing, apart from 
the measures  permitted  in the context  of universal  service provision.  PSTN  (public  switched 
telephony network), leased  line and  interconnection  tariffs,  where  offered  by  SMP operators, 
should  be  cost  oriented,  with  suitable  cost-accounting  systems  in  place,  the  methodology 
verified,  information  on  cost-accounting  systems  published,  and  compliance  with  the  cost 
accounting system verified  by NRAs or other competent independent bodies. 

Annex 4 sets out data inter alia on tariffs  for leased lines, interconnection  and PSTN. 

The  Commission's  overall  assessment of the application  of tariff principles  is as follows: 

Tariff  rebalancing: 

Liberalisation  has produced  significant  tariff  reductions  leading  to  convergence  of  call 
charges  towards  actual  cost.  This  results  from  the  fact  that,  in  the  long-distance  and 
international  voice  telephony  markets,  competing  operators  have  been  able  to 
undercut  the  incumbents'  tariffs,  which  were  characterised  by  artificially  high  prices 
in  order  to  cross-subsidise  their  regulated  below-cost  charges  for  access and local  calls. 
Data  show  that  international  tariffs  have decreased over the period from  1997 to  1999, 
to  the  benefit  of  both  residential  and business  users,  by  40% and 25% respectively.  In 
general  terms,  most  Member  States  claim  that  tariffs  have  been  rebalanced  and 
consider  that  the  process  of  progressive  adjustment  of  tariffs  toward  costs  has  been 
completed. 

The  Member  States  which  still  benefit  from  additional  periods  to  implement  full 
competition  (Greece  and  Portugal)  were  expressly  granted  such  periods  by  the 
Commission  to  allow  for  the  necessary  structural  adjustments.  Both  countries 
consider  that  tariff  rebalancing  will  be  concluded  by  the  introduction  of  competition 
in  the  voice  telephony  market,  although  a detailed  timetable  has  not  been  laid  down 
beforehand. 

With  regard to the countries where the market was opened to  full  competition  in  1998 
or  earlier,  in  several  cases  market  operators  have  expressed  doubts  as  to  whether  the 
tariff  rebalancing  process has actually been completed.  In most Member  States it  is,  in 
fact,  not  possible  to  determine  whether  subscriber  tariffs  are  in  compliance  with  the 
principle  of  cost-orientation,  or  to  demonstrate  that  tariffs  for  local  services  are  at  a 
level  at which  they  could  be provided by  new  entrants; the  same  could  also be  argued 
with  regard  to  the  price  of  line  rental  when  compared  to  the  actual  costing  of  the 
incumbent.  Nevertheless,  at present  no  Access  Deficit  Scheme  is  implemented  in  any 
Member  State. The  investigation  in  the local  loop area which  the  Commission  opened 
in July  1999  should  enable  the  Commission  to  assess the  actual  level  of  rebalancing  of 
tariffs  achieved in  the Member  States, based on  the  incumbents' accounting  data.  It  is 
essential  that  tariff  rebalancing  is  fully  completed  as,  in  particular,  tariffs  kept  at  too 
low  a level  in  the  local  market  act  as a disincentive  to  new  entrants  and  do  not  allow 
them to find  a reasonable profit  margin between the retail  tariff  of  the  incumbent  and 

19 

the  corresponding  interconnection  charges,  with  resulting  price  squeeze  effects  or 
disincentives  to  investment  in  alternative  local loop  infrastructure. 

Lack  of  clarity  in  the  control  of  end-user  tariffs  by  the  NRA  is  reported  in  two 
countries  (France,  Luxembourg)  and  in  some  countries  tariff  transparency  appears  to 
be  lacking  (France), with  particular  regard  to  discounts  offered  to  large  business  users 
(in particular  Denmark,  Italy,  Luxembourg,  Austria). 

With  the  aim  of  maintaining  the  affordability  of  services  or  controlling  prices,  a 
number  of  Member  States  have  decided  to  introduce  price  cap  mechanisms  until 
competition  can  provide  effective  price  control  over  the  incumbent's  retail  tariffs. 
However,  in  some Member  States  price caps were  introduced  before  the  adjustment  of 
tariffs  to  costs had  been  completed. 

Cost  accounting: 

(voice 

telephony, 

In  general  terms,  cost  accounting  remains  a  problematic  issue  in  a  large  number  of 
Member  States.  There  is  in  fact  little  evidence  in  most  of  them  that  cost  accounting 
principles  are  correctly  applied.  In  several  countries  the  NRA  has  not  yet  approved 
the  cost  accounting  system  of  the  incumbent  (Belgium,  Germany,  Greece,  Spain, 
Ireland,  Luxembourg,  Austria,  Portugal)  and  therefore 
it  cannot  be  ascertained 
whether  a  suitable  cost-accounting  system  is  in  place  for  costing  the  services  in 
question 
etc.).  Significant 
improvement  has  taken  place  in  Greece  since  the  Fourth  Report,  where  a  cost-
accounting  system  for  leased  lines  has  been  approved  for  the  first  time.  A  number  of 
Member  States  are  said  to  be  working  actively  on  their  systems,  but  the  lack  of 
progress  causes  a  serious  gap  in  verification  of  the  effective  implementation  of  the 
regulatory  framework.  In  several  Member  States,  the  cost  accounting  system  of  the 
incumbent  is  reported  to  lack  transparency  (Germany,  Spain,  Austria,  Finland, 
Sweden)  in  particular  for  providing  cost  data  regarding  specific  access  elements 
(Belgium).  Accounting  separation  is  not  sufficiently  strict  and  is  a  source  of  general 
concern,  as  is  the  related  risk  of  cross-subsidisation  between  the  different  operating 
arms  of the  former  monopolist. 

interconnection, 

leased 

lines, 

Leased  lines: 

There  have  in  the  past  been  great  concerns  on  the  part  of  users  regarding  excessive 
pricing  of  leased  lines,  including  international  leased  lines;  the  latter  constitutes  a 
barrier  to  the  emergence  of  a  single  market  for  telecommunications  services. There  is 
evidence,  however,  that  competition  is now  bringing  tariffs  down  for  certain  services. 
There  are  problems  with  regard  to  the  transparency  of  leased  line  tariffs  (Belgium  as 
regards  discounts,  Italy,  Luxembourg),  the  pricing  methodology  (Finland),  and  the 
conditions  granted 
(Belgium,  France, 
Luxembourg).  In  a  large  number  of  countries  there  are  concerns  in  relation  to  the 
correct  application  of  the  principle  of  cost-orientation  for 
leased  lines,  as  also 
evidenced  by  market  data  (Belgium,  Greece,  Spain,  France,  Germany,  Ireland,  Italy, 
for 
Luxembourg,  Austria,  Portugal;  and  Finland,  Sweden,  United  Kingdom 
international  leased  lines). In  Greece  this  refers  to  the  situation  before  the  adoption  of 
the  new  cost  accounting  system  for  leased  lines.  In  both  Sweden  and  the  United 

large  customers  by 

incumbent 

the 

to 

20 

Kingdom  concerns  have  been  reported  with  regard to  other  particular  types  of  leased 
lines  (digital  X-linc  and  'last  mile'  respectively)  and  the  respective  regulators  are 
looking  into  the  issue.  In  a few  countries  there  are  still  problems  in  obtaining  leased 
lines,  and  delays  are  reported  which  could  also  be  due  to  scarcity  problems  (Belgium, 
The  Netherlands).  The  investigation  relating  to  the  provision  of  leased  lines  that  the 
Commission  opened in July  1999 should enable the  Commission  to  assess whether  the 
situation  observed derives from  anti-competitive  practices. 

Numbering 

Basis of assessment 

The  Commission  has  examined  whether  numbering  plans  have  been  published,  whether 
effective  management  of  the  plans  is  separated  from  the  incumbent  operator,  and  whether 
mobile operators in particular have sufficient  numbers made available to them. 

As  regards  number  portability  and  carrier  pre-selection,  the  Commission  has  examined  the 
scope  of the services  Member  States have put,  or are planning  to put,  into operation  and  the 
timing of the completion of their obligations under the Numbering Directive29. 

The Commission's overall  assessment in relation to numbering is as follows: 

There  are  concerns  on  the  part  of  virtually  all  market  players  regarding  the 
introduction  of  number  portability  and  carrier  pre-selection.  The  solutions  adopted 
for  the  introduction  of  both  services  involve  administrative  arrangements  and 
network  reconfigurations  of  varying  degrees  of  complexity,  that  are  difficult  to 
manage.  The  costs  involved  have  in  some  cases  proved  to  be  relatively  high,  and 
definitive  decisions  have  not  yet  been taken  in  all Member  States  as to  how  the  costs 
are  to  be  apportioned  as  between  the  operators  involved  and  the  end-customer. 
Furthermore,  some  operators  have  claimed  that  the  introduction  of  these  services  at 
1 January  2000  has  been  complicated  by  the  risks  associated  with  that  date  for 
networks  and  IT  installations.  The  Commission  is  however  encouraged  by  the  fact 
that  these  services  are already  in place in  a number  of Member  States and that  others 
have indicated that they  are on target for the prescribed date. 

Number  portability: 

Operator  number  portability  is  applied  ahead  of  the  deadline  of  1 January  200030  in 
seven Member  States: Germany,  France, Netherlands  (geographic  and  non-geographic 
for  fixed  and  mobile  operators),  Austria  (within  a  geographical  area  by  call 
forwarding),  Finland  (within  a  numbering  area  and  for  nation-wide  numbers), 
Sweden  (geographic  and some  non-geographic  numbers)  and the United  Kingdom.  In 
Denmark,  number  portability  within  the  same  geographical  area  was  due  to  be 
introduced by  15 October  1999. 

Directive  98/61/EC  amending  Directive  97/33/EC  with  regard  to  operator  number  portability  and  carrier 
pre-selection, OJ L 286, 3.10.1998. 
Deadline  in  the  case  of  derogation  countries  is not  later  than  two  years  following  the  introduction  of  full 
liberalisation. 

21 

Carrier  preselection: 

Four  Member  States  have  introduced  carrier  pre-selection ahead  of  the  1  January 
200032  deadline:  Denmark  (since  1 January  1999),  Germany  (since  1 January  1998), 
Finland (for  long  distance calls since  1 January  1994, for  international  calls from  fixed 
networks  since  30  September  1998  and  for  international  calls  from  mobile  networks 
since  1 January  1999)  and  Sweden  (since  September  1999).  The  United  Kingdom  has 
its  obligations  under  the  directive  as  regards  the 
requested  a  deferment  of 
introduction  of  carrier pre-selection. 

Numbering  plans: 

New  numbering  plans  have  been  adopted  in  all Member  States  except  Greece.  Their 
management  falls  within  the competences  of the NRA  in all Member States. 

Frequency 

Basis of assessment 

The Commission  has examined  under this heading  in particular whether use of the 900  MHz 
band  for  analogue  mobile  services  is  being  phased  out  in  accordance  with  commercial 
demand  for  GSM  (digital)  services;  whether  all  frequencies  have  been  allocated  for  GSM, 
paging  and  cordless  telephony  services;  whether  licences  are  issued  in  all  cases  where 
frequency 
transparent,  non 
discriminatory and  efficient. 

is  available;  and  whether  assignment  procedures  are 

The  Commission's overall  assessment in relation to frequency is as follows: 

There  are  very  few  complaints  or  concerns  relating  to  frequency  management  in  the 
Member  States  in  the  context  of  the  GSM,  DECT  and  ERMES  Directives.  Many 
Member  States  are  currently  in  the  process  of  issuing  licences  for  third  generation 
mobile  and  for  wireless  local  loop  applications,  and  more  specific  comments  are  set 
out  below.  Several  ministries  and regulators drew attention  during  the  preparation  of 
the  Report  to  the  fact  that  frequency  auctions  can  represent  a hindrance  to  the  roll 
out  of  infrastructure  and  will  tend  to  lead  to  higher  end-customer  tariffs,  leading  in 
turn  to  slower  growth  and  a  disbenefit  to  the  wider  economy.  Others  passed  the 
strong  message  that  mechanisms  for  placing  value  on  spectrum,  including  auctions, 
represent  an efficient  tool  for  managing  spectrum. 

Phase-out of analogue: 

In  the  great  majority  of  Member  States  there  is a time  limit  in  place  for  the  phasing 
out  of  the  analogue  system  operating  in  the  frequency  bands  reserved  for  GSM.  In 
some  cases  this  time  limit  seems  to  be  longer  than  would  correspond  to  commercial 
demand  (Denmark,  Italy,  Austria,  Finland,  Sweden,  although  in  the  latter  two  cases 
at least  the  incumbent  has  committed  to  phase out  by  end  2000).  However,  phase-out 

22 

is being  brought  forward  in  a  number  of  Member  States  from  the  dates  specified  in 
the  Frequency  Report31. 

Frequency  management: 

There  is  in  principle  no  lack  of  frequency  reported  in  Belgium,  Denmark,  Greece, 
Spain,  France,  The  Netherlands,  Austria,  Portugal,  Finland,  Sweden,  and  the  United 
Kingdom.  Frequency  plans  exist  in  most  Member  States  (Belgium,  Denmark,  Spain, 
France,  Italy,  The  Netherlands,  Austria,  Finland,  Sweden,  United  Kingdom).  In  the 
other  Member  States  (Germany,  Greece, Luxembourg)  there  is strong  demand  for  the 
establishment  of  a  frequency  allocation  plan  in  order  to  ensure  transparent,  non 
discriminatory  and  efficient  management  of  the  spectrum.  Spectrum  management  is 
not  efficient  in  relation  to  the  scarcity  of  this  resource  and  the  rapidly  expanding 
demand  for  mobile  systems in  Italy. 

Satellite  operators  expressed  concern  at  the  wide variations  between  Member  States  in 
the way  in  which  spectrum  is managed,  allocated  and  assigned32. 

The  necessary  bandwidths  have  been  reserved  and  allocated  to  GSM  and  DECT 
according  to  the  relevant  directives  in  all  Member  States.  Nevertheless  in  some 
Member  States  transparency  is  still  lacking  (Italy,  Luxembourg).  All  Member  States 
have  issued  at  least two  licences for  GSM  900 and  at  least  one for  DCS-1800. 

Concerns  as  regards  the  monitoring  of  spectrum  exists  in  one  country  (Greece)  and 
can be considered  as a major  barrier  to  market  operations. 

Issuing  of licences for  third  generation  and  wireless local loop: 

Only  Finland  has  so far  granted  licences  for  third  generation  mobile  networks  (March 
1999). Licences  are  expected  to  be  granted  in  Denmark  and  The  Netherlands  in  2000, 
and  licensing  is  planned  to  start  in  Sweden  in  2000.  In  the  United  Kingdom,  third 
generation  mobile  services are to  be offered  in 2002. Belgium,  Spain,  France,  Italy  and 
Austria  have  launched  public  consultations  on  the  introduction  of  third  generation 
systems. 

Most  Member  States  except  Greece,  Italy,  and  Luxembourg  have  initiated  procedures 
to  allocate  frequencies  for  wireless  local  loop,  or  experimental  licences  (Belgium, 
France,  Sweden). In  Austria  no  specific  licence is  required. 

31  COM(1998) 559. 

Concern  was  voiced  in  particular  that  the  current  level  of  harmonisation  achieved  by  means  of  CEPT 
decisions  is  insufficient:  for  instance,  only  10  Member  States  have  adopted  CEPT/ERC/DEC  (97)03  on 
spectrum  use  for  S-PCS;  in  addition  only  five  Member  States  have  adopted  CEPT/ERC/DEC  (97)07  on 
spectrum use for UMTS. 

23 

Rights  of way 

Basis of assessment 

The  Commission  has  examined  whether problems  have  arisen  in practice  in obtaining  rights 
of  way  across  public  and  private  land,  whether  there  is  discrimination  between  operators, 
whether  disputes have  arisen  in connection  with  facility  sharing, and whether problems  have 
arisen in connection with the landing of undersea cables and the associated backhaul. 

The  Commission's 
sharing/undersea  cables is as follows: 

overall  assessment 

in 

relation 

to 

rights  of 

way/facility 

There  is  no  uniform  approach  to  the  question  of  rights  of  way  given  that  in  most 
Member  States  the  relevant  competences  are  in  the  hands  of  local  or  regional 
authorities  rather  than  central  government.  Other  areas  of  law  may  also be  involved, 
such  as  planning  and  environmental  law  and  building  regulations,  with  complex 
historical  precedents also playing a role. 

Colocation  in  ducts, buildings,  and  masts/antennae  represents  a real problem  for  new 
entrants  and  incumbents  alike,  which  are  complicated  by  aesthetic,  environmental, 
physical  (e.g.  lack  of  high  buildings)  and  other  factors,  including  building  and  town-
planning  regulation. 

There  is concern  in  a  number  of  Member  States  that  the  incumbent  operator  uses  its 
power  to  delay  negotiation  where  there  are  no  alternative  infrastructures.  There  are 
also  cases  where  ownership  by  the  incumbent  of  cabling  in  office  buildings  or 
apartment  blocks creates  access bottlenecks. 

Incumbent  operators  on  the  other  hand  are  wary  of  allowing  competitors  access  to 
facilities  of  this  nature  because  of  the  perceived  risks  to  cables  and  installations.  The 
regulators  in  some Member  States  have been  active  in  promoting  creative  solutions  in 
particular  in  the  mobile  sector  involving  the  shared  use of  masts  and  antennae  owned 
by public  authorities. 

Rights  of  way: 

All  Member  States  have  established  a  regulatory  framework  providing  for  rights  of 
way  on  a non-discriminatory  basis. In  one  country  (Luxembourg)  it  is currently  being 
examined  whether,  in  practice,  the  incumbent  is  granted  more  favourable  rights  of 
way  than  new  entrants. 

The  granting  of  public  rights  of  way  is  not  made  subject  to  payment  in  six  Member 
States  (Denmark,  Germany,  Luxembourg,  Austria,  Finland,  United  Kingdom).  In 
two  countries  (France,  Italy)  the  amount  of  the  payment  may  vary  substantially  due 
to  the  fact  that  it  is set at  local  level. In  a further  country  (Belgium), while  the  federal 
telecommunications  law  provides  for  free  rights  of  way  over  public  property,  certain 
local  authorities  claim  that  this  issue  falls  within  their  competence.  As  a  result, 
pending  a  legal  solution,  new  entrants  do  not  pay  for  rights  of  way.  In  one  further 

24 

country  (The  Netherlands)  it  is  not  always  clear  whether  an  additional  local  fee  will 
be charged  for  the placing  of  antennae. 

In  three  countries  (Denmark,  Germany,  The  Netherlands)  operators  can  start  works 
without  significant  delay,  i.e., between  six weeks  and  three  months,  and  no  problems 
have  been  reported  in  two  further  countries  (Austria,  Finland).  In  four  countries 
(Greece,  France,  Italy,  Luxembourg)  the  delays  are  considered  to  be  long,  reportedly 
due  partially  to  co-digging  rules  and  to  rules  against  reopening  of  the  public  way 
(Italy,  Luxembourg),  or  due  to  extensive  use  of  powers  by  local  authorities  as  regards 
environmental  concerns  and  encouragement  of  colocation  (France,  Italy)  and,  in 
addition,  administrative  difficulties,  such  as  the  involvement  of  a  number  of  public 
services  and  the  difficulties  experienced  in  co-ordinating  them  (Greece,  Italy).  In  one 
country  (Spain)  the  delays  may  vary  substantially  but  no  detailed  data  could  be 
collected  as  to  the  time  limits  applied,  nor  was  this  possible  as  regards  the  remaining 
five  countries  (Belgium,  Ireland,  Portugal,  Sweden,  United  Kingdom). 

In  thirteen  countries  (Belgium,  Denmark,  Germany,  Greece,  Spain,  France,  Ireland, 
Italy,  The  Netherlands,  Portugal,  Finland,  Sweden, United  Kingdom)  there  is  a  clear 
framework  establishing  the  respective  competences  for  granting  rights  of  way. 
However,  in  one  of those  countries  (Belgium)  although  the  legislation  is clear,  certain 
local  authorities  consider  that  they  have  competence  beyond  that  of  the  federal 
Government  and  this  is  leading  to  problems  in  practice.  In  a  further  country 
(Austria)  no  specific  authorisation  is  needed.  There  are  problems  on  clarity  of 
competences  reported  as regards  one country  (Luxembourg). 

No  concern  has been  reported  from  any  Member  State  as to  whether  access to  private 
land  is  ensured. 

Facility  sharing: 

There  is  facility  sharing  with 
the  incumbents  fixed  network  in  ten  countries 
(Germany,  Spain,  France, Luxembourg, The Netherlands,  Austria,  Portugal,  Sweden, 
Finland,  United  Kingdom).  However,  in  three  of  those  countries  (France,  Sweden, 
United  Kingdom),  facility  sharing  is  not  granted  on  a  compulsory  basis;  as  regards 
one  further  country  (Germany),  concern  has  been  expressed  about  claims  regarding 
the  incumbent's  capacity  constraints.  In  one  country  (Denmark)  facility  sharing  for 
fixed  networks  is not  compulsory.  In  a further  country  (Greece)  the  incumbent  grants 
facility  sharing  only  to  its mobile  subsidiary. 

Facility  sharing  by  mobile  network  operators  is  ensured  in  ten  Member  States 
(Belgium,  Denmark,  Spain,  France,  Italy,  Luxembourg,  The  Netherlands,  Austria, 
Portugal,  Finland). 

Undersea cables: 

As  regards  access  to  sea  cable  head-ends,  no  problems  have  been  reported  as  regards 
four  countries  (Belgium,  France, The  Netherlands,  Finland).  In  two  further  countries 
(Denmark,  Germany),  access  to  sea  cables  is  granted  as  a  result  of  regulatory  action. 
In  two  countries  (Spain, Italy), the issue is not  regulated. 

25 

Local  access  competition 

While unbundled  access to the local loop, to allow new entrants to use the existing  subscriber 
line  to  access  the  end-customer,  is not  explicitly  mandated  by  the harmonisation  directives, 
there is a growing realisation in a number of Member States that local loop unbundling  (LLU) 
is necessary  in  order  to  introduce  competition  at local  level, while  others  are  considering  it. 
Given cost constraints, unbundling  is in many cases important to new entrants in particular to 
enable them to make use of xDSL33 technologies to give their customers  access to broadband 
services,  in particular  the  Internet.  Decisions  on  unbundling,  in  particular  the tariff  set,  will 
have  an influence  on operators'  investment  plans. Decisions  on unbundling  may also  depend 
on  the  level  of  competition  provided  via  TV  cables  or  wireless  local  loop  applications. 
Account  should  also be taken of the fact  that problems remain with digging  in relation  to the 
roll-out  of local  infrastructure.  Generally, however,  at present  neither cable TV networks  nor 
wireless local loop (WLL) are widely used as a practical alternative for local access. Not only 
technical issues, but  also the question whether or not the incumbent  fixed  operator  still  owns 
or controls key TV cable interests is of obvious relevance here. 

The  following  is  an  overview  of  the  current  situation  in  the  Member  States  regarding 
competition in the access network: 

An  increasing  number  of  Member  States  (Denmark,  Germany,  Italy,  The  Netherlands, 
Austria,  Finland)  have  decided  to  impose  local  loop  unbundling.  In  Italy,  The  Netherlands 
and  Austria,  LLU  is  however  not  yet  operational.  Testing  is  under  way  in  The  Netherlands 
and  in  Italy  a decision  by  the NRA  on  the  determination  of  the  conditions  for  LLU,  which 
have  been  subject  to  a  consultation  for  the  past  ten  months,  is  expected  before  the  end  of 
1999. 

In  a  number  of  countries  a  decision  on  LLU  is  still  under  consultation  (France,  Ireland, 
United  Kingdom).  In  Sweden,  a  proposal  enabling  compulsory  LLU  through  licensing 
conditions  is being  assessed  by  the  Government34.  In Belgium,  Greece,  Spain,  Luxembourg 
and  Portugal  there  are  not  yet  plans  to  unbundle  the  local  infrastructure  in  the  short  term. 
Belgium,  Spain,  Luxembourg  and  Portugal  claim  that  this  measure  would  not  be  necessary 
in  particular  CATV  networks  of 
due  to  the  availability  of  alternative  infrastructure, 
competing undertakings, and as regards Spain and Portugal, the granting of WLL licences. 

In  most  Member  States,  services  via  ADSL  technology  are being  offered,  but  only  by  the 
incumbent,  and  without  there being  an obligation  on the  incumbent  to  offer  access  to  other 
market players. In Germany, Spain and Finland,  services via ADSL are also being offered  by 
new  entrants.  In  Greece,  Luxembourg  and  Portugal,  there  are  currently  no  ADSL  services 
being  offered,  in The Netherlands  and Austria there is a pilot  for  ADSL. The Italian NRA  is 
assessing the possibility  of including the ADSL service among the different  options for  local 
access.  According  to  recent  information  the NRA  in  the  United  Kingdom  intends  to  ensure 
that,  when  the  incumbent  upgrades  its  local  loop to  provide  ADSL, wholesale  products  will 
be  made  available  to  other  operators  so  that  they  can  offer  similar  services  over  the 

Digital subscriber  line systems providing high speed access over existing copper cables. 
In  the  framework  of  the  notification  of  their  envisaged  merger,  Telia/Telenor  made  the  commitment  to 
implement a set of measures to introduce LLU. 

26 

incumbents  network.  In  France  it  has  been  announced  that  there  are  plans  to  offer  new 
entrants access to the incumbent's ADSL services. 

Another  means  of  increasing  competition  in the  last  mile  is the wireless  local  loop  (WLL). 
In most Member  States, licences have either been granted  (Germany,  Spain, Ireland, Portugal 
-  operational  1 January  2000,  Finland  and  the  United  Kingdom),  or  consultations  are  under 
way.  In  Spain  two  licences  for  wireless  local access  have been  granted  to new  entrants,  and 
the authorities have recently launched an invitation to tender for the issue of six new licences. 
In Austria  a licence  is not  needed;  the  frequency  assignment  is  expected  soon.  In  Denmark, 
France  and  The  Netherlands,  licences  will  be  granted  in  2000,  in  France  experimental 
licences  have  been granted  in the meantime.  In  Sweden there are also temporary  trials  at the 
moment, but no application  for a permanent  licence has yet been made. Test  licences are also 
granted  in  Belgium,  where  draft  legislation  is  in  preparation  in  order  to  grant  definitive 
licences. A timetable has however not been indicated, which is also the case for  Luxembourg. 
In  Italy  a consultation  is planned  for  the  end  of  1999. In  Greece  there  are no  plans  to  grant 
licences for the wireless local access network. 

Cable  TV  (CATV)  networks  are  also  a viable  alternative  local  infrastructure,  in  particular 
where  they  are not  owned  or  controlled  by  the  incumbent,  and  an  incentive  to  invest  in  the 
upgrading  necessary  to make  CATV  infrastructure  suitable  for  telecommunications  purposes 
therefore  exists. In Belgium, Luxembourg and the Netherlands, television  cable penetration is 
as  high  as  that  of  the  voice  telephony  network.  In  most  other  countries,  cable  television 
networks  are  present,  mostly  with  coverage  at the  local  level  in  urban/high  density  areas. In 
Belgium,  Spain,  The  Netherlands,  Austria  and  the  United  Kingdom,  voice  telephony  via 
cable is actually being offered,  even though large parts of the population  are not being  offered 
voice telephony  services yet. The fact  that cable operators tend to use cable for  the provision 
of  Internet  access  (data)  rather  than  for  voice  telephony  is  one  of  the  reasons  for  The 
Netherlands  to  decide  in  favour  of  LLU,  as  only  two  cable  operators  (covering  25% of  the 
local  calls,  although  cooperation  between  four  cable 
population)  are  actually  offering 
operators  has  been  announced,  which would  lead  to  a coverage  of  approximately  70%. The 
provision  of  voice  telephony  via  cable  is  currently  not  offered,  or  offered  only  at  a  very 
limited  level,  in  Denmark,  Germany,  Greece,  France,  Ireland,  Luxembourg,  Portugal, 
Finland,  and  Sweden. In Italy, cable TV penetration  is close to zero. In Ireland, following  the 
recent privatisation of a cable company, competition in the access network is developing. 

4. 

STATUS  OF THE EU  TELECOMMUNICATIONS  SERVICES MARKET 

The  assessment  given  above of  the  status  of the transposition  of the regulatory  package  and 
application  in practice  of the principles  laid  down  is reflected  in the  market  data  set  out  in 
Annex 4. In broad terms, it is clear that the liberalised regimes in place  in the Member  States 
are driving growth  in all sectors of the market,  large increases  in market  entry, a doubling  of 
the  number  of  interconnection  agreements  for  call  termination  in  fixed  networks,  large 
decreases  in  particular  for  long-distance  and  international  call  tariffs,  and  significant 
decreases  in the cost of national  and  international  leased  lines, in particular  for  digital  leased 
line services. However, the cost to residential consumers of national calls has remained  stable 
over the past  two  years, and  only  small reductions  have been recorded  for  business  users. In 
addition,  comparisons  of  the  cost  of  leased  line  services  between  Member  States  reveal 
differences  which  can  only  be  attributable  to  a  lack  of  cost  orientation  in  many  cases. 

27 

Furthermore,  a comparison  of the cost  of international  half-circuits  with  the cost  of  national 
long-distance lines shows the former to be significantly  overpriced. 

Telecommunications  services market 

The  telecommunications  services  market  in  the  Member  States  (voice  telephony,  mobile, 
switched data and leased line services) is growing both in terms of value and of the number of 
subscribers, at a forecast  average rate of just over 6.5% in  199935. 

Although  mature,  the  voice  telephony  market  for  1999  is  forecast  to  grow  in  value  by  an 
average  4.6%  in  relation  to  last  year.  Furthermore,  although  the  provision  of  basic 
telecommunications  services  has  in  large  part  been  accomplished  in  all  Member  States, the 
number of fixed lines per  100 inhabitants  is still growing, probably driven by the demand  for 
second residential  lines and Internet connectivity through ISDN. 

The mobile market continues to grow rapidly, with its value likely to increase by an average 
15.7%  in  1999, and  the  average penetration  rate reaching  36% in August  1999  from  18% in 
August  1998. In  some  countries  the number  of mobile  subscribers  is comparable  to  that  for 
the fixed service. 

Network  services  (switched  data  and  leased  lines)  are  forecast  to  grow  this  year  by  an 
average  8.6%,  while  Internet  services,  which  are  still  characterised  by  wide  variations  in 
penetration  rates  in  the  Member  States,  are  nonetheless  spreading  at  a  very  rapid  rate: 
estimates  based  on  the  number  of  Internet  hosts  per  1000  inhabitants  show  an  average 
increase by about  125% over the period January  1998 -  July 1999. 

Fixed voice telephony market 

During  the period  August  1998  to August  1999, the number  of operators  authorised  to  offer 
fixed  telephone  services  to  the  public  increased  dramatically.  More  than  260  licences  were 
granted  during  that  period,  and  the  number  of  authorised  operators  per  million  inhabitants 
grew  from  1.7  to  2.5. The  following  is the  total  number  of  operators  now  actually  offering 
services:  223  in  the  local  call  market;  244  in  the  long-distance  call  market  (compared  with 
195 in  1998); 280 in the international call market (166 in 1998). 

Apart  from  Portugal  and  Greece36,  the  whole  population  of  the  Union  can  now  choose 
between  more  than  one  operator  for  long  distance  and  international  calls,  and  in  seven 
countries  (Denmark,  Ireland,  The  Netherlands,  Austria,  Finland,  Sweden,  United  Kingdom) 
they also have a choice of operators for local calls. 

The  effective  presence  of  competition  in  the  market  is  increasingly  evident  in  the  long 
distance  and  international  call markets, where new entrants  are a significant  presence: in  one 
country  (United  Kingdom)  their  estimated  international  call  market  share  is  45%;  in  four 
countries  (Denmark,  Germany,  The  Netherlands,  Sweden)  30-37%;  in  two  countries  (Italy, 

35  Variations  in  market  values  are  expressed  in  nominal  terms.  Source:  EITO  (European  Information 

Technology Observatory)  1999. 

36  Portugal and Greece are due to liberalise fully  on  1  January 2000 and 31 December 2000 respectively. 

28 

Finland)  10-15%; and  in  six  countries  (Belgium,  Spain,  France  -  for  the  local, national  and 
international markets combined, Ireland, Luxembourg, Austria) up to 5%. 

Competition  is now  also becoming  effective  even  in the local call market  as a result  of  local 
carrier  selection  and unbundling  of the local  loop, and in  five  countries  (Belgium,  Denmark, 
Germany,  The  Netherlands,  Austria)  new  entrants  have  an  estimated  market  share  of  up  to 
5%.  In the UK, where  liberalisation was introduced  in the mid-eighties,  alternative  operators 
now take  18% of the local call market. 

Mobile market 

The  total  number  of mobile  licences  has increased,  to  94 national  licences  (analogue,  GSM, 
DCS)  from  77  in  1998.  Only  two  licensed  operators  are  not  yet  active  in  the  market.  The 
number  of  mobile  operators  offering  digital  mobile  services  at national  level  is now  52, and 
in all Member States at least 95% of the population has a choice of operators. 

New  entrants  are  gaining  increasing  market  share,  and  in  two  countries  (Germany,  United 
Kingdom)  new  entrants  are  now  the  leading  operators.  Furthermore,  in  six  countries 
(Belgium,  Spain, Ireland, Italy, Luxembourg, Finland) new entrants now have 30-40% of the 
overall  mobile  market;  in  four  (Greece,  The  Netherlands,  Austria,  Sweden)  they  have  40-
45%;  and  in  two  (France,  Portugal)  they  have  more  than  50%.  In  the  digital  market,  new 
entrants'  shares  are  higher,  and  in  seven  countries  (Denmark,  Greece,  France,  The 
Netherlands,  Austria,  Portugal,  Sweden)  new  entrants  have  a digital  mobile  market  share  of 
more than 45%. 

Fixed network services 

During  the period  August  1998 to  August  1999, the number  of  operators  authorised  to  offer 
network  services  increased  by  more  than  400,  and  the  number  of  authorised  operators  per 
million  inhabitants grew from 1.4 to 2.5. There are many operators now in the market: 375 in 
the  local  network  services  market;  194  in  the  long-distance  network  services  market 
(compared  to  173 in  1998); and  187 in the international  network  services  market  (compared 
to  162 in 1998). 

In terconn ection 

There  are  now  820  interconnection  agreements  for  call  termination  on  fixed  networks37, 
almost double last year's figure of 442. 

In  general  terms,  conditions  for  call  termination  on  fixed  networks  in  the  main  European 
markets  are  competitive.  As regards  fixed-to-fixed  interconnection,  not  only  has the  number 
of  countries  with  interconnection  charges  above best practice38  decreased  significantly  (for 
example  from  nine  to  five  for  local  level  interconnection),  but  the  percentage  deviation  is 
much  lower: the average deviation  for  the countries with charges  higher than best practice  is 

Aggregate of the figures  for  fixed-to-fixed  and  mobile-to-fixed. 
See  Commission  Recommendation  on  interconnection  pricing  in  a  liberalised  environment  (Part  1).  The 
1999 best  practice  call  termination  charges  are  0.5  -  1.0  EUR/cents  per  minute  for  local  interconnection, 
0.8 -  1.6 EUR/cents per minute for  single transit and  1.5 -2.3 EUR/cents per minute for double transit. 

29 

28%  for  local  level  interconnection  (73% last  year),  13% for  single  transit  (67%  last  year), 
and 27% for double transit (102% last year). 

The same is more or less valid  for mobile-to-fixed  charges, which are generally  subject  to the 
same conditions. At this stage, only Spain and Ireland maintain a difference  between  fixed-to-
fixed  and  mobile-to-fixed  charges;  however,  the NRAs  in  these  countries  envisage  bringing 
these conditions into line in the near  future. 

Incumbents'  retail  tariffs 

As a result  of competition,  operators  are increasingly moving from charging by units to per-
second  systems,  which  are  more  transparent  and  fairer  from  the  consumer  and  competitor 
viewpoint.  In  1997  only  five  incumbent  operators  were  applying  the  per-second  charging 
system, in  1998 there were seven, and in August  1999 there were ten. 

The  process  of  tariff  rebalancing  is,  as  stated  in  section  3,  continuing  in  a  number  of 
Member States: over the past two years there have been average  annual increases, in nominal 
terms,  of  4%  in  the  price  of  ten-minute  local  calls,  while  the  price  of  regional  and  long 
distance  calls  has  decreased  by  7%  and  15% respectively.  During  the  past  two  years  the 
charge  for  an average  international  call has decreased  annually by  21%  for residential  users 
and  by  13%  for  business  users.  In  particular,  the  price  of  ten-minute  international  calls 
decreased  by  17%  for  calls  to  neighbouring  countries,  by  8%  for  calls  to  more  distant 
European countries, by 23% to the US and by  11% to Japan. 

Annual  expenditure  for national  calls has been more or less stable over the past two years  for 
the typical  residential  user, while  for  the business  user there has been  an  annual  decrease  of 
4.2%. 

A comparison with  a leading US operator39 shows that the price of local calls remains  higher 
in Europe than  in the US  (EU tariffs  in particular  for  a 3 minute call  are three times those  in 
the  US),  but  that  the  difference  dramatically  decreases  for  10-minute  local  calls  (which  are 
20% higher),  and  that  for  regional  and  long-distance  calls, the tariffs  of the US  operator  are 
higher  than the EU average. International  calls from the EU to the US  are double the cost  of 
calls  from  the  US  to  the  EU,  while  a comparison  with  the  Japanese  incumbent40  shows  that 
international calls originating  in Europe are 70% cheaper than those originating in Japan. 

National  leased  lines 

The  average  tariff  for  national  leased  lines  decreased  steadily  over  the  period  from  August 
1996  to  August  1999.  The  trend  of  average  standard  retail  tariffs  for  digital  leased  line 
services  was  as  follows:  64 Kbit/s  leased  lines  decreased  in price  by  45% in  the  case  of  50 
and 200 km lines and by 28% in the case of 2 km lines, and 2 Mbit/s leased lines decreased in 
price by 45% in the case of  50 and  200 km lines and by  35% in the case of 2 km  lines. The 
decrease  in  the  price  of  analogue  circuits  (M.1020)  of  50  and  200  km  was  more  modest  at 
about 17%. 

Figures  for  Nynex/Bell  Atlantic,  which  can  be  regarded  as  purely  indicative,  and  will  vary  with  other 
operators. 
NTT 

30 

However,  comparisons  of  leased  line  prices  charged  by  incumbent  operators  in  each 
Member  State  as of  1 August  1999  show  that  the same  service  may  be charged  at  very 
different  prices, which  does  not appear justifiable  even  if differing  underlying  costs  are 
accepted. 

International  leased lines 

The  average  tariff  for  international  leased  lines  has  decreased  over  the  period  from  August 
1996 to  August  1999. The  trend  in  EU  average  retail  tariffs  for  digital  leased  line  services 
was  as  follows:  the  average  standard  tariff  for  64  Kbit/s  connections  to  European  countries 
and  the  US  has  decreased  by  over  30%;  the  average  tariff  for  2  Mbit/s  connections  to 
European  countries  and  the  US  has  decreased  by  between  22%  and  29%.  Decreases  in  the 
tariff  for analogue circuits (M.1020) have been more modest, by 3% to 9% for connections to 
European countries and the US. 

However,  the  level  of prices  as of  1 August  1999  remains  relatively  high  if compared  to 
the price  of similar national  services. For instance, the average standard  retail tariff  for 
2 Mbit/s international half-circuits  is from 7 to 14 times higher than for national 200 km 
circuits. 

The provision  of national  and  international  high capacity  circuits  (34 and  155 Mbit/s)  is  still 
under development  and standard prices for those services are available only in a few  Member 
States. In most  cases,  at  least  for  155 Mbit/s  circuits, they  are given  only  on  a  case-by-case 
basis. 

5. 

CONCLUSIONS  AND PRINCIPLES FOR CONSIDERATION  IN THE 1999  REVIEW 

It is clear from  the Commission's  analysis  of the national  legislation  in place, its  application 
by  the  national  authorities,  and  the  evidence from the market  that,  less than  two  years  after 
full  liberalisation,  overall  implementation  of  the  telecoms  regulatory  package  has  been  and 
continues to be a success. 

However,  the  Commission,  given  its  role  as  guardian  of  the  Treaty  and  the  institution 
responsible  for  the procedures  ensuring  compliance  with  the directives,  is bound  to  focus  in 
reports such as this on those aspects of Member  States' practical application  of the regulation 
which  are  not  in  compliance  with  the  regulatory  framework.  In  this  regard  the  role  of  the 
Commission  in enforcing  compliance with the regulatory framework has been  acknowledged 
in the preparation of this report, by new market entrants and regulators alike. With the launch 
of the Communication  on the review  of the regulatory framework, the Commission's  task  is 
to use the lessons of the past to build the regulation  of the first  decade of the new  millennium 
and beyond,  and  it is in this spirit that the critical aspects of this report  are offered.  There are 
in this context  a number  of messages; corresponding  proposals  from  the Commission  for 
remedial  action, where appropriate, are set out in the Communication  on the review. 

Better  harmonisation 

While  the process  of creating  a single  market  for  telecommunications  services  is well  under 
way  under  the  current  framework,  the  provision  of  pan-European  services  and  cross-border 
investment  is  still  hampered  by  the  relatively  low  level  of  harmonisation  in  the  European 

31 

directives  in  particular  of  the  licensing  regime  and  to  a  lesser  extent  the  interconnection 
regime. It is clear here that there is enormous pressure from all parts of the market  for  action 
(see below). 

Uniform  implementation 

Experience of the implementation  of the current regulatory framework shows that even where 
the  directives  are  drafted  relatively  tightly  there  are  considerable  divergences  in  the way  in 
which  the  principles  are  applied  in  the  Member  States.  There  are  already  mechanisms  for 
achieving uniformity,  such as through the High Level Committee of National  Administrations 
and  Regulatory  Authorities  and  the  Open  Network  Provision  and  Licensing  Committees. 
There  is  nonetheless  a sense  on  the  part  of  regulators  and  the  market  that  this  coordination 
should be  sharpened. 

NRAs 

There  is  a preliminary  point  which  is obvious but  which  is worth  reiterating.  The NRAs  are 
the rock  on  which  full  and  uniform  implementation  of the regulatory  package  is built.  They 
need  a  strongly  supportive  national  framework  to  enable  them  to  function  effectively.  This 
includes  providing  them with the necessary  human and  financial  resources  and  the legal  and 
political environment which will enable them to perform  their prescribed tasks. 

The  fact  that  the NRAs  differ  widely  across  the Member  States  is the result  of  the  different 
legal  and  administrative  cultures  in  which  they  are  rooted,  and  this  diversity  is  in  turn  a 
natural and welcome part of the culture of the Union. There is currently coordination  between 
the  regulatory  agencies  through  the  Independent  Regulators'  Group,  which  contributes  to 
strengthening  uniformity  of implementation. There is, however, no form  of benchmarking  for 
example  on  supervision  of  the  incumbent's  cost  accounting,  approval  of  the  reference 
interconnection  offer,  consultation procedures, response times or reporting  on service  quality 
or consumer complaints. 

The  disparities  in the way  in which NRAs  are organised  are reflected  also  in the  procedures 
laid  down  for  appeals  against  their  decisions.  Again,  these  are  rooted  in  the  legal  and 
administrative  cultures  of  the  Member  States,  and  as  such  are  sometimes  lengthy  and  may 
depend  on  a judiciary  which  may  not  be  qualified  to  examine  the  technical  complexities  of 
telecommunications.  Appeals  procedures  may  also  have  suspensory  effect  which,  in  a  fast-
moving market,  is likely  to prejudice  the interests  in particular  of new  entrants, as do  delays 
in clarification  of the applicable regulatory regime generally. 

There  are  further  disparities  in  the  way  in  which  regulatory  powers  are  divided  as  between 
ministries,  regulatory  agencies,  national  competition  authorities,  and  sometimes  other 
agencies with responsibility  for example  for regulating tariffs.  This can lead to conflicts  or at 
the least to  an administrative barrier to new entrants. There are also disparities  as regards  the 
way  in  which  responsibility  for  handling  consumer  complaints  is  allocated,  which  leads  to 
consumer uncertainty as to the protection of their rights. 

32 

Licensing 

Pan-European  operators  including  satellite  operators  back  their  argument  in  favour  of better 
harmonisation of the licensing regime at European level by pointing to the wide differences  in 
procedures,  periods  of  validity,  fees,  classifications  of  operators  with  which  they  are  faced, 
not  to  mention  the  difficulty  of  submitting  applications  in  the  eleven  official  Community 
languages. 

Virtually  all  operators  are  opposed  to  heavy  regimes,  for  the  obvious  reason  that  they  are 
costly,  time-consuming  and  potentially  exclusive.  The  experience  of  Member  States  which 
already  have  light  regimes  is  that  they  operate  successfully,  mesh  well  with  a  liberalised 
environment, and lighten the regulatory burden on the NRAs. 

The  current  rules  on  licence  fees  and  the  principle  that  they  should  cover  only  the  cost  of 
administering  authorisations  have  also  been  implemented  in  widely  different  ways  in  the 
Member States. There has been no benchmarking exercise in this regard. 

In tercon n ection 

This Report  shows that  the powers  of the regulator  as currently  set  out in the framework  are 
not  always  devolved  to  the NRAs  at  national  level, or  in  some  cases  exist  but  are not  used. 
This  is  particularly  true  of  the  power  to  intervene  directly  in  interconnection  negotiations 
without  being  invited  to  do  so by  the parties. Some regulators  contend  that  the emphasis  in 
the  framework  on  commercial  negotiation  (and  in  the  national  context  on  freedom  of 
contract),  together  with  the  right  of  parties  to  request  intervention,  makes  such  a  power 
redundant.  This view is not  shared by the generally weaker parties to  such negotiations,  that 
is, new entrants with negligible market power. There is currently no mandate in the  directives 
for  NRAs  to  impose  penalties  on  SMP  operators  for  failure  to  produce  RIOs  or  negotiate 
interconnection  in timely  fashion. 

There is a considerable problem as regards the cost accounting of the incumbent operators  for 
the tariffing  of  interconnection.  There  appear  to be major  weakness  both  in the regulation  at 
national  level  and  in the practices  applied  by NRAs, as regards  cost  accounting  not  only  for 
interconnection  but also for the provision of leased lines and voice telephony, in particular in 
the  latter  case to  ensure  correct  rebalancing  of tariffs.  One result  appears  to  the existence  of 
price  squeezes  in  a  number  of  Member  States.  However,  the  implementation  process  has 
shown  on the one hand how  effective  benchmarking  at EU  level has been  in bringing  down 
interconnection prices; on the other, several Member States have used benchmarking with EU 
and  non-EU  countries'  tariffs 
to  orientate  their  national  interconnection  tariffs.  The 
Commission's benchmarking  exercise will be continued  at least for the lifetime  of the present 
regulatory package. 

Universal  service 

Although  there  is currently  only  one universal  service  fund  in operation,  it  is clear  from  the 
implementation  exercise  that  there  is  concern  on  the  part  of  operators  in  Member  States 
where financing  mechanisms are likely to be put into effect.  Most regard funding  mechanisms 
as  a  barrier  to  market  entry,  and  are  confident  in  many  cases  of  being  able  to  provide 
universal  service in their  areas of operation  on a competitive  basis. There  is therefore  a need 

33 

to  ensure  that  the  assessment  of the real net  costs  of universal  service  provision  is  rigorous, 
with  particular  attention  being  paid  to  the  intangible  benefits  deriving  from  the provision  of 
universal  service.  As  regards  the  category  of operators  which  may  be  required  to  contribute 
through  funding  mechanisms,  account  should  be  taken  of the  current  and  forecast  growth  in 
the mobile market. 

Furthermore,  where  full  rebalancing  has  been  achieved  and  no  access  deficit  remains, 
universal  service  can  be  achieved  on  the  basis  of  low-user  tariff  schemes,  without  further 
need to rely on universal  service charges that form potential barriers to market entry. 

Consumer  rights  clearly  need  to  be  taken  into  account  in  the  implementation  of  the  current 
regulatory  framework,  in particular with regard to transparency of information  and redress. In 
specific  cases  such  as  lack  of  transparency  of  tariff  structures  or  unfair  contract  terms, 
Member  States could  apply  the  current  framework  more effectively  while  making better  use 
of existing horizontal  Community consumer protection  legislation. 

A barrier  to  the  single  market  resides  in  the  fact  that  the  112 European  emergency  number, 
while  available  in  all  Member  States  and  largely  publicised  by  operators,  is  not  known  by 
consumers  to  be  available  also  in  other  countries  of  the  Union.  This  problem  also  can  be 
tackled under the current  framework. 

Improved  coordination  with the application  of the competition  rules 

The comments  expressed  in the preparation  of the report  regarding  leased  line tariffs  or  lack 
of rebalancing of local loop tariffs  show that notwithstanding the provisions of  sector-specific 
legislation  applicable for many years, new market players still  face  difficulties  in a number  of 
areas.  Generally,  it  is  evident  that  under  the  present  regulatory  framework  local  access 
competition  remains  problematic  in  all  Member  States,  and  that  certain  barriers  to  the 
development  of  transnational  services  and  infrastructure  persist.  The  Commission  therefore 
decided  on 27 July  1999 to open  a sector  inquiry  under  the EU competition  rules  relating  to 
the level of leased  lines tariffs,  the level of roaming charges and the tariffs  for the provision of 
access to and use of the residential local loop. By means of this investigation,  the  Commission 
wishes to determine whether the practices and prices observed  constitute infringements  of EC 
competition  rules,  in  particular  of  Articles  81  and  82  of  the  EC  Treaty.  If  the  Commission 
finds  such  infringements,  it will  both  act  against  them  on a case by  case basis,  and  consider 
the  scope  for  future  horizontal  measures.  The  Commission  will  involve  both  the  national 
regulators  and  the  national  competition  authorities  in  this  process.  As  close  cooperation 
between  competition  authorities  and  national  regulators  is  a general  prerequisite  to  ensure  a 
level playing field  in the telecommunications markets it should  further  be improved. 

Other  conclusions 

Numbering 

The Commission  is encouraged by progress in introducing number portability and carrier pre 
selection  in  some  Member  States,  in  some  cases  ahead  of  the  deadline  set.  It  is  concerned, 
however,  at possible  delays  in particular  in putting  in place  carrier  pre-selection  for  all  calls 
from  fixed  networks  and  in the way  in which  costs  are to be  apportioned  between  operators 
and  consumers. As regards number portability, account  should be taken of the  fact  that  some 

34 

ISSN  0254-1475 

COM(1999)537  final 

DOCUMENTS 

EN 

15  16  08  17 

Catalogue number : CB-CO-99-585-EN-C 

Office  for Official  Publications of the European  Communities 

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