Communication from the Commission - Consultative communication on a review of the 1998 notice by the Commission on the status of voice on the Internet under Community law, and in particular, under Directive 90/388/EEC - Supplement to the Communication by the Commission to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services (Text with EEA relevance)
Date: 2000-06-27
Institutions: European Commission
Subjects: EU law, competition, freedom to provide services, information network, national implementing measure, telecommunications

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COMMUNICATION FROM THE COMMISSION

Consultative communication on a review of the 1998 notice by the Commission on the status of
voice on the Internet under Community law, and in particular, under Directive 90/388/EEC

Supplement to the Communication by the Commission to the European Parliament and the
Council on the status and implementation of Directive 90/388/EEC on competition in the
markets for telecommunications services

(2000/C 177/03)

(Text with EEA relevance)

On 10 January 1998, the Commission published a notice (1)
setting out the status of voice on the Internet under Directive
90/388/EEC (2) concerning competition on the markets for tele-
communications services, as amended. This Directive defines
voice telephony. According to Article 1 of
the Directive,
(cid:145) (cid:147)voice telephony(cid:148) means the commercial provision for the
transport and switching of speech in
public of
real-time between public
termination
points, enabling any user to use equipment connected to
such a network termination point in order to communicate
with another termination point.(cid:146)

switched network

the direct

The 1998 notice was a supplement
to Communication
95/C 275/02 (3) of 20 October 1995 of the Commission to
the European Parliament and the Council on the status and
implementation of Directive 90/388/EEC. This communication
sets out the Commission’s approach on the implementation of
the definition in Article 1 of Directive 90/388/EEC. The publi-
cation of the notice was necessary, given that, since 1990, due
to the development of specific software, it had become possible
to code, compress and transmit voice communications in such
a way that it has become viable to send them via the Internet
to other Internet subscribers using the same or interoperable
software and via gateways
to standard telephones, often
described as voice over Internet protocol (VoIP). This definition
is essential, as it enables the determination of these under-
takings which should be subject
to the regime applied to
a
telephony operators,
voice
licence (4) and providing or contributing to universal service (5).

including the

securing of

The 1998 notice was adopted after a period of public consul-
tation during which the Commission had heard comments
from all
It acknowledged the need for
periodic review and announced that the Commission would
review its
the latest before 1
January 2000.

scope periodically and at

interested parties.

made in the 1998 notice and proposes to maintain its main
then lists a number of questions on which
conclusions.
comments are sought from interested parties.

It

The consultation is undertaken under existing legislation. Its
purpose is not to lead to alterations in the current regulatory
framework, nor to assess the timeliness of amending Directive
90/388/EEC.

1. MAIN ELEMENTS OF THE 1998 NOTICE

The current Community regulatory framework for the telecom-
munications industry (which includes the Licensing Directive
97/13/EC as well as Directive 90/388/EEC) allows Member
States to impose proportionate obligations which may in the
case of operators offering either a public telecommunications
network or a publicly available voice telephony service be more
onerous
services. This
framework is currently being the subject of a review (6), but
any future amendments are not likely to enter into force before
the end of the year 2002.

than for operators offering other

The issue examined in the 1998 notice (cid:151) i.e. the regulatory
treatment of voice communications on Internet under the
current
remain
framework (cid:151) will
significant at least until that date, especially in Greece, which
may maintain special and exclusive rights for the provision of
voice telephony services until 31 December 2000.

regulatory

therefore

This communication aims at opening a public consultation on
the review of the 1998 notice. It summarises the assessment

(1) OJ C 6, 10.1.1998, p. 4.
(2) OJ L 192, 24.7.1990, p. 10.
(3) OJ C 275 p. 2.
(4) Directive 90/388/EEC and Directive 97/13/EC (Article 7(2)).
(5) Directive 97/33/EC (Article 5(1)).

1.1. Analysis per criterion

the Commission stated firstly that

it
In its 1998 notice,
considered that the definition of voice telephony in Directive
90/388/EEC taken together with existing precedents provided
good guidance for assessing the regulatory position of voice
communications services on the Internet in the pre-liberali-
sation situation.

(6) Commission communication (cid:145)Towards a new framework for Elec-
tronic Communications infrastructure and associated services (cid:151)
The 1999 Communication Review(cid:146) (COM(1999) 539 of 10.11.1999).

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However, given the specificities of the Internet, there was a
need to elaborate on the principles laid down in the regulatory
framework, especially those contained in Article 1 of Directive
90/388/EEC. The 1998 notice was designed to address that
need, by interpreting the criteria of the (cid:145)voice telephony(cid:146) defi-
nition. When all the criteria of the (cid:145)voice telephony(cid:146) definition
were satisfied, those Internet service providers offering a dial
out service from and to any telephone number (cid:151) and only
those (cid:151) would then be considered providers of voice
telephony services under Community law.

The criteria to evaluate whether a given service is voice
telephony were based on elements relating to the nature and
the quality of the service offering, and are not determined by
the technology employed.

Those criteria were interpreted as follows.

the same basis. This criterion implies that Internet telephony
facilities catering to a closed and limited group of users cannot
be considered as genuine voice telephony services.

1.1.3. Internet

telephony must be provided to and from public

switched network termination points

(cid:145)Between public switched network termination points(cid:146) means
that
the voice communication service not only has to be
offered commercially and to the public, but also it has to
connect two network termination points on the PSTN (1) at
the same time. These termination points are those defined by
subscriber numbers from the national telephone numbering
plan (2). Consequently, if access to the Internet is obtained via
leased circuits, the service could never be considered as voice
telephony, even if the call terminates on the public switched
network.

1.1.1. Internet telephony must be the subject of a commercial offer

1.1.4. The provision of

telephony must
Internet
transport and switching of speech in real time

involve direct

(cid:145)Commercial(cid:146) should be understood in the common sense of
i.e. that the transport of voice is provided as a
the word,
i.e. provided against payment
separate commercial activity,
and with the intention of making a profit. Consequently,
it
does
non-commercial
simple
provision of a telephone-like connection or channel permitting
voice communication between two users.

technical

cover

not

the

In its 1998 notice, the Commission took note that in the case
of the Internet, in most cases the commercial provision of the
transport of voice is not the principal aim of access providers
and Internet telephony is only an additional feature offered by
Internet access which is chosen by the customer for a number
of reasons, such as browsing, e-mail, and downloading of files
and data, etc.

Only where phone-to-phone Internet telephony is marketed in
the European Union as an alternative form of voice telephony
service, would the organisation concerned be considered to be
making a commercial offer.

if

Similarly,
the provision of voice over Internet protocol
became a decisive element in service providers’ commercial
strategies, they could be considered as providing commercially
the transport of voice.

1.1.2. Internet telephony must be provided for the public

Internet voice telephony is provided (cid:145)for the public(cid:146) when the
service is potentially available to all members of the public on

the technique used for

On the basis that
the first voice
communications between Internet users and the early state of
development of
Internet technology (mainly bandwidth and
compression techniques) Internet telephony could not, at the
time of
the 1998 notice be considered to take place in
real-time. Given the fact that at least part of the transmission
is over the Internet (which currently has only one class of
service), it is subject to unpredictable congestion risk, making
it difficult or impossible to guarantee the same level of relia-
bility and speech quality as produced by the PSTNs.

The notice acknowledged nevertheless that
in cases where
organisations offering phone-to-pone Internet voice guarantee
quality of speech by bandwidth reservation and claim them-
selves that the quality of the service is the same as circuit-
switched PSTN voice, this element of the voice telephony defi-
nition will obviously already be met.

1.2. Overall conclusion derived from the above analysis

the
Starting from the definition of Directive 90/388/EC,
Commission, which distinguished three categories of services
(PC to PC, PC to phone and phone to phone), reached the
conclusion that Internet telephony fell outside the definition
of voice telephony, mostly on the ground that
it did not
meet the reliability and speech quality as normally required
for voice telephony.

(1) The public switched network is not

formally defined in the
Directive. It must be given its common meaning,
i.e. the public
switched telephone network (PSTN) which is the collection of
switching and transmission facilities used by the telecommuni-
cations organisation to provide the normal telephony service.
(2) The common understanding of (cid:145)termination points(cid:146) is set out in the
Voice telephony Directive 98/10/EC and its cross reference to
Annex I on the Interconnection Directive 97/33/EC.

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The Commission’s 1998 Notice therefore concluded that under
the licensing rules which then existed Member States must
allow Internet access providers
the
Internet under data transmission general authorisations.

to offer voice over

As stated in the 1998 notice, any review of the conclusion that
voice over Internet protocol does not fall within the voice
telephony definition, can have significant regulatory conse-
quences for the relevant undertakings.

Given that the regulatory position of voice communications on
the Internet depends on an analysis of
the actual service
provided as regards the various elements of the definition of
the
voice telephony in Article 1 of Directive 90/388/EEC,
Commission acknowledges that possible technical and market
developments have to be taken into account in the framework
of its application. The comments received by the Commission
on the occasion of the 1998 notice already showed that at least
to a limited extent key elements of the conditions for such
developments would possibly be met in the future.

This is the reason why the Commission is undertaking the
revision of this notice, in order to appreciate whether it has
to be amended or complemented.

2. MAIN EVOLUTIONS SINCE 1998 AND EXPECTED TRENDS

2.1. Market trends

On the demand side, the main attractiveness of VoIP stems
from the facility it provides to make international calls at
low costs. This comparative advantage is, however, gradually
being somewhat eroded, due to international call prices coming
down since liberalisation.

Worldwide, the Internet telephony market (2,3 billion calls in
1999) remains limited in comparison with of traditional voice
telephony, which channelled 7 trillion minutes of calls in 1999.
Most of the Internet telephony calls are however generated in
the US, where Internet penetration is higher than the European
average.

Under most of the Member States’ regulatory frameworks, an
operator providing voice telephony whether by IP or PSTN is
in
subject to a certain regime which entails advantages, e.g.
terms of
to
interconnection rights, but may be subject
certain obligations not applied to other providers of telecom-
munications services and which are tantamount to additional
costs (examples: requirement for an individual
licence under
the Licensing Directive (1); requirement to contribute to the
costs
Interconnection
Directive (2). A VoIP operator may prefer to obtain the status
of a voice telephony operator and abide by the relevant obli-
gations.
they have to make the necessary
investments to fulfil the regulatory requirements, if any. This
is for example the case in Germany, where several VoIP
(voice
a
providers have
telephony).

(cid:145)Klasse 4 Licence(cid:146)

In this case,

applied for

universal

service

under

the

of

Conversely, operators may prefer to offer their service as a data
service, without the obligations that a voice telephony licence
operator may have to comply with and the privileges that it
may enjoy.

to the (cid:145)commercial provision(cid:146) of

Given that the voice telephony definition in Directive 90/388
the service as a
refers
criterion, the way service providers market their service to
the public will be to a large extent decisive to determine the
applicable regulatory regime. For example, if the commercial
package focuses on the voice element, thus acknowledging it as
the central element in the offering, the service provided would
fall into the scope of the voice telephony regulatory regime.

in the

and incumbents

sector
Moreover, new entrants
include voice and
increasingly offer bundled services that
instead of competing
data over high speed IP networks,
In
specifically with the traditional voice telephony service.
the past,
in its 1998 Notice, the Commission in this regard
clarified that the offer of video telephony, although containing
a voice component, could not be considered as a commercial
offer of voice telephony. Today offers of services bundling data
and voice are of great interest to companies using VoIP as the
standard technology within their intranet. Under such circum-
stances, Internet telephony is no longer a specific commercial
offering but becomes an integrated element of a commercial
package, without the Internet telephony offer (and the lower
consequent tariffs) being a decisive driver for subscription to
such a service.

in certain Member States,

telephony
On the supply side,
operators display increasing interest for Internet telephony as
an alternative to their conventional voice telephony service.
This
relevant
operator in terms of advantages and costs of
the different
legal/regulatory conditions for providing voice services.

from an evaluation by the

trend results

2.2 Technological developments

In addition to these trends, the Commission considers it likely
that in the coming few years, the following developments will
occur:

(1) Directive 97/13/EC (Article 7(2)).
(2) Directive 97/33/EC (Article 5(1)).

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(i) technical and operational

for many users Internet

improvements in quality such
telephony will be at a
that
generally acceptable level of reliability and quality;
in
particular, one should take into account the introduction
of differential quality of service possibilities stemming
from technological
flow
developments
labelling, routing improvements, migration from version
4 to version 6 of the Internet protocol), which among
other things will pave the way to significant improvement
in the quality of Internet telephony and other real time
services;

(packet

and

(ii) the public telecommunications operators will increasingly
use IP in their core networks to carry data and voice, in
order to achieve greater efficiency gains; this will be trans-
parent to traditional PSTN users;

(iii) in addition, certain public telecommunications operators
notified as having significant market power have started
providing voice over Internet protocol making use of their
data backbone networks. This leads to questions regarding
how to deal with the network elements used in the case
the service would be considered as voice telephony and in
particular to what extent the relevant obligations under
Directive 98/10/EC such as
the
provision of special network access would have to be
(e.g. Data
applied to the relevant network elements
networks used for the service);

cost-orientation or

categories of Internet voice services, when offered as a discrete
stand alone service, have remained a limited activity, because
of:

(cid:151) the difficulty of guaranteeing a quality level as normally
expected from voice telephony, due among other factors
to the loss of quality resulting from the conversion from
data into voice;

(cid:151) the user inconvenience due to technical complexity and to

overhead of evaluating different market offers;

(cid:151) the erosion of margins subsequent to a decline in retail
prices for telephone services over the PSTN, particularly
for long distance and international calls.

On the other hand, Internet protocols are being used within
the backbone networks of public switched telephone networks
and will increasingly be used in private networks to carry voice
and data services. The use of IP technology in this way does
not affect the regulatory position of the companies concerned,
nor does it require any change in the licences or authorisations
under which they operate.

(iv) for large data users within a closed user environment, VoIP
may become the preferred technology for
supporting
internal telephone service, as the cost of equipment for
VoIP falls, and users are able to realise substantial efficiency
gains by combining voice and date over the same network;

this stage
For the time being, and without anticipating at
possible medium term changes in the regulatory framework
following the current review, the Commission envisages that
it will confirm that
the definition of voice telephony in
Directive 990/388/EEC continues to be the adequate basis for
assessing the regulatory position of voice communications
services on the Internet in the post-liberalisation situation.

(v) individual consumers will continue to use their telephone
(cid:151) albeit increasingly their mobile phone (cid:151) rather than
their PC for making telephone calls, and circuit switched
technology will continue to be used in the local access
network but, as noted above in parallel with IP.

Taking into account the current situation and trends mentioned
above, it intends to confirm also that Internet telephony still
continues to fall outside the definition of voice telephony, in
particular since:

(cid:151) it does, in most cases, not meet the criteria of reliability
and sound quality as normally required for voice telephony,
and/or

3. ENVISAGED APPROACH AND ISSUES FOR THE PUBLIC CONSUL-

TATION

On the one hand, the impact of Internet voice has not yet been
felt in a major way. Internet telephony can be viewed as a
positive and innovative activity, which will
indirectly put
pressure on existing price structures in the same way as
the
call-back or calling-card services. Until now,

though,

(cid:151) it is not offered as a single service or as the main element
of a range of bundled services marketed as voice telephony,
for example because it is technically bundled with data
services or is designed to meet demands additional
to
that for voice telephony.

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Bundled offerings including VoIP services

(iv) Operators are increasingly offering bundled services that
combine voice and data conveyed over high speed IP
networks.

In what circumstances could the (cid:145)voice(cid:146) component of such
an offer (and the subsequently lower tariffs) be considered
as a dominant feature of the service and as a decisive
driver for subscribing to such a service? What criteria
could be used to assess
the various
components of the offering in the customer behaviour/
decision? Are customers subscribing to such a service
attracted by the content (combination of voice and data),
or rather by low tariffs?

the weight of

Identification of market players

(v) Internet voice will often be implemented by the end-user
on top of a data-transport service. The end user will decide
himself, using his terminal equipment and, in some cases,
specific software, from which he acquires the voice service
elements.

Who, among the various
considered as providing the Internet voice service?

Internet players,

should be

interested parties

The Commission invites
the
possible observations they may have on the draft position
published hereunder. The Commission intends to publish the
comments received by third parties on the Europa server unless
that third party explicitly objects at the time of submitting
comments to their publication.

to submit

Observations must reach the Commission not later than two
months following the date of this publication. Observations
may be
fax (No (32-2)
to the Commission by
295 06 24) or by mail to the following address:

sent

European Commission
Directorate-General Competition
Unit C 1 (cid:151) Telecommunications and Information Society
Head of unit (cid:151) Pierre Buigues
Office 3/48
Avenue de Cortenberg/Kortenberglaan 150
B-1040 Brussels
E-mail: Jerome.Fehrenbach@cec.eu.int

that Member States should
This means, generally speaking,
continue to allow Internet access providers to offer voice
over Internet protocol under data transmission general author-
isations (1), and that
specific licensing conditions are not
justified.

The relevant authorities shall of course remain at any time
from all market players the necessary
entitled to request
information to ascertain whether the conditions set out
in
the general authorisation scheme are duly complied with. In
this framework, national regulatory authorities can thus ensure
that the voice telephony regulatory framework is not circum-
vented by Internet telephony operators.

The Commission would however seek the opinions of all
taking into
interested parties on this envisaged position,
account
telephony offers
and the various elements of the definition of voice telephony
in Article 1 of Directive 90/388/EEC, mentioned above.
Quantified analyses are of course very welcome.

the current and expected Internet

In particular, the Commission would seek comments on the
following elements.

Services available for the end-user

(i) In its 1998 notice, the Commission distinguished three

categories of Internet telephony services:

(cid:151) PC to PC,

(cid:151) PC to phone,

(cid:151) Phone to phone.

Taking into account market and technological devel-
opments, should other distinctions be made or other
categories considered?

(ii) Do these different kinds of services develop at the same
pace? Is there a market for such services? In particular,
how widespread are phone to phone Internet voice
services?

(iii) Should under the current regulatory framework Internet
telephony operators be submitted to identical provisions
service provided, or
irrespective of
conversely,
categories mentioned
entail different legal treatment due to significant differences
in the quality level of the service provided?

the category of
should the various

(1) See Directive 97/13/EC. See also Directive 90/388/EEC, as amended
by Directive 96/19/EC and Directive 97/33/EC of the European
Parliament and of the Council of 30 June 1997 on Interconnection
in telecommunications with regard to ensuring universal service
and interoperability through the application of the principles of
Open Network Provision (ONP) (OJ L 199, 26.7.1997).