Eighth Report from the Commission on the Implementation of the Telecommunications Regulatory Package - European telecoms regulation and markets 2002 {SEC(2002) 1329}
Date: 2002-12-03
Institutions: European Commission
Subjects: competition policy, economic analysis, market, regulation of telecommunications, telecommunications, telecommunications industry

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 3.12.2002
COM(2002) 695 final

EIGHTH REPORT FROM THE COMMISSION

on the Implementation of the Telecommunications Regulatory Package

European telecoms regulation and markets 2002

{SEC(2002) 1329}

TABLE OF CONTENTS

SUMMARY AND PRINCIPAL CONCLUSIONS ................................................... 3

METHODOLOGY AND OBJECTIVES .................................................................. 8

Methodology ............................................................................................................ 8

Objectives ................................................................................................................ 8

MARKET OVERVIEW ........................................................................................... 9

Fixed and mobile markets......................................................................................... 9

Consumer choice of fixed operator ......................................................................... 10

Operators using proprietary infrastructure............................................................... 10

Operators using carrier selection and pre-selection ................................................. 11

Retail mobile and fixed telephony prices ................................................................ 11

Market structure ..................................................................................................... 15

Digital TV .............................................................................................................. 17

STATUS OF IMPLEMENTATION OF REGULATION IN THE MEMBER
STATES................................................................................................................. 17

Regulatory framework............................................................................................ 18

Interconnection and access regimes ........................................................................ 20

Unbundling of the local loop .................................................................................. 24

Bitstream access ..................................................................................................... 28

The regulatory aspects of developing competition in broadband: local access and
high–speed internet access...................................................................................... 29

Leased lines............................................................................................................ 32

Numbering ............................................................................................................. 35

Cost accounting and accounting separation............................................................. 36

Authorisations ........................................................................................................ 38

1.

2.

2.1.

2.2.

3.

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

3.7.

4.

4.1.

4.2.

4.3.

4.4.

4.5.

4.6.

4.7.

4.8.

4.9.

4.10.

Universal service, consumers, users........................................................................ 41

4.11.

Data protection ....................................................................................................... 44

5.

6.

IMPLEMENTATION OF THE UMTS DECISION ............................................... 46

STATUS OF PREPARATION FOR TRANSPOSITION OF THE NEW
FRAMEWORK...................................................................................................... 47

2

1.

SUMMARY AND PRINCIPAL CONCLUSIONS

Following liberalisation in 1998, competition in European telecommunications markets has
driven growth and innovation and the widespread availability of services to the public.

€

182 billion
Between 1999 and 2001 the value of telecoms services in Europe rose 24% from
in 1999 to
225 billion in 2001. The mobile sector alone grew by 32% in 2000 and 21% in
2001 in terms of revenue, while the average mobile penetration rate in Europe is now 75%,
from 70% in 20011. At the same time consumers have a wider choice of operators, with new
entrants driving prices downwards. Incumbents’ tariffs for national calls have been reduced
by around 50% on average since liberalisation, and those for international calls by around
40%. New entrants in many Member States now offer discounts over incumbent prices even
for local calls.

€

Revenue indicators are still positive. Realistic estimates of growth in the telecoms services
market for 2002 in the combined national markets of the 15 Member States vary from around
5%2 to 7%3; a very healthy outlook in the light of average projected EU GDP growth of 1.0%4
for 2002.

However, the market is somewhat fragile following the bursting of the dotcom bubble, the
global economic slowdown and over-investment in backbone capacity, combined with high
levels of debt resulting from expensive acquisition strategies and the cost of the transition to
third generation mobile systems.. There is therefore clearly a concern that adverse conditions
in capital markets will reinforce market consolidation following liberalisation, possibly
driving entrants from the electronic communications market.

The Parliament and Council adopted in March 2002 the new package of sector specific
regulation designed for more competitive markets and converging electronic communications
technologies. The new framework links the imposition of regulatory obligations to the
absence of effective competition. The new regulatory environment will enable regulators to
focus their powers to promote competition, protect the citizen and consolidate the single
market, while taking account of the need for innovation and the long-term sustainability of the
sector.

The Commission now regards it as a priority to encourage a timely transition to the new
framework. In addition to providing the legal predictability and regulatory flexibility
necessary for continued investment in the sector, this will complement the eEurope objective
of achieving competitive local access for internet services over broadband networks as
cheaply as possible on a sustainable basis.

National regulatory authorities (NRAs) will clearly play a major role in the new regulatory
regime, together with the national competition authorities. They will also have an important
role under the new regime in helping to ensure that rules are applied consistently in all
Member States, in cooperation between themselves and with the Commission. NRAs will in
particular have to assess the degree of effective competition in relevant markets, and decide
the regulatory obligations to be imposed on players with significant market power. Current

1

2

3

4

Based on total number of subscribers throughout the EU.
Source: EITO (European Information Technology Observatory) 2002.
Source: IDATE, Telecoms in Europe, November 2002.
Source: European Commission services.

3

regulation, together with the rules of competition law, will clearly apply until that assessment
has been made. The Commission believes as a general principle that a successful transition to
the new framework depends on the full implementation of the current framework, including
universal service and consumer protection measures.

This report, therefore,

– provides a balance sheet of market development after

four and a half years of

liberalisation, and

– examines the current status of the main regulatory obligations forming the basis for the
transition to the new regulatory environment, with indicators of best practice where
appropriate.

The report also gives a brief assessment of the state of preparation by Member States for the
transposition of the new regulation into national law.

More detailed market and regulatory data, including an assessment of the implementation of
the UMTS Decision, are contained in the annexes, which are in the form of a Commission
Staff Working Paper.

Key conclusions on market development

– The telecommunications services market is estimated to be growing at between 5% and 7%
in 2002, down slightly from 9.5% in 2001. This compares with estimated average EU GDP
growth for 2002 of 1.0% (actual average EU GDP 2001 = 1.5%).

– Carrier pre-selection has proved a highly successful means of opening competition in the
fixed market, with twice as many (224) operators as last year using it to provide local calls
to residential users and 27% more using it to provide long-distance and international calls.

– There has also been a 42% increase in the number of infrastructure-based fixed access

operators between August 2001 and August 2002, with 50 more in the market.

– For consumers, there has been an overall fall in prices over the same period. Tariff rises for
line rentals have been balanced by a 5% fall in the cost of national fixed calls provided by
incumbents, and a 4% fall in international call prices since last year. While the rate of
decline has slowed, the overall reduction for national calls has been around 50% since
1998, and for international calls around 40%.

– Prices charged by new entrant players are significantly lower than those of incumbent
operators, with new entrant tariffs for national calls up to 56% lower and for international
calls up to 65% lower in some countries.

– Competition in the retail mobile call market has brought average monthly consumer
charges down by 23% over the period 2000-2002, with most of the reductions taking place
in the last twelve months.

– While incumbent fixed operators lost market share for long-distance and international calls
during 2001, their share of the local call market stabilised at around 89% of the market in
terms of retail revenues.

4

– Despite a difficult digital TV market, penetration in the EU digital TV market rose slightly

in 2002, to 21%.

Overall, despite the difficult financial situation in the market , there are positive indicators of
continued demand for services and of competitive activity in the market. While there has been
a slight reduction in the number of new entrant operators authorised to provide networks and
services, the number of direct (infrastructure-based) and indirect access providers5 has
increased. Overall, new entrants continued to increase their market share in terms of revenue.

For consumers, prices charged by incumbents for national and international calls have
continued to fall, with new entrants’ prices in many cases at levels considerably below them.
Per capita expenditure6 has, at least during 2001, continued to rise as the number of mobile
and internet subscriptions continues upwards.

Key regulatory conclusions

– National regulatory authorities in all Member States have the independence, skills and
authority to regulate markets as required under the directives. Some are still hampered by
heavy national procedures, which may adversely affect their ability to enforce obligations
under the new regulatory framework. Lengthy appeal procedures may also result. Numbers
are well-managed in all Member States.

– Licensing regimes and fees in the fixed market are broadly compliant with the current
directive, and should permit a smooth transition to the lighter regime in the new regulatory
framework.

– Interconnection regimes have provided for

the conclusion of a large number of
interconnection agreements, to complement large-scale market entry. However, there are
delays in the approval of reference interconnection offers in some Member States.
Moreover, while overall the prices charged for interconnection allow market entry, there
are complaints in a small number of Member States that reciprocity requirements imposed
are damaging new entrants, or that price squeeze exists in the fixed market.

– While national regulatory authorities have made large numbers of determinations to clarify
loop unbundling, significant problems remain in
the regulatory framework for local
particular with regard to pricing and non-discriminatory access to facilities. Nonetheless,
there is, despite difficulties of capital financing, clearly substantial long-term demand for
unbundling, complemented by large-scale requests for non-discriminatory access to the
high-speed (bitstream) access service of the incumbent operators. Some regulators need to
carry forward the efforts made on transparency and cost-orientation for interconnection
and voice telephony in order to address the costing of unbundled local loops, taking into
account their specificity.

– In the DSL market (high speed internet access over copper subscriber lines), of the
7.52 million retail customers, some 5.86 million are in the hands of incumbent operators,
with around 1.66 million (22%) of retail customers subscribing to xDSL services from new
entrants. Four percent of retail customers are served via unbundled lines. Difficulties for
new entrants in obtaining unbundled lines and non-discriminatory bitstream access,

5

6

Indirect access means access via carrier selection and carrier pre-selection for voice telephony.
Expenditure on telecommunication services and user communications equipment (terminals).

5

together with first-mover advantage and tariffing issues, have led to extensive market pre-
emption by incumbents.

– The overall situation in broadband is somewhat different. Taking account of all platforms
for the provision of access to high-speed internet services, including in particular cable
modem, of the 10.79 million retail broadband customers in the EU, 4.45 million (41%) are
served by new entrants and 6.34 million, mainly DSL, by incumbents.

– While there have been substantial improvements in delivery times for leased lines, in
particular circuits used for the provision of internet access in the business market,
significant divergences in prices for lines across the range of speeds indicate a continued
lack of application of the cost-orientation principle.

– As regards cost accounting obligations for the enforcement of EU tariff principles,
Member States are moving towards costing methodologies which are in line with EU
recommendations. However, there is still considerable work to be done with regard to the
verification and certification of accounts by national regulatory authorities, with resulting
uncertainty in the market as regards compliance by incumbents with transparency and cost
orientation.

– Difficulties in obtaining rights of way and building permits for infrastructure roll-out is a
continuing concern, in particular as regards third generation mobile services. There are,
however, encouraging signs of initiatives by Member States to improve co-ordination and
consistency in this area.

– The provision of universal service is ensured without major problems in all Member States,
although further work is needed in some areas such as measures for disabled users and
users with special social needs and the provision of universal directory and directory
enquiry services. The necessary measures to protect user and consumer interests are
generally in place, although some requirements of the framework, such as for itemised
billing, are still not fully met.

– There is a need for clarity from Member States regarding their overall approach to traffic
data retention. The low level of harmonisation concerning retention periods and pending
legislation to address issues of national security and criminal investigation, lead to an
unclear situation for operators, especially cross-border operators, in particular regarding
their increasing financial burden.

level

After four and a half years of liberalisation of telecoms services, the regulation put in place at
national
is very substantially compliant with the EU framework. Licensing and
interconnection regimes have permitted large-scale market entry, complemented by carrier
pre-selection and number portability; delivery times for leased lines have continued to fall;
progress has been made in developing appropriate costing methodologies for the enforcement
of EU tariff principles. The work done in this regard represents a substantial achievement by
national regulatory authorities.

Nonetheless, there are areas where work remains to be done, in particular in relation to
pricing and access issues surrounding local loop unbundling. Full implementation both of
cost-orientation and non-discrimination principles are essential in this regard, and should
extend to interconnection and the provision of leased lines, including interconnection leased
lines.

6

The largely positive balance is confirmed by reference to the infringement proceedings
currently open, which indicate two areas, cost accounting and universal directory services,
where full compliance needs to be ensured in more than a few Member States. For the rest,
the cases still pending represent clarification of points of relative detail, although the
Commission will examine the need for further proceedings in the event of lack of further
progress in relation to the substantive issues referred to above.

Finally, governments can, in the prevailing financial situation, assist in the roll-out of
electronic communications services by examining a number of additional burdens on the
sector in the form of specific taxes on telecommunications services, disproportionate fees for
the placing of infrastructure, including mobile antennas, on public land, and radio emission
restrictions going considerably beyond those recommended at European level.

7

2.

METHODOLOGY AND OBJECTIVES

2.1.

Methodology

The Commission has submitted a series of reports to the European Parliament and Council on
the transposition and implementation of the current regulatory package. The reports have
included trend data on key aspects of the market such as growth, tariffs for retail services,
leased lines and interconnection, local access and incumbents’ market share.

In preparing this report the Commission’s services held preparatory meetings in the capitals
of the fifteen Member States, followed by hearings held in Brussels to which representative
bodies of market players, national regulatory authorities, national competition authorities,
ministries and consumer and user organisations were invited. The hearings took place from 10
September to 11 October 2002. Written submissions were made by some of the national
authorities and by market players and associations.

Market and regulatory data were supplied by the national regulatory authorities on the basis of
a questionnaire compiled by the Commission’s services. They are the source of all data given
in the Report, unless otherwise stated, and show the situation at 1 August 2002, again unless
otherwise stated. The regulatory situation described is that at 1 November 2002, except where
indicated to the contrary.

2.2.

Objectives

The new regulatory framework adopted in March 2002 and applicable from July 2003 is
based on the principle that,
in increasingly competitive and technologically convergent
markets, national regulators should be able to assess levels of competition and apply ex ante
regulatory obligations only where competition is not effective. The new framework also
reduces the regulatory burden by lightening licence conditions and facilitating the rollout of
infrastructure.

The transitional measures in the new regime specifically require Member States to maintain
certain obligations under the current regulatory framework until such time as regulatory
authorities have analysed markets and determined whether ex ante remedies are appropriate in
accordance with the new framework. The regulatory authorities may then maintain, amend or
withdraw the obligations in question. The obligations concerned apply to players with
significant market power and relate in particular to access, non-discrimination, transparency,
cost-orientation of tariffs, cost accounting and accounting separation. A number of further
obligations arising under the current framework and applying more generally are carried over
into the new framework, in particular relating to universal service and consumer protection.

A successful transition to the new framework depends on the full implementation of the
current framework. The report therefore provides an assessment of the extent to which the key
obligations of the current framework are actually in place in the Member States. Where
regulatory bottlenecks were identified in the seventh report, the Member States in which they
persist are identified. As previously, an overview of market developments is given based on

8

the more detailed data in the annexes. Finally, an assessment is made, in accordance with the
Commission’s reporting obligation, of the implementation of the UMTS Decision7.

3.

MARKET OVERVIEW

3.1.

Fixed and mobile markets

The telecommunications services market continues to grow, at an estimated rate of between
4.9%8 and 7%9, down slightly from an actual growth rate of 9.5% in 2001 (average EU GDP
2001 = 1.5%, estimated GDP 2002 = 1.0%10). The combined national markets of the 15
Member States will be worth an estimated

236 billion in 200211.

€

EU Telecommunications market value (

€

billion)

236

225

205

182

250

225

200

175

150

1999

2000

2001

2002

Internet penetration in terms of households with access was 40% in June 2002 as against 36%
in June 2001.

The mobile penetration rate has in some Member States almost reached saturation level
(above 85% in four). Indeed, while the number of subscribers to mobile services continues to
increase (there are currently 284 million), the rate of growth is now 6%, compared to 69% in
2000 and 36% in 2001.

7

8

9

10

11

Decision 128/1999/EC of the European Parliament and of the Council of 14 December 1998 on the
coordinated introduction of a third-generation mobile and wireless communications system (UMTS) in
the Community, OJ L 17, 22 January 1999, p.1
Source: EITO (European Information Technology Observatory) 2002.
Source: IDATE, Telecoms in Europe, November 2002.
Source: European Commission services
Source: European Commission services.

9

s
r
e
b
i
r
c
s
b
u
s

f
o
n
o

i
l
l
i

M

300

250

200

150

100

50

0

EU mobile subscribers and average penetration

Subscribers

Penetration rate

75%

70%

52%

4
9
1

5
6
2

4
8
2

31%

5
1
1

18%

9
6

80%

70%

60%

50%

40%

30%

20%

10%

0%

e
t
a
r
n
o
i
t
a
r
t
e
n
e
p
e
g
a
r
e
v
a
U
E

1998

1999

2000

2001

2002

3.2.

Consumer choice of fixed operator

Subscribers in all Member States can choose between providers of long-distance and
international calls. In twelve Member States almost all subscribers can choose from among
more than 5 alternative operators, while in two (Belgium and Luxembourg) the choice is more
restricted (40% and 100% of subscribers respectively can choose between 3 and 5 operators).

As regards the percentage of subscribers actually using an alternative provider for long-
distance and international calls, Finland and Italy have the highest proportion, with 65% and
50% respectively of subscribers not using the incumbent’s network. In six Member States
(Denmark, Spain, France, Portugal, Sweden and the United Kingdom) the proportion is
between 20% and 30%.

However, the situation is much more complex in the case of local call services. Eight Member
States (Spain, France, Ireland, the Netherlands, Austria, Portugal, Sweden and the United
Kingdom) report
that almost all subscribers can choose from among more than five
alternative providers for local calls, whereas in Luxembourg and Italy the choice is between 3
and 5 operators. Finally, only 30% of German and 42% of Finnish subscribers can actually
choose not to route local calls through the incumbent operator.

The percentage of subscribers actually using an alternative provider for local calls is on
average 15%, and only Denmark (25%), Spain (17%), France (8.9%) and Italy (40%) have
made significant progress.

3.3.

Operators using proprietary infrastructure

Consumer choice of fixed operator, as referred to above, is possible either via direct access,
i.e. via unbundled local loops or via direct connection of the user to proprietary infrastructure
such as cable, or via carrier selection or preselection, i.e. routing of calls to the alternative
operator's network on the basis of the use of a call-by-call prefix by the customer or by default
routing to a pre-selected carrier or carriers.

10

Alternative providers of direct access services to residential users operate in all Member
States, with an increase of 50 operators since August 2001 (42%). However, only two
Member States (Denmark and Spain) indicate that almost 100% of subscribers have a choice
between more than five alternative direct access operators. In Italy, 50% of subscribers can
choose between two alternative operators, while in Belgium the percentage is 40%, in Finland
35%, in Luxembourg 18% and in Germany 18%. In France fewer than 1% of subscribers can
actually choose not to use the incumbent operator for local calls. Furthermore, the actual use
of alternative providers for direct access is very limited (4.5% on average, based on 10
countries), with the proportion varying from 17% in the United Kingdom to 13% in Denmark
to much less in the other eight countries

3.4.

Operators using carrier selection and pre-selection

Overall, the number of operators using carrier selection and pre-selection to offer services to
residential users has increased. The use of carrier pre-selection is spreading rapidly, with
about 224 operators using it for the provision of local calls to residential users, i.e. twice as
many as last year, and 272 for long-distance and international calls (an increase of 27%).

In addition, carrier selection, which is already heavily used for the provision of long-distance
and international calls (412 operators) is increasingly being used also for the provision of
local calls (334). In particular, carrier selection has now started to be used for local call
services in Greece, France and the Netherlands. Taking into account figures for 12 countries,
on average the number of operators using carrier selection for local calls has increased by
61%, and by 22% for long-distance and international calls (the United Kingdom has been
excluded from the calculation since the data are not comparable over time).

The number of new entrants allocated an access code is 927 overall in the EU.

3.5.

Retail mobile and fixed telephony prices

In this section, all of the prices given are those of the incumbent player (fixed market) or
leading player12 (mobile market), except where indicated in 3.5.7.
in relation to new
entrants’ prices.

3.5.1. Mobile prices13

3.5.1.1. Personal profile:

Over the period 2000-2002 the average monthly expenditure for a typical personal profile has
gone down from
21.12. This represents a reduction of 23%, the most significant
decreases having taken place over the last twelve months.

27.42 to

€

€

Countries where consumers have most benefited from these reductions since 2001 are Spain
(45%), Austria (42%), Portugal (34%), Ireland (35%), Germany (28%) and Belgium (24%).
The country with the highest average mobile expenditure is France (
31), where it is 47%
higher than the EU average, followed by the United Kingdom (
25). The cheapest country is
Spain (

10), which represents half of the EU average monthly consumption.

€

€

€

12

13

In terms of number of subscribers
For methodology, see Annex 1.

11

Variation in the average mobile expenditure, personal profile

T
A
V
g
n
d
u
l
c
n

i

i

,

h
t
n
o
m

r
e
€p

30

28

26

24

22

20

27,42

26,28

-23,0%

8%

3%

-2%

-7%

-12%

-17%

-22%

-27%

0
0
0
2
e
c
n
i
s
n
o
i
t
c
u
d
e
R
%

21,12

2000

2001

2002

3.5.1.2. Business profile:

€

Over the period 2000-2002 the average monthly expenditure for a typical business profile has
54.74. This overall 20% reduction is lower than that of the
gone down from
personal profile, contrary to developments in fixed telephony for the same period. Again the
reduction has been more significant over the last 12 months.

68.54 to

€

Variation in the average mobile expenditure, business profile

68,54

64,77

-20,1%

70,00

68,00

66,00

64,00

62,00

60,00

58,00

T
A
V
g
n
d
u
l
c
x
e

i

,

h
t
n
o
m

56,00

r
e

€p

54,00

52,00

50,00

-2%

-7%

-12%

54,74

-17%

-22%

-27%

i

0
0
0
2
e
c
n
s
n
o
i
t
c
u
d
e
R
%

2000

2001

2002

Countries with the highest reductions since 2001 are Belgium (60%), Portugal (34%), United
Kingdom (29%), Spain (25%) and the Netherlands (22%). Sweden is the country where
81), 49% higher than the EU average,
mobile expenditure for business is the highest (
€
followed by Denmark (
20), which represents
38% of the EU average monthly consumption.

80). The cheapest country is now Belgium (

€

€

12

3.5.2. Monthly fixed rental

Monthly rental charges by incumbents increased between 2001 and 2002 by 5.4% for
residential customers and by 7.3% for business users. For the period 1998 to 2002 there has
been a global increase of 20% for residential and 16,6% for business users. At the same time
there has been an overall reduction in tariffs for almost all calls, notably national and
international; this is to be expected as part of the ongoing rebalancing of tariffs, the purpose
of which is to eliminate anti-competitive cross-subsidisation of prices by dominant operators.

3.5.3.

Local calls

In contrast to last year’s situation, where tariffs charged by incumbents for local calls
remained stable or underwent minor increases, there is a change in the trend for this segment.
Prices for a three-minute call remain the same, but there is a slight reduction for a ten-minute
call, breaking the upward trend of the 2000-2001 period. Austria registered an increase (21%
for short calls and 8% for ten-minute calls). In other Member States prices remained stable,
with reductions occurring in Denmark, Germany and in particular Greece (16%). Prices for
both three-minute and ten-minute calls continue to be higher than the EU average in Belgium,
Ireland and the United Kingdom, and in Austria in particular, where local calls are the most
expensive (68% higher than EU average).

3.5.4. National calls

The tendency referred to in the 7th Report towards the reduction or elimination of price
differences between regional and national calls continues,
leading effectively to further
reductions in incumbent’s tariffs for long-distance calls. Since 1998, tariffs for three-minute
national calls have decreased by 47% and for ten-minute calls by 49%. The cost of a three-
minute call is now cent 35 and cent 109 for a ten-minute call.

However, while this downward trend continues, the pace in 2002 is slower than in previous
years, and reductions are half those in 2001 (5% this year against 11% in 2001 for a three-
minute national call and 5% against 13% for a ten-minute call).

Germany, Portugal and the Netherlands saw an increase in the price of this type of call. There
were reductions in Denmark, Greece, Italy, and in particular in Spain (38%). National call
prices are still higher than the EU average in the United Kingdom, Italy, Portugal and
Germany (the latter 26% more expensive than the EU average).

The OECD basket methodology14 shows average monthly expenditure for national calls (local
and long distance calls and fixed charges) went down from
30.5 (including VAT)
between August 1998 and 2002 for residential users. Reduction rates were higher in 1998 and
2000 (13%), while in the last two years the average reduction has been only 0.4%. As for
80 in 1998 to
business users, reductions have been comparatively more noticeable, from
€
62.8 (excluding VAT) in 2002, that is, a reduction of 23% over the period.

34.7 to

€

€

€

14

For methodology, see Annex 1.

13

EU weighted average monthly expenditure for national calls, residential
and business (1998-2002)

90,0

80,0

80,0

h
t
n
o
m

r
e

€p

70,0

60,0

50,0

40,0

30,0

20,0

10,0

0,0

71,9

65,6

64,4

34,7

32,2

30,4

30,6

Residential, Incl. VAT
Business, Excl. VAT

62,8

30,5

1998

1999

2000

2001

2002

3.5.5.

International calls15

€

€

1.12 to

There has been a decrease of 4 % in the average cost of an international call since last year,
0.73 for business
from
users (excluding VAT). The overall reduction over the period 1998 to 2002 has been 38% for
residential users, from

1.07 for residential users (including VAT) and

1.07, and 41% for business users, from

0.76 to
€

1.24 to

1.71 to

0.73.

€

€

€

€

€

€

2,00

1,80

1,60

1,40

1,20

1,00

0,80

0,60

0,40

0,20

0,00

EU weighted average price for an international call, 1998-2002

1,71

1,24

1,47

1,06

1,35

0,96

1,12

1,07

0,76

0,73

Residential, Incl. VAT
Business, Excl. VAT

1998

1999

2000

2001

2002

15

For methodology, see Annex 1.

14

3.5.6.

Average monthly expenditure (composite call basket)

The new OECD methodology16 shows that the EU weighted average monthly expenditure for
a composite basket of national, calls to mobile networks and international calls only decreased
with respect to 2001 by 0.6% for residential users and 2.8% for business.

For residential users there were increases in Germany, Ireland, the Netherlands, Austria and
Portugal. Prices went down in Belgium, Denmark, Greece, Spain, Italy and the United
Kingdom.

Regarding business users, prices have increased in Germany, the Netherlands and Austria.
Monthly expenditure is lower with respect to 2001 in the other Member States, with the
exception of Luxembourg and Finland where it remains stable.

3.5.7. New entrants

All of the prices referred to above are those of incumbent players. New entrants usually
charge considerably less, depending on the call type and duration. Competition in the local
call segment has increased with respect to 2001, and new entrants now offer lower tariffs in
10 Member States, with reductions of up to 37.5% in Austria and 25% in Belgium.
Reductions are much greater for national calls, with operators charging up to 56% less in the
United Kingdom, 46% less in France and 35% less in Germany (longer calls in all cases).

Competition is fiercest in the international calls segment, where operators offer discounts of
up to 65% (Austria) for calls to near EU countries as compared to incumbents’ tariffs. Other
examples for calls to near EU countries are France and Portugal (59% and 54% cheaper
respectively). For calls to far EU countries, besides Austria, new entrants’ tariffs are up to
42% lower in the United Kingdom and 38% lower in Luxembourg and France.

3.6.

Market structure

3.6.1.

Fixed operators

The number of operators authorised to offer public voice telephony at August 2002 was 1231
(325 local; 906 national). More than 600 (125 local and 478 national) are actually offering
services.

The number of operators authorised to operate a public network and to provide public
network services at August 2002 was 1 561 (654 local; 907 national). The numbers of
operators actually providing local, trunk and international network services are, respectively,
429 (253 local and 176 national), 285 (59 local and 226 national) and 237 (44 local and 193
national).

While the number of authorised operators increased by about 50% per annum from 1998 to
2001, during the last year operators have started to reorganise their businesses, with a
resulting concentration of activities in the market (in particular between cable operators). The
stabilisation of the market and some bankruptcies have led to an overall decrease in the
number of authorised operators of about 9% as regards voice telephony operators and 1.5%
for public network operators.

16

For methodology, see Annex 1.

15

Number of authorised operators in EU

1583

1561

1239

1352

1237

1231

945

900

635

526

Voice telephony

Public network

1600

1200

800

400

Aug. 1998

Aug. 1999

Aug. 2000

Aug. 2001

Aug. 2002

3.6.2. Mobile operators

A total of 79 national digital mobile licences (GSM and DCS 1800) have been awarded
throughout Europe, and a total of 54 mobile network operators and 100 mobile service
operators (mainly resellers) are active in the mobile markets.

Spain, Italy, Sweden and Finland still have analogue licences; phasing out is scheduled for
Finland at the end of 2002, and for the other countries between end 2005 and 2007.

The Member States have awarded a total of 62 3G licences (48 have been awarded to
operators already holding a digital licence).

3.6.3. Market shares

Incumbent operators’share of the public fixed voice telephony market in terms of retail
revenues is estimated to be on average (at end 2001) 89% for local calls, 73.5% for long-
distance calls and 67.6% for international calls.

It is estimated that from end 2000 to end 2001, incumbent fixed operators on average lost
approximately 9% and 11% of market share for long-distance and international calls
respectively, while market share for local calls remained more or less stable (-0.5%).

Apart from Greece, which started the liberalisation process later than the other countries, only
the incumbents in Belgium and Germany still retain almost 100% of the local call market. In
five Member States (Spain, France, Ireland, Italy and the Netherlands) the incumbent has
between 80% and 90% and in the United Kingdom around 66%. As far as long-distance calls
are concerned, the incumbent’s share of retail revenues is estimated at 97% in Greece; 82% in
Spain and approximately 50% to 75% in six Member States (Germany, France, Ireland, Italy,
the Netherlands and Sweden) and in the United Kingdom at around 53%. For international
calls, only the incumbents in Spain and Greece have over 80% of the market, in Italy and
Ireland the incumbent’s market share is 74%, while in four Member States it is between 61%
and 68% (Belgium, Germany, France and the Netherlands), and in the United Kingdom and
Sweden it is 45% and 43% respectively.

16

Market shares for Denmark, Luxembourg, Portugal, Austria and Finland are only available in
terms of outgoing minutes of traffic. National market shares (local and long-distance calls) are
90% in Portugal, 87% in Luxembourg and 65% in Denmark. In Finland, local call market
share is 92.5% and for long-distance calls it is 32%. For international calls, the market share
in Luxembourg and Portugal is over 70%, in Denmark 53% and in Finland 54%. In Austria,
the market share on the overall fixed telephony market is estimated at around 70%.

In five countries (Spain, France, Ireland, Luxembourg and the United Kingdom)
incumbent’s market share for local calls to internet is below 80%.

the

The average market share of leading mobile operators (subsidiaries of the former incumbent
in all Member States except for the United Kingdom) is 48% in terms of revenue. The leading
operator's share is above 50% in only six Member States, as in 2001, but in three (Belgium,
Ireland and Finland) there has been a reduction. On the other hand, the leading operators in
Spain and Luxembourg have increased their market share.

3.7.

Digital TV

The EU digital TV market, which had a high growth rate until 2001, has been adversely
affected during the past year. Companies providing digital TV, essentially pay TV operators,
have faced economic difficulties leading to bankruptcies, notably in the United Kingdom,
Germany and Spain, which are amongst the biggest national digital TV markets. The difficult
market situation has led to mergers in the satellite and cable sectors,
indicating that
competition between several pay operators on the same national market is difficult to sustain.
The national competition authorities and the Commission have recently been assessing
intended mergers in Spain and Italy.

As a result of market problems, EU digital penetration has not increased at the pace seen in
recent years, rising to around 21% compared with 18% in 2001. The figures annexed to this
report do not necessarily reflect the latest bankruptcies, so that real penetration at the moment
might even remain at the same level as in 2001.

Regardless of modest overall development, digital TV penetration has grown rather strongly
during the past year in those Member States which are at an early stage of digital take-up. The
divergent development in different Member States has evened out the market bias of previous
years. In 2001, 90% of the market was represented by five Member States (Germany, France,
Spain, Italy and United Kingdom), whereas by July 2002 their share of the total market (in
terms of digital television households) has decreased to 84%.

The figures regarding development of different delivery platforms indicate that digital
satellite TV represents 64% of the overall satellite TV market and digital cable TV represents
16% of the overall cable TV market. Terrestrial digital TV represents only around 4% of
terrestrial TV services. The latest developments in the market suggest that future terrestrial
services will rely more on the free-to-air concept than on pay TV in the short term.

4.

STATUS OF IMPLEMENTATION OF REGULATION IN THE MEMBER
STATES

In previous reports the Commission has assessed progress in implementing key requirements
such as those relating to NRAs, licensing, interconnection, tariffs, cost accounting, numbering
and universal service, as set out in the range of directives and other instruments making up the
current regulatory package.

17

Given the objective of this report of assessing progress in the implementation of regulatory
obligations in the light of the way in which they are carried over into the new framework, it is
considered logical to group them in accordance with the structure of the new directives.

4.1.

Regulatory framework

4.1.1. National regulatory authorities

in implementing the
the national regulatory authorities (NRAs)
The central role of
telecommunications regulatory framework has been stressed by the Commission on many
occasions. In a situation where players may be affected by fragile financial markets, the
ability of regulators to act effectively and impartially,
thereby guaranteeing legal and
regulatory certainty, is crucial. The way in which NRAs are organised and exercise their
powers is clearly a matter for the national legal and administrative systems, provided the basic
requirements of the EU framework are complied with. Detailed data on the organisation of the
NRAs are given in Annex 2. Despite the resulting possibility of differences, overall the NRAs
have done a remarkable job in regulating complex aspects of the current framework, and are
in a good position to undertake the task of implementing the new regime. The following
comments are intended as guidance in relation to matters which may require attention during
the transitional period.

The new framework builds on experience gained so far by regulators and market players. The
new directives further lay down clear provisions requiring Member States to ensure that
NRAs are equipped with appropriate powers to carry out a variety of tasks including analysis
of relevant markets, identification of SMP operators, dispute resolution, the imposition of
regulatory and universal service obligations and the enforcement of authorisation conditions.
Given the wide discretion conferred on the NRAs under the new framework, the safeguards
established under the current framework in particular to ensure structural and operational
independence from market players will continue to play an essential role.

Remaining concerns relating to regulatory independence under the current framework should
be removed in Belgium with the forthcoming adoption of legislation designed to confer on the
regulatory body powers currently held by the minister responsible for the State shareholding
in the incumbent operator.

Two models for the assignment of regulatory powers have evolved. In some Member States
an independent and autonomous body or agency exercises the full range of powers including
those relating to licensing, interconnection, access, price controls, frequency assignment and
the Netherlands except for frequencies,
numbering (Germany, Greece, Ireland, Austria,
Portugal), while in the others the regulatory body exercises regulatory powers to a greater or
lesser extent with the relevant ministry. The dispersal of powers inevitably leads to a
reduction of the regulatory certainty required by the market, in particular in cases where
decisions by ministries relating to licensing or price controls may be seen by the market as
being influenced by political considerations. Leaving aside such considerations, the overall
performance of the independent body may quite simply be improved through the transfer of
all regulatory powers from the ministry, as has been the case for example in Greece.

Lack of resources on the part of NRAs is still identified by the market as a brake on effective
regulation. In this context market players believe that regulators could maximise resources by
making greater use of moral suasion and publicity in combating anti-competitive behaviour.
In two Member States, although the number of staff employed by the NRA is relatively high,
only a small proportion deal with regulatory tasks relating to telecommunications (Belgium,

18

Luxembourg). In some cases, new entrants consider that there is room for organisational
improvements to enable regulators to address issues in a timely and efficient manner
(Belgium, the Netherlands, Finland).

Efficient mechanisms for appeals against NRA decisions are required under the existing and
future frameworks. In almost all Member States appeals are lodged with a court, normally an
administrative tribunal. Denmark is the only country which has established a separate appeals
body which is not a court, while in the United Kingdom appeals against decisions by OFTEL
using its concurrent competition powers are submitted in the first instance to the Competition
Commission. In some further cases appeals are in the first instance dealt with internally in the
NRA (Belgium, Spain, Luxembourg, the Netherlands), which may mean time and resources
are diverted from pure regulatory oversight. In Austria, despite improvements through a new
law providing for the establishment of an appropriate appeals mechanism, uncertainty persists
in the absence of provisions regarding jurisdiction for cases already pending. In Germany, the
length of the appeals procedure due to confidentiality rules is considered a barrier to
competition.

The practice under the existing framework has in many cases been for the appeals bodies to
examine process rather than substance. This situation must be remedied under the new
regime, and is indeed changing: in France for example the Court of Appeal, assisted by an
expert, can now examine the substance of an NRA decision in addition to its legality.

NRAs in all Member States appear to have sufficient powers to regulate markets, although
further powers may be needed in Belgium in relation to retail tariffs and appeals against
interconnection decisions, and in Finland regarding switched data transmission. In two
Member States the NRA has to rely on the submission of a complaint (the Netherlands) or of
leading to delays in
a request (Germany) in order to address certain regulatory issues,
reaching decisions (Germany). However, NRAs in virtually all Member States need to be
better equipped to regulate on their own initiative in order, for example in relation to local
loop unbundling, to ensure non-discrimination, fair competition, economic efficiency and
maximum benefit for users.

Under the new framework, the NRA will need to address disputes within four months. At
present, although all Member States have established dispute resolution procedures, in one
case (Italy) the NRA has not always resolved the disputes brought before it. In certain cases
the deadline has been exceeded (the Netherlands, Austria, Portugal, United Kingdom). In two
Member States, the dispute resolution procedure is reported to be lengthy (Finland) or
elaborate (France).

Regulatory decisions need to be effective and timely, and the balance is not always achieved.
Difficulties appear to exist in certain cases in reaching decisions within the deadlines (Italy,
Finland), or in taking full account of all comments made during consultation procedures
(Greece, Ireland), or in giving the necessary time to operators to respond in consultation
procedures (Sweden).

New requirements have been introduced (Denmark, Ireland) or are in the process of being
introduced (Finland) to guarantee and improve the enforcement of operators’ regulatory
obligations. Most Member States have the power to impose penalties for non-compliance with
licence conditions, although the extent to which it may be used is not always clear (Germany).
In Finland the extremely high number of SMP undertakings creates difficulties for the NRA
in ensuring that they are compliant with their obligations, leaving new entrants without the
necessary regulatory guarantees.

19

Co-operation between the NRA and the national competition authority (NCA)
in the
enforcement of the current regulatory framework has generally improved since liberalisation
and works well in practice in many of the Member States (in particular in Denmark, Greece,
France, Ireland, Italy, the Netherlands, Austria, United Kingdom). Two Member States have
already introduced formal procedures for such co-operation (Denmark, Ireland), while in two
Member States the competition authority provides the NRA with non-binding opinions on
matters which affect the competitive conditions of the market (Germany with the exception of
SMP designation, where the opinion is binding, and Italy). In others the NCA does not get
the
involved at all in the decision-making process but
Netherlands except for market analysis). In one Member State (Portugal) new entrants would
like to see more intervention by the competition authority.

to the NRA (Greece,

leaves it

The greater focus on the assessment of effective competition which is demanded by the new
regulatory framework means that cooperation between the two types of authority will become
increasingly critical in the future (see section 6).

4.1.2. Management of numbers

The EU regulatory framework requires that numbering plans be controlled by the national
regulatory authority. This is the case in all Member States.

A number of Member States have modified their numbering plans in the past few years to
accommodate higher demand for numbers, in particular with the development of mobile
services, as well as to promote fair competition.

The management of numbers does not seem to raise concerns from market players or
consumer organisations. However, some numbers and number ranges in Austria do not
comply with the numbering plan.

4.1.3.

Frequency management

Considerable progress has been made across the EU in recent years towards greater
consistency and transparency in the management of radio frequencies. In all Member States
there is now a published national frequency plan and an authority designated with
responsibility for frequency management, whether this is the same authority as is generally
entrusted with the supervision of the communications sector or a separate, dedicated body.
While individual problems continue to arise from time to time in relation to the assignment of
spectrum for particular uses, no major outstanding problems of general
frequency
management have been reported. A number of Member States have recently taken initiatives
or launched consultations regarding the future development of frequency management,
touching on such issues as spectrum trading or the use of licence exempt frequency bands,
which are increasingly topical at the EU level also.

4.2.

Interconnection and access regimes

4.2.1.

Interconnection

Under the regulatory framework, NRAs must ensure that operators designated as having
significant market power (SMP) on the fixed market publish a reference interconnection offer
(RIO) including a detailed description of their interconnection offering. Fixed SMP operators
are also required to charge cost-oriented tariffs for interconnection and access, supported by
transparent cost-accounting systems, and must comply with the principles of transparency and
non-discrimination. Operators designated as having SMP in the national mobile market are

20

also subject to transparency and non-discrimination obligations, while mobile operators with
SMP in the national interconnection market must also comply with the cost orientation
principle.

The effective implementation of these obligations has been a prerequisite for an open and
competitive market by ensuring fair, proportionate and non-discriminatory conditions for
interconnection, and is an essential precondition for the transition to the new regulatory
framework.
function well across Europe, with
interconnection offers generally oriented to market needs, and previous reports17 have shown
large numbers of agreements in place.

interconnection regimes

In practice,

4.2.1.1. Reference interconnection offer

Fixed SMP operators in all Member States have published a reference offer (RIO), although
in two Member States access to the RIO requires the consulting party to identify itself
(Austria, Germany). Problems with the completeness of the RIO appear to be resolved in all
Member States, and all RIOs now cover the technical and financial conditions for origination
and termination of voice telephony traffic at all levels of interconnection. However, in
Finland problems with the tariff offer for interconnection at local level have been reported.

Although the RIO allows competitors to conclude interconnection agreements in all Member
States, delays in the approval of the RIO by the NRA must be noted in five countries (Greece,
Ireland, Italy, Luxembourg, Portugal).

4.2.1.2. Interconnection leased lines

Interconnection leased lines (i.e. 64 Kbit to 34 Mbit leased lines connecting new entrants’
infrastructure to customer premises) enable new entrants to provide end-to-end services to
their customers in cases where their own networks are not yet sufficiently extensive to enable
them to provide these services by means of their own infrastructure alone.

NRAs in all Member States have taken action to ensure the availability of interconnection
leased lines and to supervise tariffs. However, with regard to Finland it is not clear whether all
regional and local incumbents provide interconnection leased lines.

Annex 1 sets out data on the pricing of interconnection leased lines in relation to EU price
ceilings.

4.2.1.3. FRIACO

There are widely differing views as to the usefulness of providing flat rate interconnection for
narrowband internet access. Some regulators consider it likely to encourage broadband take-
up by accustoming users to flat-rate retail access, while others believe that it has now been
overtaken by DSL (high speed digital subscriber line technology). At any event, flat rate
interconnection must be offered to new entrants on a non-discriminatory basis by incumbents
where they offer their own retail flat rate narrowband internet access to their customers. To
allow market entry, it is particularly important that the FRIACO contract does not contain
network architecture requirements which cannot be fulfilled by the majority of new entrants.
It is also important that FRIACO is offered by the incumbent at levels of interconnection

17

http://europa.int/information-society/topics/telecoms/implementation/index
http://europa.eu.int/comm/competition/liberalization/others

21

demanded by new entrants. This means that the non-discrimination principle needs to be
applied not in a purely formal way but taking account of its underlying objective, which is to
open up the market.

This objective has only been achieved in a fragmented way up to now. FRIACO is offered by
the incumbent at the local and at higher than the local level only in two Member States (Italy,
United Kingdom) and is offered at the local level in three further countries (France, the
Netherlands, Portugal). In Spain the RIO for 2001 introduced a generalised capacity-based
interconnection model (applying both to voice and to data), but difficulties have emerged with
its implementation. In Germany, the NRAs has taken action to impose FRIACO without
having so far been able to ensure its availability due to pending court proceedings. No
FRIACO offer is available in some countries, despite the fact that the incumbents offer flat
rate internet access to customers (for example in Finland) or flat rate internet access within
certain time periods (for example on Sundays) as part of a bundled offer (Luxembourg).

4.2.1.4. Interconnection tariffs

The principle of cost orientation in regard to fixed networks has been implemented by all
Member States, although there are still problems in obtaining proof of costs based on suitable
cost accounting systems. In only one country (Denmark) does the NRA still rely on best
practice benchmarking to set the fixed interconnection tariff, although prices determined in
accordance with an LRAIC18 cost accounting system are due to take effect from 1 January
2003. Generally, interconnection tariffs appear to have moved to a level which permits market
entry, although there are still complaints about high tariffs in particular in Finland.

In a number of Member States (Belgium, Greece, Spain, Luxembourg, the Netherlands,
Finland), there are complaints of a price squeeze between fixed interconnection tariffs and the
incumbent’s retail tariffs and the discounts applied thereto. Not all NRAs have yet acted to
eliminate the price-squeeze (for
remedial action in the
level
Netherlands took effect recently; and will take effect in Luxembourg from January 2003).

interconnection,

local

Concerns still arise from the fact that in certain circumstances the charges which new entrants
can levy for termination on their fixed networks are based on reciprocity (Denmark, Germany,
Spain, Italy), despite the fact that those operators are not subject to the obligation of cost
orientation and do not necessarily provide a similar interconnection service. Claims have also
been made that interconnection tariffs for new entrants are discriminatory when compared to
what incumbents charge between themselves (Finland). This shows the need to prevent abuse
of a dominant position by incumbents also as purchasers of interconnection.

In two countries (France, Italy), the NRA is introducing a price cap procedure applicable as
from 1 January 2003 , to provide the market with greater predictability as to the future level of
interconnection tariffs. This initiative constitutes an improvement in the stability of market
conditions and has been widely appreciated by market players.

With regard to mobile termination, regulators have taken a range of measures within the
margins set by the current framework to regulate tariffs. In Austria the NRA set mobile
termination tariffs on the basis that prices should be “appropriate”, by relying on an imposed
cost accounting system (see below). In a number of Member States (the Netherlands,
Portugal, United Kingdom), the NRA ordered a reduction in mobile termination tariffs on the

18

Long run average incremental cost

22

basis that it considered those tariffs to be excessive or unreasonable, although it had not
designated the mobile operators as having SMP in the national interconnection market. In
Finland, mobile operators have not been designated as having SMP in the national market for
interconnection, but three of them have been designated with SMP in their own relevant
markets, which under national law means that their interconnection charges must be cost-
oriented. The cost-orientation of the interconnection charges of two of these operators has
been investigated by the regulator. In other Member States the NRA has ordered a reduction
which they regard as moving towards the principle of cost orientation, while the mobile
operator(s) had been designated as having SMP in the national interconnection market
(Belgium, Spain, France, Ireland, Italy, Sweden). In the remaining countries, mobile operators
have not been designated with SMP in the national interconnection market and the NRA has
not intervened in relation to mobile tariffs.

Most cost accounting models of mobile operators across Member States are currently at the
stage of fully-distributed costing using historical costs. The two exceptions are the United
Kingdom, where the NRA is the only one which has developed an LRIC model using a
current cost basis, and Austria, where mobile operators are required to use a LRIC cost
structure without however being subject to cost accounting verification. In Italy, the NRA has
required mobile operators to move from a cost accounting system based on historical costs to
a system based on LRIC from 2003 onwards. In Spain, the regulator has also recently
approved the cost accounting systems of the two mobile operators designated as having SMP
in the national
in a position to approve
interconnection tariffs on this basis due to lack of cost accounting data.

interconnection market, although it was not

4.2.1.5. SMP determination

The reasoning behind NRAs’ determinations as to the existence of SMP has been made public
in all Member States except one (Denmark).

It would appear that the principles governing SMP designation of fixed operators have been
consistently applied within the EU, since Member States have designated the incumbent as
having SMP on the fixed market. However, in one country (Finland), the relevant market for
SMP designation is not the national fixed market, and parts of this market (local, long
distance, international etc.) are used as the basis of a series of SMP designations.

A certain degree of consistency has also been achieved with regard to findings of SMP in the
mobile market, although some variation exists. Thirteen Member States have designated at
least the two leading mobile operators as having SMP in the mobile services market, on the
basis that their market share exceeded the 25% threshold in the Interconnection Directive, and
did not designate those below this threshold. In one of the remaining countries (Germany), the
decision not to designate mobile operators as having SMP in the mobile market, even though
they exceeded the 25% market share threshold, was based on the assumption of sufficient
counter-veiling power on the part of end users. In the other remaining country (Austria) the
reasons for the decision not to make an SMP designation in the mobile market have not been
communicated to the Commission.

As regards designation of mobile operators with SMP in the national interconnection market,
a certain degree of consistency in the application of the SMP principles has been achieved
through use of the ONP Committee Explanatory Note on determination of SMP19. A number

19

ONPCOM 99-03

23

of NRAs relied directly on this note and based their SMP assessment on the market shares
calculated by reference to total revenue generated by termination on fixed and mobile
networks, including on-net calls. Mobile operators which exceeded the 25% threshold were
designated as having SMP, while those below the threshold were not so designated, in five
countries (Greece, France, Ireland, the Netherlands, United Kingdom), while further criteria
were also examined. In a number of other Member States (Belgium, Austria, Portugal) the
25% market share threshold was also decisive. However, in these cases the NRAs did not
calculate the market share fully in accordance with the above mentioned Explanatory Note. A
number of Member States also designated mobile operators as having SMP in the national
interconnection market, where those operators had a market share below the 25% threshold,
basing their decision on the further criteria provided in the Interconnection Directive (Italy,
Spain, Sweden). Finally, in some countries the market shares of mobile operators in the
national interconnection market have not been calculated or the relevant decisions have not
been published (Germany, Luxembourg).

4.2.1.6. Mobile virtual network operator (MVNO) access

One aspect of access to electronic communications networks that is not mandated by the
current regulatory framework, but that may be by individual NRA’s under the new one, and
which is likely to play a growing role in the future, is the provision of access to mobile virtual
network operators (MVNOs). While in most Member States the MVNO model remains
subject to commercial negotiation alone, there are a number of Member States which have
incorporated provisions into their national telecommunications law to govern such access. For
example, in Denmark the statutory provisions governing national roaming extend to MVNO
access; in Spain a legislative amendment has established a new type of licence for MVNOs;
in Ireland the offer of MVNO access was taken into account in selecting the winner of the ‘A’
Licence in the recent 3G licensing procedure; in Finland the draft new Communications
Market Act includes a provision allowing for such access. In Austria the national regulatory
authority has recently rejected a request for interconnection by an operator for the purposes of
providing services as an MVNO, on the grounds that the current Austrian legislation does not
allow for this possibility, although the regulator indicated it would welcome a change to the
law in this respect.

Although the MVNO access model is increasingly being reflected in the national legal
systems of Member States, its development on a commercial basis is still relatively limited,
with few fully fledged MVNOs operational in the EU. This is likely to be due at least in part
to the complex costing and pricing issues that such access gives rise to. However, as mobile
network capacity and data applications increase with the development of the high-speed
mobile market, it is likely that this form of access will grow and evolve accordingly.

4.3.

Unbundling of the local loop

The objective of the EU Regulation on unbundled access to the local loop is to facilitate
market entry and to develop competition in particular for high-speed internet access. Notified
(SMP) operators must offer fully unbundled access, where the entire line is rented to a new
entrant, as well as shared access, where the new entrant only rents the high frequency part
suitable for high speed internet.

Notified operators must publish a reference unbundling offer (RUO) suited to market needs,
which must therefore be sufficiently detailed to allow operators to choose only the network
elements and facilities they require. Notified operators must meet reasonable requests for
unbundling and apply transparent, fair and non-discriminatory conditions, meaning that they

24

must provide other operators with facilities equivalent to those provided to themselves and
their subsidiaries. The tariffs charged for unbundled access must be cost-oriented.

4.3.1.

Reference unbundling offers

In the 7th Report the Commission noted that progress in implementing the Regulation was
unsatisfactory. The Commission then took action against five Member States where a RUO
was unavailable for shared access. The situation was quickly remedied, and there is now a
reference offer in all Member States covering both full unbundling and shared access.
However, the Commission then (March 2002) took action against four Member States where
the RUO was not sufficiently detailed, specifically insofar as there was no possibility to
access the local sub-loop, the street cabinet near to a customer’s premises necessary for the
possible provision of VDSL or HDSL services. Again, action was taken in the Member States
to remedy this failing.

Nevertheless, progress in regard to unbundling over the last year has still been slow, and has
clearly been affected by the downturn in the telecommunications market and the difficulty for
operators in attaining capital financing for investment purposes. By 1 October 2002, there
were just over 1 million unbundled lines in the EU (out of a total of nearly 187 million
subscriber lines), mostly fully unbundled lines (1 050 740) and a small number of shared
access lines (27 700). Given that there were 600 000 unbundled lines at October 2001, the
pace of unbundling is slowly picking up.

25

Incumbent's
PSTN
activated
main lines
(millions)*

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN

S

UK

4.69

3.32

39.00

5.54

17.43

34.00

1.70

27.33

8.21

3.14

4.27

2.85

6.50

28.70

Availability of wholesale access

Unbundled lines

Wholesale DSL lines

Fully unbundled
lines

Shared access lines

Bitstream access

Simple resale

1 556

44 061

855 404

93

1 181

1 043

26

82 100

18 629

7 300

20

35 000

2 818

1 509

1 039

6 960

13

0

0

61

62

19

10 478

0

0

7 500

1 568

0

140

250

0

0

166 413

8 000

0

105 217

0

22 100

5 633

2 000

2 000

165 820

69.044

530 000

0

192 000

0

0

0

80 000

0

186.68

Tot.
EU
* For comparison purposes. However, not all of these lines are susceptible to unbundling.

1 050 740

871 044

477 573

27 700

However,
the delays in overcoming regulatory obstacles, particularly the lack of non-
discriminatory access conditions and cost-orientated tariffs, have caused considerable
problems as new entrants were unable to attain a critical mass in the market before the
economic downturn made investment much more difficult.

There have been modifications and improvements to reference offers in a number of Member
States. Complete RUOs were finally published in 2002 by the notified operators in Belgium
and the Netherlands (where some elements have yet to be approved by the NRA), while there
were modifications to a number of RUOs following intervention by the NRAs (Denmark,
Spain, France, Italy, Austria, Portugal and the United Kingdom). In Germany, on the other
hand, a RUO for 2002 could not be agreed and the 2001 offer is still in force pending a
determination by the NRA. Based on the disappointing results with regard to unbundling in a
number of Member States, it appears that NRAs will have need of the intervention powers
under the Regulation or the new framework for some time, in order to ensure that tariffs are
transparent and cost-oriented and that conditions are complete and non-discriminatory.

NRAs have had to intervene most frequently with regard to tariff issues, both for the price of
unbundled and shared lines but also for the tariffs applied to collocation and associated
services. There have been improvements in the prices charged for unbundling over the last
13 and for shared
year, and the average monthly rental for full unbundling in the EU is now

€

26

€

€

5.6. However, there are considerable variations in these tariffs and the associated
access
charges, particularly the connection fee. When the average cost for a fully unbundled line is
calculated (by amortising these charges over a year20) the EU average is
22.6 per month,
32.7 in Finland. The same calculation for
12 in Denmark to
with prices varying from
€
€
24 in
shared access gives an EU average of
Luxembourg. These prices are generally high, compared in particular with the level of the
telephone line rental charged to the consumer by the incumbents. Along with discrepancies
between retail and wholesale fees, the level of prices may in some cases point to diverging
pricing methodologies.

16 with prices varying between

7 in Spain and

€

€

€

Prices for full unbundling21

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN

S

UK

EU
avg

Monthly rental

13,3

8,3

12,5

11,5

12,6

10,5

16,8

11,1

15,8

13,5

10,9

13,8

14,7

11,3

16,2

12,8

Connection

79,9

45,4

70,6

123,4

20,0

78,7

121,5

91.4

185,6

79,0

54,5

82,9

216,0

165,2

140,3

103,6

The variations in the level of unbundling charges also seems to suggest inappropriate pricing
methodologies, and cannot be explained merely in relation to differences in population
distribution or the actual cost of network elements.

This seems to be particularly true with regard to shared access. It appears that the allocation of
the costs of shared access is done in a number of different ways in the EU, and it has been
difficult to establish whether the tariffs are truly cost-oriented or whether the costs have been
correctly attributed. The variation is between allocating costs fully to the voice band of a
telephone line while leaving only the avoidable cost to shared access, allocating them 50/50
between the voice band and the higher frequencies, or applying retail-minus pricing. It
appears that each approach presents disadvantages and that it is very difficult to determine
what costs actually are involved. However, the first methodology, implemented in some
Member States, generally results in lower costs.

The manner in which fees for full-unbundled access are calculated relies in some Member
States on a reconstruction of the cost of replication of the existing networks (current costs).
Where current costs are used, new entrants generally argue that they lead to higher prices than
those given by historic costs. Furthermore, the use of significantly different depreciation
periods for similar network elements may provide another explanation for the variation of
charges across the EU. Different allocation methods for joint and common costs may also
explain the divergence of prices.

4.3.2. Collocation

New entrants in a number of Member States are still experiencing problems in the practical
implementation of collocation, particularly the conditions for effective co-location in the site
of the incumbent (Germany, Ireland, Portugal).

20

21

This amortisation period corresponds to the most common length of contract beyond which the operator
has no guarantee that it will retain a customer.
In some Member States, a different rental fee applies if new entrants are only going to use the
voiceband element of the line; in this table the monthly rental for use of the full spectrum or, where
applicable, for use of the broadband part of the spectrum, is indicated.

27

There is only limited experience of applying the principle of non-discrimination in practice to
unbundling. One issue in several Member States is whether application of this principle
should lead to ‘co-mingling’ instead of separate collocation, particularly where a new entrant
only requires a relatively small surface area and where separate collocation space is
the recent drop in demand for
proportionately much more expensive. It appears that
collocation space together with growing awareness of possible discrimination is leading to
greater pressure for co-mingling, which is currently available in Belgium, Denmark, France,
Spain and the United Kingdom. While there are some clear security concerns related to the
siting of exchanges and the release of access codes, there seems to be little justification for
blanket non-disclosure clauses. In France, following intervention by the NRA, the obligation
to install separate collocation rooms has been removed, but the problem remains of those sites
usually in areas of strategic interest, where such rooms have already been constructed and
where new entrants are obliged to occupy (and pay for) these separate rooms.

The pricing of the rental of collocation space in the incumbent’s premises raises difficulties.
The Commission intends to examine this question further with the NRA’s.

Another problem is the risk of discrimination where the marketing division of an incumbent
may have access to information about customers who are thinking of changing provider when
a new entrants seeks information about the addressing and technical feasibility of those
potential clients.

4.4.

Bitstream access

The Commission has consistently maintained that
the non-discriminatory provision of
bitstream access is essential to the development of competition in local access and particularly
high-speed internet
in the EU. Even before unbundling was mandated at EU level,
Community law covered some forms of ‘shared access’ whereby SMP operators are obliged
to adhere to the principle of non-discrimination when they make use of the fixed public
telephone network and, in particular, use any form of special network access themselves.
They must provide special network access facilities and information to others under the same
conditions and of the same quality as they provide for their own services or those of their
subsidiaries or partners. Furthermore they must meet all reasonable requests for access to the
network including access at points other than the usual network termination points.

Bitstream access (provision of DSL services by the incumbent operator) refers to the situation
where the incumbent installs a high-speed access link to the customer premises and then
makes this access link available to third parties, to enable them to provide high-speed services
to customers. The bitstream service may be defined as the provision of transmission capacity
between an end-user connected to a telephone connection and the point of interconnection
available to the new entrant. It does not include resale offers, as these do not include the
provision of interconnection or transmission capacity in such a way as to allow new entrants
to offer their own, tailor-made DSL services to their clients.

Where an incumbent operator provides bitstream (usually xDSL services according to the
current state of technology) to itself, a subsidiary or to a third party, then, in accordance with
the provisions referred to above, it must also provide such forms of access under transparent
and non-discriminatory terms and conditions to new entrants.

28

4.4.1.

Intervention of NRAs to ensure non-discriminatory access

DSL services depend upon the copper loop, and in many cases the incumbent continues to be
in a position to exercise bottleneck control over this facility, and new entrants cannot deploy
xDSL technologies and services on their own. There is therefore a clear role for direct
intervention by NCAs concerning access to wholesale DSL (bitstream and resale). In France
the NCA concluded that there was an abuse, with the result that the NRA could oblige the
incumbent to make a wholesale offer. In Italy the incumbent was prevented from launching
any retail tariffs in the future until a corresponding wholesale tariff was approved by the
NRA.

However, the task has fallen principally to NRAs to intervene in order to ensure that the
incumbent does not completely pre-empt this market. In a recent decision, and following the
withdrawal of the incumbent’s wholesale ADSL offer,
the Netherlands NRA made an
important ruling on bitstream access. This strengthens the view taken in earlier decisions in
Italy and France that while the incumbent may not be offering bitstream access at the
DSLAM or the ATM switch to its own downstream arms, the market is constructed in such a
way as to make it necessary to force the incumbent to supply bitstream access (and not just a
resale product) at those levels.

4.4.2.

Tariffs

NRAs should ensure adequate accounting transparency of pricing schemes for access
provided by incumbent operators, in order to avoid undue cross-subsidisation that could
distort market conditions. Prices may take into account reasonable incentives for sustainable
investments and compensation for risks associated with the launching of new innovative
services, but regulatory oversight of prices should prevent
the incumbent from taking
monopoly or excessive profits on its access network business.

There are a large number of different retail, wholesale bitstream and resale offers for xDSL
services in the Member States, with varying combinations of data rates and other technical
conditions, with the result that it is very difficult to compare price levels in the EU. In fact the
variation and complexity of these offers are in themselves a factor in inhibiting the
development of competition, and in some cases it
is hard for operators and NRAs to
determine if there is a price squeeze between wholesale and retail products.

Among the countries that reported price data, the tariff for a 512Mbit/s ADSL configuration
13.3 in Belgium to
charged to a new entrant operator, for example, appears to be between
€
25.4 in Austria, but even within this restricted comparison there are differences in technical
parameters, not least the point of connection at which the service is delivered (local DSLAM
or ATM switch).

€

4.5.

The regulatory aspects of developing competition in broadband: local access
and high–speed internet access

Since its Communication on Unbundled Access to the Local Loop22, the Commission has
stressed the complementary role of full unbundling, shared access and bitstream access in the
process of overcoming the limited competition in local access and in developing broadband
access. Over a long period of time incumbent operators were able to roll out their local access
networks, protected by exclusive rights and funded through monopoly rents. They therefore

22

COM(2000) 237 final, 26 April 2000

29

have a major advantage in developing xDSL services as the technologies are developed to
maximise the use of the copper wire network, an infrastructure that it is very hard and costly
for new entrants to replicate.

In light of the current situation regarding unbundling and bitstream access described above,
incumbents’ first mover advantage, coupled in some cases with predatory pricing and other
anti-competitive behaviour, appears to be pre-empting the market for high speed internet
services over the telephony network. The fact that new entrants control 22% of xDSL
customers is encouraging. However, market penetration by new entrants is very uneven in
different Member States and a strong regulatory effort is still required on price squeeze in
bitstream access, as well as the general application of non-discrimination, if this market share
is to develop. This in turn will create the critical mass in terms of market share to allow new
entrants to make greater use of unbundling.

Availability of incumbent's and new entrants' retail broadband access to Internet

Incumbent's
DSL lines

New entrants' DSL lines on PSTN

Full ULL Shared
access

Bitstream
access

Resale

Total

Incumbents' access lines
by other means
Other*

Total

Cable
modem

New entrants' access lines by
other means

Other*

Total

B
DK
D
EL
E
F
IRL
I
L
NL
A
P
FIN
S
UK

370 728
216 000

272
44 061
2 580 000 161 000
93
0
579 903
691 000
1 714
475 000

1 043
49
42 285

221 676
113 900
5 155
112 000
264 000
232 014

18 629
3 876
20
10 000

1 509

100
6 960
13
0

140
250

0
166 413

69 044

530 000
0

61
134

8 000 192 000
0

0
0 105 217

10 478
0

7 500

0
22 100
5 633
2 000
2 000
0 165 820

0

80 000
0

69 556
51 271
691 013
93
166 413
201 104
183
147 502

29 107
25 976
5 653
19 500
82 000
167 329

42 000

0

47 560
0
0

953
31 328
19 000
0

1
330

953
73 328
19 000
0
0
47 560
1
330

Cable
modem
308 351
79 549
86 000
0
231 011
186 031
1 478

4 246
8 602

593
8 012
1 000
100
0 117 798

0
75 104
16 000
55 000

0
0
75 104
45 400
58 000
0 160 000 160 000

29 400
3 000

800 000
220 000
42 548
25 000
0
598 000

4 600

69 000

312 597
88 151
86 000
593
239 023
187 031
1 578
117 798

800 000
220 000
42 548
29 600
0
667 000

Tot. EU 5 863 090 282 837

25 246 477 573 871 044 1 656 700 235 664 244 012 479 676 2 577 968 213 951

2 791 919

* “Other” refers to WLL, fibre, leased lines and satellite connections

Luxembourg failed to report any data. Of the 187 million existing PSTN subscriber lines,
7.52 million (4%) are broadband lines, mostly xDSL lines. Many of these are operated by the
incumbents (5.86 million lines), leaving 1.66 million (or 22%) of retail customers subscribing
to xDSL services from new entrants through unbundling, bitstream access or resale. When it
is considered that over 871 000 of these ‘new entrant’ lines are resale lines with little
differentiation from the incumbents’ own product, and that over 90% of the rest are in just
three Member States, the real competitive situation is clearly one of significant dominance by
the incumbents on the wholesale market.

The situation is somewhat less discouraging when considering competition across all access
platforms. Taking into account both PSTN lines and all other means of access, especially
cable modem connections, there are some 10.79 million broadband connections to customers
in the EU at the moment. Of these some 6.34 million connections are in the hands of
incumbent telecommunications operators, leaving approximately 4.44 million or 41% of all
broadband connections in the hands of new entrants.

The Seventh Report already referred to the case of Germany, for example, where apparently
healthy full unbundling numbers mask the fact that most unbundled lines are used for
purposes other than the provision of DSL services, and where retail DSL appeared to be
offered by the incumbent at below cost. This view was subsequently supported by the German
Monopoly Commission which, in a report issued in December 2001, pointed to the virtual

30

monopolisation of DSL services by the incumbent for the reasons set out in the Seventh
Report.

This is one example of the effect of market dominance of the incumbent in one market on
another closely connected market, where new entrants are reduced to using unbundled lines
for competing on the ISDN market because they cannot compete with the incumbent on the
DSL market. In other countries, there has simply been no effective take-up of unbundled lines
because of the inability of new entrants to compete with the incumbent’s retail DSL offerings.
The means of promoting access on the fixed line network are varied, but new entrants cannot
establish a business case or justify investment costs if there is continued lack of regulatory
clarity or certainty concerning the tariff policies being pursued by incumbents for its retail
broadband services.

This situation is worse where the line rental charge is actually lower (as in the case of
Germany, Greece, Spain, Ireland, Portugal, Sweden and the United Kingdom) than the
unbundling charge to operators. In most cases, of course, the cost of the subscription increases
if the end-user were to opt for a DSL connection from the incumbent, but it nevertheless
appears to lead to a situation where there is effectively no margin for new entrants.

As stated above, full unbundling, shared access and bitstream access must be regarded as
being complementary in opening competition in local access. In these circumstances it is clear
that there can be no relaxation on the part of regulators in enforcing this access obligation to
the full.

One issue that needs to be examined in detail by NRAs is the effect of the technical
restrictions of incumbents’ access offers on new entrants. Some incumbents believe that they
are in conformity with the rule of non-discrimination by offering access only at that point
where access is given to their downstream arm (at one extreme at the local DSLAM23, at the
other at a national point of presence (POP)). But
this may impose heavy
transmission costs on a new entrant whose network does not have the same geographic
coverage and topography or, alternatively, condemn it to the simple role of reseller if it cannot
control the quality and data rate supplied to the distant customer connected through the
incumbent’s network to its POP. This is why access at the ATM level is of great importance
to new entrants, along with access at DSLAM and POP where appropriate, in order to allow
them to make full use of their own network (or alternative network offerings) and to control
the technical characteristics of the connection to the end-user.

in practice,

The need for regulatory vigilance will continue for some time, given that alternative forms of
access are only slowly offering greater competition in broadband services in the majority of
Member States. Aside from the notable success of cable modem, access through WLL, fibre,
satellite and leased line connections has not developed in any significant way, although there
are encouraging signs from the UK (leased lines) and Italy (satellite and fibre).

Cable modem access has had notable success in the Netherlands, Belgium, and the United
Kingdom, while it is also quite strong in Spain, Austria and France. Cable network operators
are faced with a series of regulatory and financial obstacles concerning the upgrading of their
networks, which means that, outside of the above countries, they are not in a position to offer
serious competition for the moment, nor to develop their broadband facilities at a pace
sufficient to keep up with the speed of development of competing DSL providers.

23

DSL access multiplexer

31

Wireless local loop (WLL) has so far failed to live up to its promise, and a number of licence
operators have failed to fulfil their licence obligations for roll-out and some have gone into
liquidation or have had to return their licences. There are only small pockets of WLL
connections in some Member States, offering little or no competition to the other forms of
broadband access.

While the current economic situation and the lack of investment finance is having a very clear
effect on the development of alternative access infrastructures, it is clear that the dominant
position of incumbents on the fixed line access market is preventing the development of
competition in broadband services as a whole. Far from furthering the objectives of eEurope,
artificially low retail prices for DSL services offered by incumbent operators will tend to
foreclose competition and in the long run lead to higher prices to consumers for broadband
services.

4.6.

Leased lines

The Commission has repeatedly stressed that the timely and efficient availability of a range of
leased lines at cost-oriented prices is a necessary condition for the development of effective
competition in particular in high speed access to internet. Under the current framework,
notified (SMP) operators must provide a minimum set of leased lines (from voice bandwidth
to 2 Mbit/s) according to specific technical standards at cost-oriented tariffs and on a non-
discriminatory basis24.

to ensure supply of

leased lines throughout

Further, at least one operator must be subject to the obligation to supply a minimum set of
leased lines at every point in the national territory. Therefore the question of whether an
operator has SMP in the leased lines market, and for what types of data rates, is subordinate to
this requirement
the market. Given the
development of transmission capacity and market needs since the legislation was drawn up,
the question of whether such an obligation to supply is to be imposed for higher bandwidths
needs to be determined by NRAs. In the Netherlands for example, the incumbent does not
have SMP for retail lines above 2Mbit/s. In the United Kingdom in October 2001 the
incumbent submitted a request to OFTEL to determine that it does not have SMP for high
bandwidth leased lines, where OFTEL has been tackling the lack of competition at retail level
by taking action at the wholesale level. In Denmark, the NRA has determined that obligations
for the provision of international circuits could be removed and obligations regarding the
provision of backbone networks could be gradually reduced.

The growing number of Member States where competition for high-speed transmission
capacity is significant will result in fewer SMP designations for high-speed lines, starting with
international circuits. At
just as the EU moves to the new regulatory
framework, NRAs must ensure that the regulatory obligations on short distance and end-
circuits are fully applied, and also that a supplier continues to be designated for the minimum
set of leased lines throughout their territory.

the same time,

4.6.1.

Pricing

Despite the fact that regulatory obligations have been applied at EU level for over ten years,
new entrants often have to rely on retail tariffs with discounts or retail-minus pricing and

24

Meaning that they shall apply similar conditions in similar circumstances to organisations providing
similar services, and on the same conditions and of the same quality as they provide for their own
services or their subsidiaries

32

there are still Member States where the cost-orientation of leased line tariffs of the incumbent
or its subsidiaries is still not fully ensured (Belgium, Austria). In Belgium a study concerning
the costing model for leased lines is underway as well as another on possible operators with
significant market power, while Ireland is undertaking a review of leased line pricing. In
Finland, no obligation of cost orientation is imposed on operators with SMP as regards the
provision of leased lines, on the grounds that effective competition already exists on this
market. In Luxembourg rebates to customers bring tariffs below those set by the regulator,
which cause problems for competitors.

4.6.1.1. National leased lines

For 64 Kbit/s lines, the most noticeable development since August 2001 is that charges have
become stable, with only a 0.5% average reduction for the three circuits considered (2, 50 and
200 km). This average reduction hides a slight increase (0.6%) in the price of local circuits,
offset by reductions in 200km circuits (-2%). This stability breaks a 3-year downward trend
that represented an overall decrease of 25% for the period 1998 to 2002 (20% reduction for
local circuits and 30% for 50 km and 200 km circuits).

The United Kingdom continues to be the most expensive Member State for local and 200 km
64 Kbit/s circuits. As regards local circuits, prices in the cheapest country, Germany, are 64%
lower than in the United Kingdom. Seven Member States are cheaper than the EU average for
these lines, while only five are cheaper for 200km circuits. In 2002, Belgium and Austria saw
an increase in charges, with reductions in Germany, Spain, and France.

For 2 Mbit/s lines the average reduction is larger (3.5%) than for 64 Kbit/s lines, mainly
driven by price reductions in local circuits (almost 5%). The two other distances considered
(50 km and 200 km) experienced 2.4% and 3.2% reductions respectively. However, overall
the pace of the downward trend has slowed dramatically if compared with that for previous
years, given that for the period 1998 to 2002 the average reduction for 2 Mbit/s circuits, all
distances considered, was 37%.

Differences in rental charges between countries are more pronounced than for 64 Kbit/s lines.
13 363).
Two km circuits in Denmark (
Contrary to the 64 Kbit/s situation, the number of countries with charges cheaper than the EU
average (7) does not change with the distance.

1 956) are 85% cheaper than in the Netherlands (

€

€

12 737 in
For 200 km circuits Spain is the most expensive country (
Sweden, 78% cheaper. Austria saw an important
reduction in local circuits, 46%,
compensated with a 9% increase in longer circuits. In Spain the average reduction for local
circuits and 200 km lines was 5.5%. Inversely, the impact of the huge increase in charges for
local circuits in the United Kingdom (29%) was slightly moderated by a reduction in long
distance circuits (15%).

58 893) against

€

€

4.6.1.2. International leased lines

Contrary to national leased lines, average annual rentals for international half-circuits have
continued to decrease in the EU over the last year. For 64 Kbit/s circuits the downward trend
has continued at the same or increased pace for lines to distant EU countries and the USA
respectively, but has slowed for lines to near EU countries. The average reduction with
respect to August 2001 is 7.4%, with the greatest reduction in circuits to the USA (11%).

33

Greece continues to be the most expensive country for 64 Kbit/s lines within the EU. Belgium
and the United Kingdom share the second most expensive prices, although these two
countries, especially the United Kingdom, have seen huge reductions in circuits to the USA,
along with Ireland and Finland. The cheapest countries are Luxembourg and Denmark. Prices
to distant EU countries in Luxembourg are 64% cheaper than in Greece.

Reductions for 2 Mbit/s lines have maintained the trend of previous years, regardless of
distance. Greece, Sweden and Portugal are again the most expensive countries regarding
distant destinations. At the other extreme Luxembourg and Finland offer the cheapest prices.
For near EU destinations Greece and Spain are the most expensive and Denmark is by far the
cheapest.

4.6.2. Delivery periods and quality of service

In the preparation of the annual Leased Lines report, the Commission’s attention has been
drawn to the possibility of significant improvements in delivery times towards the end of
2001 and in the beginning of 2002 among countries that had had some of the worst records in
delivery performance (Germany, Ireland, the Netherlands). Nevertheless, these hoped-for
improvements have yet to be confirmed by annual statistics and there are still problems in
these countries as well as in Austria across a range of leased line data rates compared to EU
best practice countries.

The comparison of delivery times and other categories does raise, however, the question of
the exact timing criteria used, where there is still doubt as to whether the delivery period is
measured from the same starting point
in all Member States. There have been some
significant improvements in service level agreements (Ireland, France) in which incumbents
commit themselves to quality of service levels and, just as importantly, where there are now
strict penalty clauses established in case of failure to deliver according to the quality of
service conditions applied.

As regards the delivery of ordinary or special quality voice bandwidth leased lines, the
longest delivery times have been recorded in Ireland, where the situation has actually
deteriorated since last year
for ordinary quality lines. There have been significant
improvements in the Netherlands and Austria, but together with Spain and Germany these
countries still have among the longest delivery periods for national lines. In relation to 64
Kbit/s lines, Germany had the longest period for delivery, 90 days, while on the other end of
the spectrum it was 21 days in France, and the French authorities have stated that a new
regime of 14 days for delivery was introduced in 2001. In Germany, previous action by the
NRA on tariffs was complemented in May 2002 by a decision setting binding timelimits for
the delivery of leased lines in this category as well as 2 Mbit/s.

As regards 2 Mbit/s lines, which are a key product for the development of competition in
local high speed access, delivery times have not decreased significantly since last year.
Periods were again very long for Germany (168 days), compared to the relatively short
periods reported in Luxembourg and Greece. The situation with regard to higher capacity
leased lines is more difficult to judge, as some Member States were not in a position to report
on the various categories supplied, in some cases because no SMP designation exists and
therefore there is no obligatory reporting.

In judging the relative performance of Member States in the pricing and delivery of leased
lines, a number of “best practices” can be identified. Denmark’s incumbent has consistently
attained the lowest prices across a number of data rates and distances for its leased lines, and

34

should obviously serve as a target for other countries. As regards delivery periods, and while
Finland and the United Kingdom (Kingston) have attained a good result in a number of
categories, Belgium appears to be the most consistent performer in ensuring speedy delivery
of leased lines. Finally, and while there have been serious problems regarding delivery
periods, Ireland now appears to have the most effective and comprehensive SLAs applying to
its incumbent operator, which has also developed a widely welcomed on-line system for
tracking the progress of an order.

4.7.

Numbering

4.7.1. Carrier selection and carrier pre-selection

Carrier selection and carrier pre-selection should have been available in all Member States
from 1 January 2000, except in countries which had been granted a deferment.

Carrier selection and carrier pre-selection are available for all calls to geographic numbers
from fixed telephones, with the exception of Germany for local calls. Legislation has now
been adopted; an infringement proceeding is still pending. Greece has a deferment until
1 January 2003. Calls to non-geographic numbers can be made via carrier selection and
carrier pre-selection in seven Member States.

The implementation of carrier selection does not appear to pose major problems in any
Member State.

The implementation of carrier pre-selection appears to be much more sensitive across the EU.
In almost all Member States, new entrants complain about win-back campaigns from the
incumbents. These are marketing efforts targeted specifically at recent converts to carrier pre-
selection. New entrants also claim that the retail division of incumbents often uses privileged
customer data provided by its network division when implementing carrier pre-selection. In
order to limit this practice, the Spanish regulator, CMT, has adopted a Decision preventing
operators who have lost a customer to another, pre-selected, operator from taking steps to
recover that customer for a period of four months.

Several new entrants also request the inclusion of carrier pre-select calls on the incumbent’s
bill, in order to eliminate the barrier to entry constituted by the «double-billing» of customers.

Carrier selection and carrier pre-selection have proved to be very useful tools in developing
competition in all Member States. In Finland however, carrier pre-selection has not
the
contributed to local competition. After launching several
Commission is now generally satisfied with the implementation of carrier selection and
carrier pre-selection across the EU.

infringement proceedings,

4.7.2. Number portability

Number portability for fixed numbers was to be introduced in all Member States, except those
with a deferment, by 1 January 2000.

Number portability for fixed numbers is available throughout the European Union, except in
France for certain non-geographic numbers and Luxembourg for all non-geographic numbers.
Greece has a deferment until 1 January 2003. Some Member States have achieved very good
results for ported numbers. As of mid 2002 the United Kingdom had close to 4 million fixed
numbers ported, Belgium 413 700, the Netherlands 363 300, Spain 327 250 and Denmark
364 000. Other countries had less than 100 000 numbers ported.

35

Mobile number portability is not mandated by the current regulatory framework, but will
become compulsory under the new framework. Mobile number portability is currently offered
in eight Member States, with a particularly high take-up in the United Kingdom (1.6 million),
Spain (530 000), the Netherlands (250 000) and Denmark (214 000).

The cost of porting numbers is under criticism from new entrants in a number Member States,
as they see it as a barrier to the development of their business cases. Customers are often not
willing to pay the full amount resquested to port a number, and competitors have themselves
to bear part of the price. Even though the cost is fixed by the NRA according to the cost-
orientation principle, it is still perceived as being too high by new entrants.

4.8.

Cost accounting and accounting separation

Under Community law, NRAs are responsible for ensuring that the cost accounting systems
of notified (mainly incumbent) operators are suitable for applying the tariff principles in the
directives, in particular relating to transparency and cost orientation. Tables in Annex 2
provide further detail on the implementation of cost accounting and accounting separation.
Reference to specific cost accounting requirements relating for example to leased lines, local
loop unbundling and interconnection is made under the relevant sections of the report.

In its recommendations25 on interconnection pricing, the Commission considered that the
most appropriate approach is one based on forward looking long-run average incremental
costs (LRAIC) – which implies an accounting system based on current costs – since this is
most appropriate for a competitive market.

Whereas in most Member States current costs are used as the cost base for pricing
interconnection and unbundled local loops, their use for leased lines and voice telephony is
more limited. For interconnection charges, historic costs are still used in the systems applied
by the notified operators in Denmark, Luxembourg, Portugal, Finland and Sweden, although
most of them have started the process of migrating towards a system reflecting current costs.
As regards Finland, it should be pointed out that there are more than fifty operators with SMP,
with each of them developing its own model; the major player uses a current cost basis.
Denmark is at present
the only country still adjusting interconnection charges to an
international benchmark of the interconnection charges applied in a few EU countries,
although prices are due to be set by reference to a LRAIC model from January 2003.

Regarding the cost standard implemented for modelling interconnection costs, the LRAIC
methodology is already applied in a first group of incumbents in six Member States
(Germany, Greece, France, Ireland, the Netherlands for termination charges, and the United
Kingdom). In Austria, the NRA uses a FL-LRIC model. Several other Member States are
currently developing LRAIC models under the supervision of the NRA (Belgium, Denmark,
Spain, Italy, Luxembourg). Sweden intends to move to LRAIC from January 2004 only, while
Portugal and Finland have not taken any decision.

A key element of compliance with the principles contained in EU law regarding costing is the
existence of a verification process, including an audit by an independent auditor or the NRA.
The Commission has taken action in this regard, opening infringement procedures against

25

Commission Recommendation 98/195/EC of 8 January 1998 on interconnection in a liberalised
telecommunications market, Part 1 – Interconnection Pricing, OJ L 73, 12.3.1998; Commission
Recommendation 98/322/EC of 8 April 1998 on interconnection in a liberalised telecommunications
market, Part 2 – Accounting separation and cost accounting, OJ L 141, 13.5.1998.

36

several Member States. Currently, audits are generally performed by external independent
auditors, although in many cases the NRAs carry out additional verification procedures. Only
three NRAs (in Germany, Austria and Finland) perform all verification procedures themselves
in order to validate the systems used by their respective operators. All Member States have
verified at least once the accounting systems of the notified operators, except Belgium (where
the incumbent has not disclosed a description of its model and verification has taken place on
the NRA’s model only), Luxembourg and Finland (where the systems of some eighteen SMP
operators have been verified out of a total of more than fifty SMP operators). In Greece the
results of the first audit relate to 2001.

The scope of the audit is a key element in assessing whether the process put in place by the
regulator allows verification of the suitability of the accounting systems used by the notified
operators. This is usually comprehensive, including methodology, accuracy and volumes (see
Annex 2). However, two Member States perform a high-level review of some part(s) of the
model (Denmark and Finland).

The timing of the verification is an important part of the process; the gap between the last
audited accounts and the period for which tariffs are calculated affects negatively the quality
of the forecasts performed to set tariffs. In three Member States audits for the 2000 accounts
have not been carried out yet for quite different reasons: in Belgium audits have not been
imposed by the NRA; in Italy the auditor was appointed late and the audit is still under way
and in Luxembourg no audit has been carried out until now. Statements concerning
compliance for 2000 have not been published yet in France and Italy (where statements are
published with lengthy delays), Belgium (where a statement has been issued regarding
interconnection costs for 2001 accounts only) and Luxembourg (where no verification has
occurred). In Finland the NRA issued a statement at the end of 2001 which does not
distinguish between the SMP operators audited. In Greece the statement concerning the
verification of the interconnection costs has not been published yet.

In conclusion, although the level of implementation of cost accounting varies across the EU,
most Member States are working on improving the cost accounting models and cost
orientation of charges and tariffs. However,
the audits and missing
reconciliations create uncertainty regarding the cost figures used to determine prices as well
as the transparency of the information used.

the scope of

As regards accounting separation, i.e. the requirement to keep separate regulatory accounts
for the purposes of costing transparency and to prevent possible anti-competitive practices, in
Germany separate accounts are prepared only in the context of specific bottom-up
calculations, while in Austria a pending proceeding will require separated accounts for 2001.
In Luxembourg accounting separation is being implemented. However, it should be pointed
out that where separate accounts are prepared in a comprehensive way, these do not seem to
include key elements such as transfer charges between business units (Greece, Spain, the
Netherlands, Finland), costs or revenues. There are therefore still significant aspects to be
improved across the EU before implementation of accounting separation can be regarded as
satisfactory.

The implementation of cost accounting and accounting separation in Ireland and in the United
Kingdom can be regarded as best practice in the EU as regards the approach and methodology
used, the detail of the verification carried out by the regulators and the availability of
information to third parties. All these elements result in greater transparency of the tariff
determination process and contribute to establishing confidence in the cost accounting
systems of the notified operators and indirectly in the cost orientation of tariffs.

37

4.9.

Authorisations

4.9.1. Conditions

The current licensing directive gives an exhaustive list of issues which may be covered by
licensing conditions, in particular relating to use of numbers, financial reliability, essential
requirements, compliance with competition rules, universal service contributions, and other
public interest requirements.

A number of improvements have been made since liberalisation to national licensing regimes
regarding the conditions attached to licences and authorisations, and most Member States’
licensing systems are now in line with the directive in this regard. Despite progress, Spain is
still in a process of converting licences issued under the previous licensing regime, a situation
that poses a challenge bearing in mind that current authorisations should be brought in line
with the new Authorisation Directive by 25 July 2003. The French licensing system still
imposes an obligation on licensees to invest a proportion of turnover in research and
development, a condition not covered by the current directive. The Commission has re-
opened an infringement proceeding against France on the matter. In general, market players
did not complain about licensing conditions except in Italy, where satellite operators called
for a further simplification of licensing conditions.

As regards mobile licences, the conditions in 3G network licences relating to roll-out and
coverage requirements have been the subject of intense debate over recent months, in view of
the difficulties experienced generally in the sector and the anticipated delays in the
commercial launch of 3G services.

It should be recalled in the first instance that the existence of licence conditions relating to the
deployment of mobile networks is compatible with the current and future EU regulatory
frameworks, while the precise scope of those conditions currently remain to be determined by
the Member States in accordance with national circumstances. Nevertheless, calls have been
made for the relaxation of licence conditions and in three Member States (Belgium, Spain and
Portugal) there has been a postponement of certain requirements of the original 3G licences
relating to roll-out and coverage. In addition, in two Member States (Italy and France) the
duration originally provided for the 3G licences has been extended (from 15 to 20 years).

the Commission stressed the need for stability of

In its Communication of June 2002 “Towards the Full Roll-Out of Third Generation Mobile
Communications”,
the regulatory
environment, while acknowledging that adaptation of deployment modalities may become
necessary. It stated that such changes need to be undertaken under transparent and objective
conditions, which would imply a public consultation on the basis of a reasoned and justified
proposal. The Commission also recommended that any changes to licence conditions be
discussed with other national administrations in an appropriate forum, in order to facilitate the
exchange of information and best practice and to work towards a co-ordinated approach
throughout the EU.

Licence conditions in all Member States permit to varying degrees the use of network
infrastructure sharing arrangements to facilitate the roll-out of 3G networks. Indeed in some
cases the sharing of facilities such as masts may also be mandated at national level, for
environmental and other public interest reasons. While these arrangements are subject to the
application of the competition rules, and the extent to which they satisfy the deployment
requirements of individual licences is a matter of national law, the Commission is in principle

38

in favour of this means of speeding up the availability of broadband mobile services to the
public.

4.9.2.

Fees

Licence fees should seek only to cover the administrative costs incurred in administering the
licence in question, and must be proportionate to the work involved26. A table setting out fee
levels in the Member States for the provision of fixed voice telephony services is given in
Annex 2.

A lengthy process to moderate the high one-off fees applied in Germany has now reached a
solution. Following annulment of the previous regulation on licence fees by the Highest
Administrative Court, a new regulation has now entered into force providing for licence fees
covering the cost of the award of the licence.

In most Member States the level of administrative fees has remained unchanged since last
year. Compared to 2001, administrative fees have been changed in four Member States
(Belgium, Italy, the Netherlands and Sweden). In Belgium and Italy the fees in nominal terms
have increased slightly in every category whereas in Sweden the increase has been somewhat
bigger. In the Netherlands, the structure of the fees has been changed so that fees for SMP
operators have increased whereas fees for other operators have either decreased or remained
unchanged.

As far as numbering fees are concerned four Member States (Germany, Finland, France, the
Netherlands) reported decreased fees, whereas two Member States have slightly raised
numbering fees in nominal terms (Belgium, Italy).

The current level of administrative and numbering fees does not seem to be a major problem
since, apart from concerns expressed by Italian satellite operators, market players have not
raised fees as a problem. The Italian authorities envisage reviewing fees with the transposition
of the new framework.

The level of spectrum charges applicable to mobile networks has largely remained unchanged
since the time when the licences were granted. However, changes have been made in Spain,
where the 2002 Budget Law provided for an average reduction of 65% of the spectrum
reservation charges over 2001 for GSM, DCS and UMTS technologies, and the introduction
of a cap on future increases of 5% on an annual basis until 2006. This followed the substantial
increases in the spectrum reservation charges effected by the Spanish Budget Law for 2001.
In France, following the failure to obtain more than two applications in the initial 3G
619m
licensing round in 2001, the price of the licences was altered to a once-off charge of
and an annual 1% levy on 3G turnover, in time for the second licensing round in 2002.

€

4.9.3.

R-LAN Public Services

An area which is of growing commercial interest to operators is the provision to the public of
R-LAN (radio local area network) services as a complement to other broadband and mobile
technologies. This is an activity which in most Member States is licence exempt, but in four
Member States (Spain, Italy, Luxembourg and Greece) provision of R-LAN services to the

26

In addition, charges can be imposed to ensure the optimal use of scarce resources, which explains the
differences between fee structures for fixed and mobile infrastructures and services.

39

public is not currently permitted, although there are indications that changes are being
considered in this respect in those countries.

The Commission is considering issuing a Recommendation in this area, the main message of
which will be that the provision of R-LAN access services to the public should be either
licence exempt or subject to general authorisation only, and that no individual right should be
required for the use of the spectrum necessary for the provision of such services. This is
currently the subject of consultation with the Member States.

4.9.4.

Rights of way

Market entry by network operators, and the development of the telecommunications market as
a whole, depends on the conditions under which networks can be rolled out and new
infrastructure installed. The EU regulatory framework therefore establishes a non-
discrimination principle for the grant of rights of way and promotes facility sharing where the
grant of additional rights of way is not possible as a result of applicable essential
requirements, such as environmental protection and/or town and country planning objectives.
Procedures for granting rights of way should be objective, timely, and transparent, with the
independence of competent authorities ensured at all levels. These principles are effectively
carried over into the new framework.

Previous reports have identified a variety of problems with regard to rights of way, such as
the grant of specific rights to the incumbent,
lack of transparency in regulations and
procedures and the unclear division of competence between the different levels of authority
with responsibilities in this field. This has led to disadvantages for new entrants and
significant delays in the deployment of new infrastructure.

Difficulties and delays in obtaining rights of way and building permits for network
infrastructure remain an important concern for operators across the EU, particularly as regards
the roll-out of 3G networks. While there are legitimate environmental and public health
concerns underlying some of these problems, and recognising that this is in many cases a
matter for local authorities, it is clear that the situation is exacerbated by the multiplicity of
regulation and a lack of consistency or co-ordination in the procedural and policy approaches
adopted at local or regional level. In particular, problems persist in Greece and Austria (in
relation to mobile networks, as a result of public health concerns), in France (as regards cable
operators in particular), in Luxembourg (despite recent developments resulting from an
infringement procedure), and in Belgium, Italy, Sweden and Spain. Special concerns arise in
some Member States, such as Italy, in relation to the grant of discriminatory rights where
local authorities retain control or ownership of undertakings operating telecommunications
networks and services.

An additional concern is the risk of proliferation of taxes or other charges levied by local or
regional authorities on mobile network infrastructure located in the public domain. This is
particularly the case in Belgium, where legislation at regional level designed to impose taxes
on fixed and mobile infrastructure is being contested at the Federal level. Concerns have also
been raised at the possibility of a fee corresponding to a certain percentage of operators’
revenue might be introduced by local administrations for the grant of rights to install facilities
in Spain.

the Member States are becoming
On the other hand, there are encouraging signs that
increasingly aware of the need to tackle these problems, as evidenced by a number of national
initiatives designed to improve co-ordination and consistency of rules in this area. For

40

example,
the Danish, Austrian and Spanish telecommunications authorities have issued
guidance to local authorities in this area; while the Greek, Irish and Netherlands authorities
have set up working groups bringing together the relevant participants. The initiative by the
Italian authorities to harmonise the different regional laws in this matter is particularly to be
welcomed.

4.10.

Universal service, consumers, users

4.10.1. Retail prices

4.10.1.1.Cost orientation, cost accounting, special tariffs schemes

Tariffs for use of fixed public telephone networks and services of organisations with SMP are
required to follow the principle of cost orientation, to which purpose the verification of the
operation of a consistent cost accounting system is crucial. Moreover, any discount scheme
applied by these organisations to their users of the services must be fully transparent and be
published and applied in accordance with the principle of non-discrimination. The
implementation of these principles is essential if distortions of market conditions – such as
price-squeeze - are to be avoided, and to enable prices to decrease as a result of competitive
pressure.

Community law has therefore provided for a progressive rebalancing of retail tariffs towards
costs, which appears broadly to have taken place, though to differing degrees in individual
Member States. The data in Annex 2 and in the graph below show that since the liberalisation
of voice telephony (1 January 1998), line rental charges have increased across the EU (around
20% for both residential and business users), while local call tariffs have shown less marked
increases depending on call duration. In parallel, national and international call prices have
decreased sharply (around 50% and 40% for business and residential users respectively).
However, some Member States consider that tariffs have not yet been fully rebalanced
(Belgium, Germany, Luxembourg, Portugal and Sweden). In other cases, the Commission has
opened infringement proceedings when rigid price systems have constrained the rebalancing
of tariffs, notably against Spain, where the case has been referred to the Court of Justice.
Moreover, in a number of Member States there is a limited margin between the monthly rental
for residential customers and the monthly rental of the full unbundled local loop for the
provision of voice telephony services. In May 2002 the Commission sent a statement of
objections to the German incumbent operator in this regard.

41

Tariff rebalancing and consumer/user expenditure for fixed
telephony services, 1998-2002

5%

-7%

0%

-11%

-14%

-22%

-1%

-13%

-21%

7%

-19%

-38%

14%

-1%

-12%

-20%

-35%

-47%

20%

Consumer line
rental

-1,7%

Local call charge,
10 min.

-12%

-23%

-38%

Average
expenditure
(consumers)

Average
expenditure
(users)

Consumer
international
basket

-49%

National call
charge, 10 min.

25%

15%

5%

-5%

-15%

-25%

-35%

-45%

-55%

1998

1999

2000

2001

2002

See footnote 27

An active role for the NRA, especially in the verification of the cost-accounting system
operated by the SMP operators, is obviously of great importance. NRAs must be suitably
empowered to this end, which is not the case in Belgium, and must exercise their powers
actively in this field, as is the case in Denmark, Spain, Italy, the Netherlands, and the United
Kingdom. However, the risk of anti-competitive pricing inhibiting market entry and distorting
competition is likely still to be significant at the date of application of the new framework.

Despite increasing competition, Member States still consider that the level of competition in
most retail voice telephony markets is alone not sufficient to counterbalance the market power
of the incumbent operator. Price cap systems are used in the majority of Member States to
ensure tariff reductions, achieve effective competition and pursue public interest needs, such
as maintaining the affordability of publicly available telephony services. Only Finland has
removed the obligation of cost orientation for national and international calls.

4.10.1.2.Universal service funding schemes

The principal aim of EU universal service policy and legislation in telecommunications is to
ensure that a defined set of services is made available to all users, independently of their
geographical location, and in the light of specific national conditions, at an affordable price,
particularly with regard to disabled users and users with special social needs.

Although, in general terms, universal service seems to be provided in all Member States with
no major problems, there are still some areas of concern. This is particularly the case with the
implementation of specific measures for disabled users and users with special social needs,
and the provision of directory services and directory enquiry services covering all subscribers.

27

These variations are calculated on a PSTN basket, users/consumers are assumed to be using a PSTN
service from the incumbent operator. See paragraph 8.3 of Annex 1 for detail of the composition of the
basket.
Average expenditure refers to local and national calls only.

42

As far as specific measures for disabled users and users with special social needs are
concerned, only a few Member States have introduced special tariff schemes for these groups
of users (such as Austria, Germany and Italy). Data in Annex 2 show, however, that specific
provisions have been implemented in most Member States, with the exception of France, the
Netherlands and Austria, in order to facilitate the use of telephone services by disabled users
(i.e. free calls to the directory enquiry services and braille bills for blind users).

On the other hand, the provision of directory services and directory enquiry services including
leading the Commission to open infringement
all subscribers has proved problematic,
proceedings in a number of cases. Nevertheless, some improvements have been reported
recently (e.g.
in Greece, where new regulations have been approved, although not yet
implemented) as shown in Annex 2. In this context, the setting up of a coherent system to
gather subscriber data and provide them to any interested entities in a cost-oriented and non-
discriminatory way is crucial for the provision of universal directory services.

Where the provision of all these services results in an unfair burden on the companies
concerned, EU law allows Member States to finance the corresponding net cost by
establishing a fund so that this cost can be shared amongst market players. For the calculation
of that net cost, the implementation of a consistent cost accounting system is, of course, of
great importance. Only providers of public telecommunications networks and/or publicly
available voice telephony services will be requested to contribute to the provision and/or
financing of universal service obligations and the method of allocation between them must be
based on objective and non-discriminatory criteria.

The Court of Justice has given clear criteria in this field in its rulings of 30 November 2000
(case Commission v. the Kingdom of Belgium, C-384/99) and more recently of 6 December
2001 (case Commission v. France, C-146/00), which should facilitate the transposition of the
new framework. The universal service principles are carried over into the new framework, but
in a wider context, since the scope of the new provision is extended to all electronic
communications services.

As incumbents’ market shares decrease, there is an increased trend towards requests for
funding of universal service provision. In the last year, the relevant operators have requested
the funding of the net cost of the provision of universal service in Portugal, Belgium, Spain,
Ireland and Austria (although in this last case the request was finally withdrawn). A public
consultation on this subject has been conducted in Greece and France (as a result of the ruling
of the Court of Justice).

However, for the time being only two Member States have required actual payments from
other operators to the universal service provider (France and Italy), while two other Member
States (Spain and the United Kingdom) have concluded that the provision of the universal
service had not implied an unfair burden for the designated operator. More details are given in
Annex 2.

4.10.1.3.User and consumer issues

The framework has the objective of ensuring the provision of a set of basic consumer rights,
such as transparency of information, quality telephone services, access to directories and
itemised billing. There is broad continuity in these fields under the new framework.

Consumers must be physically provided with a contract by providers of fixed or mobile
the
telephone service, while standard terms and conditions must be published under

43

supervision of the NRA. This would appear to be the case in all Member States, following
recent regulation in Luxembourg, against which an infringement proceeding regarding the
lack of powers of the NRA in this respect has been running.

A list of indicators is defined at Community level for measuring the quality of voice
telephony services. Those indicators are intended to allow NRAs to monitor quality of service
and to take appropriate corrective measures, i.e. by imposing certain quality targets for SMP
operators. SMP operators must keep up-to-date information concerning their performance
based on those parameters. This provisions seems to be implemented in all Member States, as
shown in Annex 2. Furthermore, in almost all of them the NRA has set quality of service
performance targets for SMP operators (the exceptions are Ireland, Finland, Sweden and the
United Kingdom) ; only in Belgium, Ireland and the United Kingdom have measurements of
quality of service been published by the NRA for 2001. However, OFTEL has established
comparable performance indicators (CPIs), which provide comparable quality-of-service
information on a wide range of telecommunications operators in the United Kingdom, as well
as quality surveys for the four mobile networks.

There is no doubt that one of the basic tools for improving consumer confidence is the
provision of itemised billing. The current EU framework requires a basic level of itemised
billing identifying each call to be provided to users on request at no extra cost in order to
allow verification of the charges incurred and to monitor usage and expenditure. Where
appropriate, additional levels of detail can be offered to subscribers at reasonable tariffs or at
no charge.

As a result of previous reports, the Commission opened infringement proceedings against
several Member States. Of those whose cases were still pending by the time of the Seventh
report, Denmark, Greece and Luxembourg have already introduced provisions in their
legislation in order to fulfil EU requirements, and the Netherlands is planning to do so in the
near future. In the case of Austria the Commission has decided to refer the case to the Court
of Justice. In Finland, according to recent information, it appears that, as a general rule, calls
are not itemised individually in the bills provided free of charge.

As final protection for the user, any measures to cover non-payment of telephone bills for use
of the fixed public telephone network must be proportionate, non-discriminatory and easily
accessible to interested parties. Due warning of any consequent service interruption or
disconnection must be given beforehand. No problems have been reported in this field.

Users should also have access over the fixed public telephone networks to selective call
barring. Most of the Member States, with the exception of Austria, are in compliance with this
provision, as can be concluded from data in Annex 2.

4.11.

Data protection

4.11.1. Storage for billing purposes and traffic data retention

Under the current framework, traffic data must be erased or made anonymous on termination
of the call. Traffic data may processed only for the purpose of billing and interconnection
payments, up to the end of the period during which the bill may be lawfully challenged or
payment may be pursued. The new directive on privacy and electronic communications
includes a similar provision, extending the application to all electronic communications and
creating further possibilities to store traffic data for marketing purposes and the provision of
value added services, subject to consent.

44

It is clear that the periods during which operators need to store traffic data for billing purposes
vary considerably between Member States, since the period during which a bill can be
lawfully challenged is usually based on civil law, which itself varies significantly; it ranges
from three months (Finland) to six years (United Kingdom). This may create obstacles for the
functioning of the internal market.

Under the current framework, Member States may, however, adopt legislation deviating from
the obligation to erase traffic data where it is necessary for instance for national security and
the prevention or prosecution of crime. The new Directive takes over this provision, and adds
appropriateness and proportionality to the necessity test, and it also explicitly states that
national measures should be in accordance with the general principles of Community law.
Moreover, it prescribes that the retention period shall be limited.

Available data on these issues are reflected in Annex 2. In a number of Member States
(Belgium, Denmark, Spain, France, Luxembourg) legislation regarding the retention of traffic
data for the purpose of criminal investigations has been adopted, while in all of those
countries secondary legislation determining the exact retention period is still awaited. The
retention period is set at a maximum of twelve months in the primary legislation of these
countries, except for Belgium, where twelve months is the minimum. In Spain the retention
obligation applies to information society services. In Germany traffic data retention for law
enforcement purposes can be imposed on operators in individual cases and requires a court
order. In the United Kingdom the time periods under consideration for retention of traffic data
for national security purposes vary between six and twelve months. Regarding pre-paid cards
and ISPs, there is an obligation in the Netherlands to retain a limited set of traffic data for
three months for the purpose of criminal investigation.

It appears that the periods for the retention of traffic data for purposes other than billing and
interconnection payment are still under consideration in a number of Member States, and that
these periods tend to be shorter than the retention periods for billing and interconnection
payment purposes. It is not clear whether the traffic data to be retained for purposes other than
billing differ from the traffic data that may be retained for billing and interconnection
payment purposes.

The low level of harmonisation regarding the retention of traffic data in the Member States,
both for billing and other purposes, puts a financial burden on operators and has an impact in
particular on cross-border players. It is often not clear to operators whether compensation for
their financial burden is being considered.

Only in the past year has the impact of data retention legislation become more clear, which is
probably due to the fact that after liberalisation, the focus was first on telecommunications
issues such as licensing, interconnection and access to markets, whereas data protection issues
were not regarded as being so important by operators. However, a few years after
liberalisation, while a number of Member States have introduced or are considering the
introduction of more stringent legislation (on the grounds of national security and for the
purpose of criminal investigation), and in a situation where the financial markets are in a
fragile condition, operators are now more focused on data protection issues and the
consequences of national legislation and the low level of European harmonisation. There is a
need for clarity from all Member States on their overall approach regarding the retention of
traffic data.

45

4.11.2. Unsolicited calls, faxes and e-mails

The current framework has an opt-in approach for unsolicited faxes. However, in Greece and
Luxembourg there is no regime at all, which is not in line with the provisions of the Directive.

The current Directive also indicates that Member States can choose between an opt-in or an
opt-out approach for unsolicited calls for the purpose of direct marketing, while e-mail is
strictly speaking not covered by the Directive. Annex 2 shows that Denmark, Germany,
Greece, Spain, Italy, Austria and Sweden have chosen an opt-in approach for both unsolicited
calls and unsolicited e-mails. The United Kingdom has chosen an opt-out approach for both.
Ireland applies an opt-out approach to unsolicited calls and none to unsolicited e-mails. The
Netherlands applies an opt-in approach to unsolicited calls and an opt-out approach to
unsolicited e-mails, whereas Finland has chosen the exact opposite approach. France has also
chosen an opt-out applying to unsolicited calls and no regime applies to unsolicited e-mails.
Belgium and Luxembourg have not made a decision as to what method to apply, which is in
conflict with the current Directive, which requires Member States to adopt either an opt-in or
an opt-out regime for unsolicited calls. Portugal applies an opt-out approach to unsolicited e-
mails.

The new directive on data protection in electronic communications maintains a choice
between an opt-in or an opt-out regime for unsolicited calls, while for faxes and e-mails
(including all forms of electronic messaging systems such as SMS, MMS etc) for the purpose
of direct marketing, an opt-in regime will be required. This means that a number of Member
States will have to change their legislation in this respect in order to meet the provisions of
the new Directive, which needs to be transposed in all Member States by the end of October
2003.

5.

IMPLEMENTATION OF THE UMTS DECISION

All Member States have now effectively implemented the UMTS Decision28, since 3G
licences have been awarded in all Member States, assigning frequencies allocated to 3G in
accordance with the relevant ERC Decisions29, which in turn were adopted as a result of
mandates given to the CEPT under the UMTS Decision. A more detailed report on the
implementation of the UMTS Decision in the Member States can be found in Annex 2. This
report, together with the Commission’s previous communications on the situation in the 3G
market30, fulfils the reporting requirements under the UMTS Decision.

28

29

30

Decision 128/1999/EC of the European Parliament and of the Council of 14 December 1998 on the co-
ordinated introduction of a third-generation mobile and wireless communications system (UMTS) in the
Community (OJ L 17, 22.1.1999, p. 1).
ERC Decisions ERC(97) 07 (UMTS frequency bands); ERC(00) 01 (extending UMTS bands); and
ERC(99) 25 (harmonised use).
Communication on “The Introduction of Third Generation Mobile Communications in the European
Union: State of Play and the Way Forward, COM(2001) 141 of 20 March 2001; Communication:
“Towards the full Roll-out of Third Generation Mobile Communications”, COM(2002) 301 of 11 June
2002.

46

6.

STATUS OF PREPARATION FOR TRANSPOSITION OF THE NEW
FRAMEWORK

The directives making up the main elements of the new regulatory framework for electronic
communications networks and services31 are required to be transposed into national law by no
later than 24 July 2003. The new framework also stipulates that Member States shall apply
those national transposition measures from 25 July 200332, whereupon the Community
instruments forming part of the existing regulatory framework which are to be superseded by
those elements of the new framework, will be repealed33.

All the Member States are therefore in a period of intensive preparation of the legislative
measures needed to transpose the new framework into national law. Most Member States
have now launched public consultations on the implementation of the new framework and
have published or are shortly to publish draft laws designed to achieve this. The legislative
models which can be used to transpose the new framework range from the adoption of a
comprehensive new communications law (as is contemplated in Belgium, Spain, France,
Italy, Austria, Portugal, Finland, Sweden and the United Kingdom) to the making of the
necessary amendments to the existing communications laws (as is contemplated in Denmark
and the Netherlands). The Commission believes it is of the utmost importance for the orderly
transition to the new framework that the necessary national transposition measures be adopted
in time to ensure their application on 25 July 2003.

Once these measures are in place, it will then be possible for national regulatory authorities to
complete the process of market analysis and assessment of effective competition which is
needed to adjust existing ex ante regulation to the principles of the new framework. It is
anticipated that this process of adjustment will continue over a period of months following the
“date of application” referred to above, but it is a precondition for that process that the
underlying administrative structures and legislative framework are in place. Some national
regulatory authorities (for example those in Denmark, Greece, Spain, Ireland, Luxembourg,
Finland, Sweden and the United Kingdom) have indicated that they should be able to carry
out their market analyses in anticipation of the July 2003 application date, while others (such
as in Germany and the Netherlands) have stated that they do not have the legal power to
perform this function under national law until the new framework has been transposed.
Although the Netherlands national regulatory authority does not yet have the necessary legal
power to collect the relevant information needed for the market assessments, a legislative
proposal has been drafted to deal with this issue on an interim basis.

One area which may require particular attention in a number of Member States is the
relationship between the national
regulatory authorities and the national competition
authorities, since there will need to be close co-operation between these bodies at national
level in order to ensure consistency of approach in assessing the conditions of competition in
the relevant markets. Some Member States, such as Belgium, Italy and Austria, are
considering the possibility that this co-operation should be governed by formal protocols
between the two authorities, while others (such as the Netherlands and the United Kingdom)

31

32

33

These are Directive 2002/21/EC (Framework Directive); Directive 2002/20/EC (Authorisation
Directive); Directive 2002/19/EC (Access Directive); and Directive 2002/22/EC (Universal Service
Directive). Member States have until 31 October 2003 to transpose the requirements of Directive
2002/58/EC (the Directive on privacy and electronic communications) into national law. The Radio
Spectrum Decision (676/2002/EC) does not require transposition by Member States.
See for example Article 28 Framework Directive.
See Article 26 Framework Directive.

47

are intending to combine both regulatory and competition functions within one, converged
authority. Member States will also need to devote particular care to ensuring that the national
regulatory authorities possess the requisite resources,
in terms of both manpower and
expertise, to enable them to carry out the process of market definition and analysis required
by the new framework.

The Commission is actively following the preparations under way in the Member States and
will take appropriate enforcement action in the event
the obligations of the new
framework are not met in a timely fashion.

that

The consistent application of the new regulatory framework across the European Union also
requires that close and regular co-operation takes place at the European level between the
is
national regulatory authorities from all Member States and with the Commission. It
particularly important that national regulatory authorities seek to reach agreement on the types
of instruments and remedies best suited to address particular types of situation in the market
place, so that the single market in electronic communications can be achieved under equal and
non-discriminatory conditions for all operators across the EU. Specific obligations in this
regard are included in the new framework34, and mechanisms have been established within
which this co-operation can take place (notably the Communications Committee and the
European Regulators’ Group, as well as the Radio Spectrum Committee and the Radio
Spectrum Policy Group).

34

See Article 7(2) Framework Directive in particular.

48