Communication from the Commission to the Council, the European Parliament, the European Economic and Social committee and the Committee of the Regions On the Review of the Scope of Universal Service in accordance with Article 15 of Directive 2002/22/EC [SEC(2005)660]
Date: 2005-05-24
Institutions: European Commission
Subjects: competition law, consumer protection, electronics, technological change, telecommunications, transmission network, universal service

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.5.2005 
COM(2005) 203 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

On the Review of the Scope of Universal Service in accordance with Article 15 of 
Directive 2002/22/EC 

[SEC(2005)660] 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

On the Review of the Scope of Universal Service in accordance with Article 15 of 
Directive 2002/22/EC 

(Text with EEA relevance) 

1. 

PURPOSE OF THE COMMUNICATION 

The  purpose  of  this  Communication  is  twofold.  The  primary  purpose  is  to  examine  and 
assess,  as  required  by  Article  15  of  the  Universal  Service  Directive1,  whether  the  current 
scope of universal service should be changed or redefined in the light of technological, social 
and  economic  developments,  taking  into  account  in  particular  mobility  and  data  rates.  The 
associated Commission Staff Working Document SEC(2005)660 provides supporting analysis 
and information including also internet links. 

The  second  purpose  is  to  launch  a  broader  policy  debate  on  universal  service  provision, 
particularly  in  view  the  overall  assessment  of  the  EU  regulatory  package  for  electronic 
communications  scheduled  for  2006,  when  the  Universal  Service  Directive  will  be  also 
reviewed in its entirety.  

The Commission invites comments on the conclusions and longer-term issues presented in 
this Communication and on the Staff Working Paper that are available on the internet at: 

http://europa.eu.int/yourvoice and 
http://europa.eu.int/information_society/topics/ecomm/index_en.htm 

Comments should be sent to infso-b1@cec.eu.int by 30 June 2005.  

The  Commission  will  publish  a  second  Communication  at  a  later  stage  that  includes  the 
results of the public consultation and the final Commission assessment and position. 

2. 

INTRODUCTION  

Promoting  the  internal  market  and  innovation  in  information  services  and  supporting  an 
inclusive knowledge society are the main elements of the Commission’s new i2010 initiative. 
It  will  play  an  important  part  in  the  renewed  Lisbon  strategy2,  which  is  built  around  two 
principal  tasks  –  delivering  stronger,  lasting  growth  and  creating  more  and  better  jobs. 
Services of general interest are also part of this approach, as they contribute to social cohesion 
and economic activity3.  

1 

2 
3 

EP  and  Council  Directive  2002/22/EC  on  universal  service  and  user’s  rights  relating  to  electronic 
communications networks and services. 
‘Working together for growth and jobs. A new start for the Lisbon Strategy’, COM(2005) 24. 
See The Commission’s White Paper on services of general interest, (COM(2004) 374). 

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In the area of electronic communications (e-communications), the main policy tool to create 
an inclusive knowledge society is the creation of competitive markets, coupled with the safety 
net  of  universal  service  for  those  whose  financial  resources  or  geographical  location  do  not 
allow  them  to  access  the  basic  services  that  are  already  available  to  and  used  by  the  great 
majority of citizens and which are considered essential for participation in society. 

The  Universal  Service  Directive  lays  down  the  basic  principles  on  universal  service  and 
addresses  other  specific  user  and  consumer  rights,  with  corresponding  obligations  on 
undertakings.  The  Directive  defines  universal  service  as  the  "minimum  set  of  services,  of 
specified  quality  to  which  all  end-users  have  access,  at  an  affordable  price  in  the  light  of 
national conditions, without distorting competition" (Art. 1.2). 

The current scope of universal service includes: 

•  Connection to the public telephone network at a fixed location 

“All  reasonable  requests  for  connection  at  a  fixed  location  to  the  public  telephone 
network  and  for  access  to  publicly  available  telephone  services  at  a  fixed  location 
must be met by at least one undertaking.” (Art. 4.1) 

The  connection  to  the  network  is  limited  to  a  single  narrowband  connection  to  the 
end-user’s primary location/residence. There is no requirement for a specific data or 
bit rate but the connection must be capable of supplying “functional Internet access, 
taking  into  account  prevailing  technologies  used  by  majority  of  subscribers  and 
technological  feasibility” (Art 4.2). The principle of technological  neutrality  allows 
universal service providers to use any technology, whether wired or wireless, which 
is capable of delivering that service at fixed location (Rec. 8). 

•  Access to publicly available telephone services 

According to Article 4.2, end-users must be able to make and receive local, national 
and 
and  data 
communications.  

communications 

international 

telephone 

facsimile 

calls, 

In  addition,  the  Directive  incorporates  a  number  of  services  that  are  closely 
associated with basic telephony, as they are necessary for users to be able to make 
full  use  of  the  publicly  available  telephone  services.  These  are:  the  provision  of 
directories and directory enquiry services (Art. 5), public pay telephones (Art. 6) and 
special measures for disabled users (Art. 7).  

Member States must ensure that the defined set of services is made available to all users in 
their territory, independently of geographical location, upon reasonable request. They are also 
required  to  find  the  most  efficient  means  of  guaranteeing  universal  service  obligations, 
including  giving  all  undertakings  an  opportunity  to  fulfil  them.  Only  if  the  market  fails  to 
deliver the defined services may obligations be imposed on undertakings to provide services 
at specified conditions. (Arts. 3, 4 and 8)  

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In recognition that universal service will evolve over time, Article 15 of the Directive requires 
the  Commission  to  review  the  scope  of  universal  service  in  2005  (and  every  3  years 
thereafter):  

“The review shall be undertaken in the light of social, economic and technological 
developments, taking into account, inter alia, mobility and data rates in the light of 
the prevailing technologies used by the majority of subscribers. The review process 
shall be undertaken in accordance with Annex V.”  

According to Annex V and Recital 25, any change of scope is subject to the following criteria, 
in short:  

a)  A minority of consumers would be excluded from society by not being able to 
afford specific services that are both available to and used by the majority; and 

b) 

Inclusion of these services within the scope would convey a general net benefit 
to  all  consumers  in  case  they  are  not  provided  to  the  public  under  normal 
commercial circumstances.  

The principle of technological neutrality means that the review must not artificially promote 
certain technological choices above others. Care must be also taken that “a disproportionate 
financial  burden  is  not  imposed  on  sector  undertakings  -  thereby  endangering  market 
developments  and  innovation  -  and  that  any  financing  burden  does  not  fall  unfairly  on 
consumers with lower incomes” (Rec. 25). Universal service is not a mechanism whereby the 
roll-out of new technologies and services is financed by increasing the costs for all existing 
(telephone) users. Rather, it is the safety net that allows a minority of consumers to catch up 
with the majority who already enjoy basic services. 

For the purpose of the review, it is not necessary to quantify the affordability of access at EU 
level (the affordability component being a part of the definition of universal service, not of its 
scope), because affordability must be seen in the light of specific national conditions (Art. 3.1, 
Rec. 10), e.g. the average income of households, and therefore varies from one Member States 
to another4. 

In  the  light  of  the  rapidly  changing  communications  environment,  in  which  the  Internet 
Protocol (IP) is increasingly becoming the common technological transmission platform, the 
Commission  feels  that  it  is  also  timely  to  provoke  a  forward-looking  policy  debate  on 
universal  service  provision  that  allows  input  from  all  interested  stakeholders  and  can 
contribute to the general regulatory review in 2006.  

4 

See the associated Working Document, Annex on measurement issues. 

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3. 

ANALYSIS OF MAIN DEVELOPMENTS IN E-COMMUNICATIONS AND ASSESSMENT OF 
THEIR IMPLICATIONS FOR THE SCOPE OF UNIVERSAL SERVICE 

3.1. 

Overview 

The  combined  effects  of  competition  and  technological  progress  have  brought  more  choice, 
lower  prices  and  innovation  for  consumers,  as  recently  evidenced  by  the  10th  Report  on 
European Electronic Communications Regulation and Markets5.  

97%  of  the  households  in  the  15  pre-accession  Member  States  (hereinafter  “EU  15”)  have 
fixed  or  mobile  telephone.  At  least  95%  of  the  total  EU  population  is  covered  by  mobile 
networks,  and  in  most  countries,  including  several  new  Member  States,  mobile  penetration 
has exceeded fixed line penetration.  

At  the  same  time  several  competing  broadband  technologies,  such  as  digital  subscriber  line 
(DSL), cable and mobile and wireless technologies, have been rolled out offering high-speed 
network  access  that  supports  delivery  of  digital  content  and  communications.  Households 
have  been  rapidly  taking  up  broadband  especially  in  the  EU  15,  where  around  85%  of  the 
population is covered by the fixed broadband networks. However, in the new Member States 
this coverage varies widely.  

The associated working document examines these trends in more detail. 

3.2.  Mobile Communications  

3.2.1.  Analysis 

National  licences  for  mobile  operators  generally  impose  targets  for  geographic  and/or 
population  coverage  so  that  at  least  95%  of  the  population  is  covered.  In  the  case  of  the 
second generation networks, these targets have been met in all Member States. In addition, the 
presence of several mobile operators increases the quality of national coverage. 

Mobile communications services have rapidly become a mass market: in early 2004 over 80% 
of the EU population were using these services as shown in the graph below. 

5 

COM(2004) 759 final. 

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Graph 1 

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EU Mobile Average Penetration Rates 1998-2004

84%

81%

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78%

73%

52%

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58%

26%

40%

41%

26%

37%

15%

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4%

23%

8%

14%

Feb-98

Feb- 99

Jan-00

Jan-01

Feb-02

Jan-03

Feb-04

EU 25

EU 15

10 new MS

Source: European Mobile Communications Reports 

While the average mobile penetration rate in the 10 new Member States (hereinafter “EU 10”) 
is over 20 percentage points lower than in the EU 15, some new Member States exceed the 
EU 25 average6. 

Fixed telephone lines remain the main delivery mode of universal service, although operators 
are free to use any technology that can fulfil the requirements, as noted above. Nevertheless, 
the  most  notable  trend  in  telephony  in  the  recent  years  has  been  the  fixed-to-mobile 
substitution, as illustrated by Graph 2. Since 1999, the level of fixed telephony in the EU 15 
has fallen by 10 percentage points with 82% penetration in early 2004, on a par with mobile 
telephony at 81%.  

6 

The Czech Republic (99%) and Slovenia (92%). 

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Graph 2 

100% 
90% 
80% 
70% 
60% 
50% 
40% 
30% 
20% 
10% 
0% 

Overall telephone access in EU 15 households:
Contribution of fixed and mobile subscriptions

(proportion of households in %)

Fixed only

Mobile only

Both fixed and 
mobile

1999 

2002

2004 

Both fixed and mobile

Mobile only

Fixed only

Some 72% of the households in the EU 10 have a fixed line. The evidence suggests that the 
trend  in  fixed  to  mobile  substitution  is  even  greater  in  most  of  these  countries  –  with  the 
exception of Poland - owning to the fact that their fixed network is generally less developed 
and fixed line penetration is lower than in the EU 15. 

3.2.2.  Assessment 

The success of mobile communications is largely due to the fact that it has the character of 
being a personal communications tool that corresponds  to consumers’ life-style choices and 
need for increased mobility.  

National mobile licence conditions, that oblige geographical and/or population coverage, have 
made mobile communications ubiquitously available. Mobile usage has reached over 80% of 
the EU 25 population which equals the average household penetration of fixed lines. In nine 
out  of  the  15  pre-accession  Member  States,  there  are  more  households  owning  a  mobile 
subscription  than  those  having  a  fixed  line.  In  the  EU  10  the  overall  mobile  penetration  is 
below the EU 15 average but the variations are considerable: in some countries the market has 
already reached saturation while in others it is still growing at a fast pace. 

Mobile communications have already reached the stage where they provide services to mass 
markets at costs that consumers are able and willing to pay. The costs of handsets have also 
been  brought  down  by  economies  of  scale  and  technological  progress.  In  several  countries, 
mobile  handsets  are  provided  for  free  or  at  a  subsidised  price  by  mobile  retailers.  The 
increasing competition by new entrants has further reduced costs for the consumer. 

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The cost advantage of mobile telephony networks results from low marginal cost of adding a 
new  subscriber  because  the  access  radio  network  is  shared  between  subscribers,  whereas  a 
fixed line connecting a subscriber offers less possibility for shared access costs, especially if 
the  subscriber  is  located  in  a  rural  area.  As  the  mobile  networks  are  already  in  place,  this 
means that a subscriber can be added to the mobile network at a marginal cost, irrespective of 
whether he or she is located in an urban or rural area. 

Mobile operators have translated the low cost base into affordable pre-paid packages allowing 
low income consumers a basic connection to the network. Pre-paid services mean low entry 
price  for  consumers  and  a  greater  possibility  to  control  their  expenditure  than  post-paid 
subscriptions, which increases their attractiveness to low income users. The attractiveness of 
such  services  is  reflected  in  the  fact  that  the  vast  majority  of  EU  households  use  pre-paid 
services to buy mobile subscriptions and units of air time.  

As a result, an initially high cost service of mobile communications has become a service that 
offers potentially for all consumers the lowest cost method of providing basic connection to 
publicly available telephone services. 

In  conclusion,  the  evidence  demonstrates  that  the  competitive  provision  of  mobile 
communications  has  resulted  in  consumers  already  having  widespread  affordable  access  to 
mobile  communications.  The  conditions  for  including  mobile  communications  within  the 
scope of universal service (as set out in the Directive) are therefore not fulfilled.  

3.3. 

Broadband Internet Access 

3.3.1.  Analysis 

In mid-2004, broadband7 access networks covered about 85% of the population in the EU 15. 
As for the new Member States, the lower penetration level of fixed lines also indicates that 
broadband  access  infrastructures  are  available  to  a  considerably  smaller  proportion  of  their 
population. 

The total number of broadband access lines provided has increased by more than 72% at the 
EU  25  level  in  one  year.  Line  deployment  was  at  29.6  million  as  of  July  2004,  which 
represents  6.5%  of  the  EU  population  who  actually  use  broadband  services,  as  shown  in 
Graph 38. For purposes of comparison, the figure for the EU 15 is 7.6%. The dramatic growth 
in broadband deployment is being driven largely by intensifying competitive pressure and by 
the desire of fixed operators to offset eroding voice telephony revenues. 

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On broadband and its definition see footnote 10 in the associated Working Document. 
This figure is 2-3 times higher when access is measured at the household level where several members 
of household would normally share a connection. See, ibid, the Annex on measurement issues. 

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Graph 3 

EU25 Fixed broadband penetration rate, 1 July 2004

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0.2 0.4 0.5 0.7

15.6

14.7

14.0

12.1

11.0

8.7

8.2

7.4 7.6 7.6

6.1 6.4 6.5 6.6 6.7

5.7

EL SK PL CZ LV

IE CY HU LT MT SI

LU IT

PT EU25 DE ES UK EU15 EE FR AT

FI

SE BE NL DK

Source: Commission services based on COCOM data. 

Source: Commission services based on COCOM data 

As  the  graph  also  illustrates,  the  take-up  rates  vary  considerably,  from  under  1%  to  almost 
16%.  The  highest  penetration  rates  are  observed  in  the  countries  that  have  the  strongest 
competition between DSL and cable-based broadband infrastructures. 

More detailed data is provided in the associated Commission Staff Working Paper.  

3.3.2.  Assessment  

There is a general concern over the creation of a "digital divide", between those with access to 
advanced  e-communications  services  and  those  without.  The  Commission  has  stressed  the 
importance  of  broadband  to  realise  the  potential  of  a  knowledge  society.  Implementing  the 
eEurope Action Plan, Member States have put  comprehensive national broadband  strategies 
in  place9.  This  process  now  extends  to  all  25  EU  countries.  As  the  territorial  coverage  of 
broadband  widens,  attention  is  turning  to  remote  and  rural  regions  where  the  population  is 
dispersed  and  market  push  is  weak.  Member  States  may  support  the  roll-out  of  broadband 
services  through  alternative  mechanisms  of  public  funding  including  the  use  of  structural 
funds in the eligible regions conditional upon certain criteria10. 

In conclusion, the regulatory data complemented by market-based analyses show that only a 
small,  although  rapidly  growing,  minority  of  European  consumers  currently  make  use  of 
broadband services. As the figure of 6.5% actual take-up per head of population shows, the 
EU as a whole does not meet the criterion of use of the service by a “majority of consumers”. 
Broadband has not yet become necessary for normal participation in society, such that lack of 
access  implies  social  exclusion.  At  the  present  time,  therefore,  the  conditions  for  including 
broadband services within the scope of universal service (as set out in the Directive) are not 
fulfilled.  

9 
10 

See ’Connecting Europe at High Speed: National Broadband Strategies’, COM(2004) 369. 
Guidelines on criteria and modalities of use of Structural Funds for e-communications, SEC(2003) 895.  

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4. 

LONGER-TERM ISSUES 

4.1. 

Scope 

Technological convergence between telecommunications, media and information technology 
services  continues,  while  the  internet  protocol  (IP)  continues  to  develop  towards  a  common 
transmission  platform  for  communications.  Services  that  were  previously  carried  over  a 
limited number of networks can now be carried over common IP networks. This is blurring 
the  boundaries  between  the  internet  and  the  traditional  telecom  worlds,  which  is  further 
enhanced  by  new  generations  of  hybrid  terminals  that  combine  communications  functions 
with  other  functionalities,  such  as  computing,  gaming,  and  viewing  audio-visual  material. 
This promotes the creation of a personal service and information environment as opposed to 
standard mass market services. 

For  consumers,  the  convergent  and  global  internet-based  environment  brings  the  possibility 
for  innovation,  new  products  and  value  for  money  as  well  as  ever-increasing  choice  and 
complexity  in  terminals  and  services.  Furthermore,  the  combined  effects  of  convergence, 
networking and digitalisation are leading to growing use of the peer-to-peer communications 
model,  which  increasingly  demands  a  high  speed  network  connection  when  using  new  data 
applications. 

The growth of IP-based services challenges the current provision of universal service, which 
is  based  on  the  model  that  consumers  use  network  access  from  a  fixed  location  for  voice-
related  and  basic  internet  services  which  are  provided  over  the  public  switched  telephone 
network. This paradigm is, in turn, based on a  vertically integrated service  provision  model 
whereby the main infrastructure provider is also the telephone services provider.  

If  voice  telephony  service  moves  increasingly  to  an  IP  environment,  this  would  create  an 
internet-like  model,  whereby  anyone  with  a  broadband  connection  could  choose  between  a 
range  of  competing  voice  service  providers.  In  such  a  scenario,  the  provision  of  telephone 
service  as  an  access  service  would  become  ubiquitous,  and  the  focus  of  universal  service 
could evolve towards the provision of an affordable broadband access link. 

Comments are invited on, inter alia, the following longer-term issues:  

(a) 

(b) 

Taking into account existing and expected technological developments, should 
universal  service  at  some  point  in  future  separate  the  access  to  infrastructure 
element  from  the  service  provision  element  and  address  only  access  to  the 
communications  infrastructure,  on  the  grounds  that  competitive  provision  of 
services,  (e.g.,  telephone  service  provided  using  Voice  over  IP)  will  ensure 
their availability and affordability? 

In as much as consumers are increasingly mobile while using communications 
services, should universal service continue to address access at a fixed location, 
or  should  it  address  access  at  any  location  (including  access  while  on  the 
move)? 

(c)  With widespread affordable access to mobile communications, the demand for 
public  payphones  is  declining.  Is  it  still  appropriate  to  include  provisions  on 
public  payphones,  and  as  they  are  currently  conceived,  within  the  scope  of 
universal service? 

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(d) 

(e) 

In  view  of  the  competitive  provision  of  directory  enquiry  services  in  many 
countries, for how long will there be a need to keep directories and directory 
enquiry services within the scope of universal service? 

Taking  into  account  the  complexity  of  the  ever  evolving  communications 
environment  as  described  above,  and  noting  the  challenges  presented  to  date 
for existing universal service provision, it is likely that advanced services will 
bring  both  benefits  and  new  difficulties  for  users  with  disabilities.  Should 
special measures for such users in the context of universal service provision be 
further harmonised at EU level? 

4.2. 

Financing 

The  second  longer  term  consideration  in  this  context  concerns  the  financing  of  universal 
service. Currently, universal service financing schemes imply a financial cross-subsidy from 
one  group  of  customers  to  another.  Member  States  are  allowed  to  finance  any  net  costs  of 
universal service obligations either by using public funds under transparent conditions or by 
setting up a sector-specific fund to which all undertakings active in the market would have to 
contribute.  

When  operators  enjoyed  special  or  exclusive  rights  to  provide  services,  these  benefits  were 
balanced by a requirement to fulfil certain social obligations. The concept of a sector-specific 
universal service fund, whereby market players are required to bear social costs, prolongs this 
thinking.  It  is  questionable  if  this  model  is  appropriate  for  a  liberalised  and  generally 
competitive market. Normally, social costs are borne by general taxation and not by market 
players. 

Therefore, longer-term questions on financing are: 

(a) 

Is  a  universal  service  funding  scheme  an  appropriate  means  to  address  the 
objective of social inclusion in a competitive communications environment?  

(b) 

Is funding from general taxation a viable alternative? 

5. 

SUMMARY 

Having examined the technological, market and social developments affecting consumers of 
e-communications services,  having analysed the mobile and broadband markets, and having 
applied  the  criteria  for  determining  the  scope  of  universal  service  set  out  in  the  Universal 
Service  Directive,  the  Commission  concludes  that  neither  of  these  services  fulfils  the 
condition  for  inclusion  in  the  scope  at  this  time.  Therefore  the  scope  of  universal  service 
should remain unchanged. The Commission invites comments on this conclusion and it will 
consider any data which might be relevant to this assessment. 

The Commission also considers that it is appropriate to encourage a forward-looking policy 
debate on universal service provision by putting forward a number of longer-term questions, 
to which contributions are invited as well 

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