Commission staff working document - Impact Assessment - Accompanying document to the Proposal for a Directive of the European Parliament and the Council amending European Parliament and Council Directives 2002/19/EC, 2002/20/EC and 202/21/EC -  Accompanying document to the Proposal for a Directive of the European Parliament and the Council amending European Parliament and Council Directives 2002/22/EC and 2002/58/EC -  Accompanying document to the Proposal for a Regulation of the European Parliament and the Council establishing the European Electronic Communications Markets Authority {COM(2007) 697 final} {COM(2007) 698 final} {COM(2007) 699 final} {SEC(2007) 1473}
Date: 2007-11-16
Institutions: European Commission
Subjects: competition law, consumer protection, data protection, electronic mail, impact study, protection of privacy, systems interconnection, telecommunications, transmission network, universal service

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.11.2007 
SEC(2007) 1472 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying document to the 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 

amending European Parliament and Council Directives 2002/19/EC, 2002/20/EC and 
202/21/EC 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 

amending European Parliament and Council Directives 2002/22/EC and 2002/58/EC 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 

establishing the European Electronic Communications Markets Authority 

{COM(2007) 697 final} 
{COM(2007) 698 final} 
{COM(2007) 699 final} 
{SEC(2007) 1473} 

EN 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
TABLE OF CONTENTS 

I 

1. 

2. 

3. 

4. 

4.1. 

4.2. 

4.3. 

I 

5. 

INTRODUCTION AND OVERVIEW........................................................................ 6 

The Review of the Regulatory Framework for electronic communications ................ 6 

Consultation and expertise ......................................................................................... 10 

The Main Objectives in the context of the i2010 Initiative ....................................... 11 

Setting the scene - The e-Communications market in the EU ................................... 12 

The overall benefits of telecoms liberalisation .......................................................... 12 

Recent market developments: broadband .................................................................. 13 

Consumer benefits and digital divide......................................................................... 15 

BETTER REGULATION.......................................................................................... 18 

Competition, investment and innovation ................................................................... 18 

5.1. 

Identifying the problem.............................................................................................. 18 

5.1.1.  Background - Current framework: ensuring a level playing field for all operators... 18 

5.1.2.  Deregulation under the current framework ................................................................ 20 

5.1.3.  Challenge: to what extent does the framework encourage investment and innovation?
.................................................................................................................................... 21 

5.1.4.  Evidence base for the problem................................................................................... 23 

5.1.5.  Summarising the problem .......................................................................................... 26 

5.2. 

5.3. 

The objective.............................................................................................................. 28 

Policy options and assessment of impacts ................................................................. 28 

5.3.1.  Option 1 – Adopt 'open access' model for new infrastructure: separate infrastructure 

from service provision................................................................................................ 28 

5.3.2.  Option 2 - No regulation: remove or restrict sector-specific regulation ('regulatory 

holidays') .................................................................................................................... 37 

5.3.3.  Option 3 - No change to the regulatory framework: maintain the current model...... 39 

5.4. 

5.5. 

5.6. 

6. 

Results of the public consultation .............................................................................. 42 

Comparison of options and impacts........................................................................... 43 

Conclusion.................................................................................................................. 47 

Spectrum Management............................................................................................... 48 

6.1. 

Identifying the problem.............................................................................................. 48 

6.1.1. 

Introduction ................................................................................................................ 48 

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6.1.2.  Policy response to the identified problem so far........................................................ 53 

6.1.3.  Summarising the problem .......................................................................................... 54 

6.2. 

6.3. 

6.4. 

6.5. 

The objective.............................................................................................................. 54 

Initial Policy options (June 2006) .............................................................................. 54 

Results of the public consultation .............................................................................. 55 

Revised policy options ............................................................................................... 56 

6.5.1.  Option 1 – adapt the regulatory framework by introducing the principle of 

technology and service neutrality and co-ordinated spectrum trading....................... 56 

6.5.2.  Option 2 – no change to the regulatory framework ................................................... 58 

6.6. 

Assessment of impacts ............................................................................................... 58 

6.6.1.  Three spectrum management models......................................................................... 59 

6.6.2.  Quantitative modelling of impacts using scenarios ................................................... 60 

6.7. 

6.8. 

III 

7. 

Asessment of options and impacts ............................................................................. 60 

Conclusion.................................................................................................................. 64 

Completing the single market in electronic communications .................................... 64 

Regulatory consistency and effectiveness: institutional and procedural issues ......... 65 

7.1. 

Identifying the problem.............................................................................................. 65 

7.1.1. 

Institutional design ..................................................................................................... 65 

7.1.2. 

Inconsistency in remedies imposed by NRAs............................................................ 66 

7.1.3.  Barriers to provision of services with pan-European potential, particularly those 

needing numbers and/or frequencies.......................................................................... 69 

7.1.4.  Diverging approaches in National appeal procedures................................................ 71 

7.1.5.  Summarising the problem: the internal market is not yet a reality in the sector........ 72 

7.2. 

7.3. 

The Objective ............................................................................................................. 72 

Policy options............................................................................................................. 72 

7.3.1.  Option 1: Single European Regulatory Authority with discretionary decision-making 
powers in market reviews and in charge of managing EU aspects of spectrum ........ 73 

7.3.2.  Option 2: European Regulatory Authority without discretionary decision-making 

powers assisting in the implementation of reinforced Community procedures......... 73 

7.3.3.  Option 3 – Better co-ordination between the Member States .................................... 77 

7.4. 

7.5. 

EN 

Results of the public consultation .............................................................................. 79 

Comparison of options and impacts........................................................................... 79 

3 

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7.6. 

Conclusion.................................................................................................................. 85 

IV 

8. 

CONNECTING WITH CITIZENS............................................................................ 86 

Users' rights and consumer protection ....................................................................... 86 

8.1. 

Identifying the problem.............................................................................................. 86 

8.1.1.  Transparency and publication of information ............................................................ 87 

8.1.2.  Users with disabilities ................................................................................................ 88 

8.1.3.  Emergency services: access to 112 and caller location.............................................. 89 

8.1.4.  Basic connectivity and quality of service ('network neutrality and freedoms') ......... 90 

8.2. 

8.3. 

The Objective ............................................................................................................. 93 

Policy options and assessment of impacts ................................................................. 93 

8.3.1.  Option 1 – Encourage more industry self-regulation................................................. 93 

8.3.2.  Option 2 – Update and strengthen the current provisions.......................................... 95 

8.3.3.  Option 3 – No change to the regulatory framework .................................................. 97 

8.4. 

8.5. 

8.6. 

9. 

Results of the public consultation .............................................................................. 98 

Comparison of options and impacts........................................................................... 99 

Conclusion................................................................................................................ 102 

Privacy and security ................................................................................................. 102 

9.1. 

Identifying the problem............................................................................................ 102 

9.1.1.  Main issues and challenges ...................................................................................... 102 

9.1.2.  Divergence of national approaches to network and information security................ 106 

9.1.3.  Notification of security breaches by network operators and ISPs ........................... 106 

9.1.4.  Future-proof network integrity requirements........................................................... 107 

9.1.5.  Enforcement mechanisms under the ePrivacy Directive ......................................... 107 

9.2. 

9.3. 

The objective............................................................................................................ 107 

Policy options........................................................................................................... 108 

9.3.1.  Option 1 - No change to the regulatory framework ................................................. 108 

9.3.2.  Option 2 - Update and strengthen the current provisions ........................................ 108 

9.3.3.  Option 3 – Introduce a new, detailed instrument dealing with security and integrity

.................................................................................................................................. 108 

9.4. 

9.5. 

EN 

Results of the public consultation ............................................................................ 109 

Assessment of impacts ............................................................................................. 110 

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9.6. 

9.7. 

V 

10. 

Comparison of options and impacts......................................................................... 117 

Conclusion................................................................................................................ 120 

OVERALL IMPACT ............................................................................................... 120 

Overall effect and synergies of the legislative package ........................................... 120 

10.1. 

Synergies between different areas of analysis ......................................................... 120 

10.2. 

Simplification and reduction of administrative burdens .......................................... 121 

10.3. 

Environmental impacts............................................................................................. 122 

10.4. 

Synthesis of the preferred options............................................................................ 123 

VI 

MONITORING AND EVALUATION ................................................................... 126 

Annex I: Econometric modelling of the impact of spectrum reform ..................................... 128 

Annex II: Assessment of Administrative Burdens................................................................. 136 

Annex III: Evaluation of costs and benefits of the European Authority with advisory role in 

Electronic Communications ..................................................................................... 147 

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Commission Agenda planning number: 2007/INFSO/001 

I 

1. 

INTRODUCTION AND OVERVIEW 

THE  REVIEW  OF  THE  REGULATORY  FRAMEWORK  FOR  ELECTRONIC 
COMMUNICATIONS 

Background 

The  EU’s  regulatory  framework  for  electronic  communications  networks  and  services 
(eCommunications)  was  adopted  by  the  European  Parliament  and  Council  in  2002  and 
became applicable in Member States in 2003. The framework provides a common set of rules 
for all communications that are transmitted electronically, whether wireless or fixed, data or 
voice, Internet-based or circuit switched, broadcast or personal1. It comprises five Directives: 
the Framework Directive (2002/21/EC), the Access Directive (2002/19/EC), the Authorisation 
Directive  (2002/22/EC),  the  Universal  Service  Directive  (2002/22/EC)  and  e-Privacy 
Directive (2002/58/EC)2. 

In 2006, the Commission undertook a review of the framework, and this has culminated in the 
current proposals for its revision. This impact assessment explores alternative policy options 
that have been considered as part of this review, and analyses the impact of the Commission’s 
legislative proposals.  

The current report builds upon the analysis undertaken in the first impact assessment3 on the 
Commission's  Communication  of  29  June  20064,  which  outlined  the  main  proposals  for 
changes  in  the  five  Directives  of  the  framework.  That  Communication  and  its  associated 
documents  were  subject  to  a  public  consultation  that  ran  from  June  to  October  2006.  The 
consultation also covered a proposed revision5 of the 2003 Commission Recommendation on 
relevant markets, which is a supplementary measure defining those markets where economic 
ex ante regulation may be justified in the sector6. 

1 

2 

3 
4 

5 
6 

Regulation  of  commercial  content  services  -  such  as  Information  Society  Services  (e.g.  electronic 
commerce)  and  broadcasting  -  that  may  be  offered  over  transmission  infrastructures  are  covered  by 
other  Community  instruments  (e.g.  the  e-Commerce  Directive  2000/31/EC  and  the  TV  Without 
Frontiers Directive 89/552/EEC).  
OJ L 108, 24.4.2002, p. 7; OJ L 108, 24.4.2002, p. 21; OJ L 108, 24.4.2002, p.33; OJ L 108, 24.4.2002, 
p. 51; and OJ L 201, 31.07.2002, p. 37 respectively. Transposition of the framework into the national 
law in the EU25 was completed in 2006 with the adoption of primary legislation by Greece. The two 
new Member States have also notified primary legislation, which in the case of Romania relates to the 
entire  framework  and  in  the  case  of  Bulgaria  covers  a  part.  Alongside  these  Directives  are  several 
complementary measures. See overview of the framework in Annex 1 of the Impact Assessment Report 
SEC(2006) 817:   
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/index_en.htm#communic
ation_review 
SEC(2006) 817. 
COM(2006)  334.  The  Communication 
associated  documents 
http://ec.europa.eu/information_society/policy/ecomm/tomorrow/index_en.htm 
SEC(2006) 837. 
C(2003) 497, OJ L 114, 8.5.2003, p. 45. 

can  be 

found 

and 

at: 

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Purpose of the Review 

The purpose of the review was to examine: 

– 

– 

How  well  the  regulatory  framework  had  achieved its objectives,  namely promoting 
competition, contributing to the development of the internal market, and promoting 
the interests of citizens;  

How  the  framework  could  be  changed  in  the  light  of  technological  and  market 
developments7  so  that  it  continues  to  meet  the  needs  of  the  sector  and  consumers 
over the coming decade.  

The  review  also  took  into  account  policy  developments  that  had  taken  place  since  the 
framework was adopted that needed to be incorporated into the EU legal framework.  

The  population  affected  by  the  proposed  changes  are  business,  society,  government 
departments,  institutions  and  every  consumer  and  citizen  in  Europe,  since  all  are  users  of 
electronic communications. In particular, the key players who will be affected by the review 
proposal are: 

– 

– 

Operators,  service  providers,  broadcasters  and  others  who  may  be  directly  affected 
by  changes  to  the  framework.  This  is  not  a  homogeneous  group:  its  members  may 
often have conflicting interests; and 

National regulatory authorities, who have responsibility for applying EU rules at the 
national level. 

Assessment at two stages 

The first, initial impact assessment report of June 2006 aimed "to inform stakeholder debate 
on the main issues and options, and their implications, in a form accessible to a broad public 
and decision-making constituency." To this end it identified broad policy options for the main 
issues  considered  under  the  review,  and  provided  a  preliminary,  mostly  qualitative  set  of 
impacts of the different policy options.  

The  current  impact  assessment  report  deepens  and  refines  the  previous  analysis,  drawing 
particularly  upon  the  stakeholder  inputs  and  empirical  evidence,  i.e.  studies  and  surveys 
conducted by external consultants and the Commission as well as market trend and economic 
data,  which  have  become  available  since  the  first  impact  assessment  was  published.  This 
consultation and discussion process has allowed the current report to focus on a more specific 
set of options covering the key areas. 

Areas of analysis – options and impacts 

Although, the legislative proposals taken as a whole comprise around 150 changes, many are 
quite minor updates of the provisions or repeals of obsolete provisions. Thus, this assessment 
report concentrates on the changes that have the most far-reaching effects (which are largely 
economic). 

7 

See  Annex  3  of  the  Impact  Assessment  of  June  2006  (SEC(2006)  817)  on  technological  and  market 
evolution, see URL in footnote 2. 

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Even by concentrating the evaluation on the main issues, the breadth and complexity of the 
issues  under  review  is  too  great  for  a  single  set  of  evaluation  options  covering  the  whole 
package to address the issues at stake in sufficient depth. The report is therefore divided into 
five  main  areas  of  analysis  (Chapters  5  to  9)  each  with  its  own  set  of  options  and  impact 
analysis.  These  chapters  fall  under  three  broad  themes:  ‘Better  regulation’,  'Completing  the 
single  market'  and  ‘Connecting  with  citizens’,  which  are  reflected  in  the  two  proposed 
Directives amending the current set of Directives8 and a proposal for a regulation creating a 
European Communications Authority. 

In more detail the structure is as follows:  

•  Part II addresses ‘Better regulation’ in the context of ex ante regulation, competition and 
investment  (Chapter  5),  and  better  management  of  radio  frequency  spectrum  in  the  EU 
(Chapter 6).  

•  Part III addresses 'Completing the single market in eCommunications' to create an internal 
market for consumers  and  businesses though a more  effective  regulatory  model  (Chapter 
7).  

•  Part IV addresses the theme of ‘Connecting with citizens’, and assesses the impact of the 
changes to strengthen users' rights and consumer protection (Chapter 8), and those dealing 
with privacy and security (Chapter 9). 

The  proposals  however  do  also  constitute  a  single  regulatory  package;  thus,  whilst  each 
option has to be examined on its own merits, some combinations of measures create important 
synergies. These synergies are further described in Part V – Overall Impacts.  

Alongside  its  legislative  proposals,  the  Commission  is  updating  the  Recommendation  on 
Relevant  Markets  that  defines  which  markets  are  susceptible  to  ex-ante  regulation.  This 
Recommendation  provides  a  flexible  tool  to  roll-back  ex-ante  regulation  in  areas  where 
competition has successful been established. The evaluation has therefore examined the scope 
for  reducing  substantially  the  number  of  markets  (see  Chapter  4)  and  also  the  options  of 
restricting, or even entirely removing ex ante regulation (Chapter 5).  

The  report  also  contains  an  annex  on  the  administrative  costs  following  the  model  of  the 
Commission Impact Assessment Guidelines (Annex II). 

Impact assessment steering group 

In  view  of  the  broad  scope  and  the  cross-cutting  nature  of  the  subject  matter  at  hand,  an 
inter-service  steering  group  of  the  Commission  services  was  established  for  the  impact 
assessment, which met eight times in 2006-20079. 

Opinion of the Impact Assessment Board  

8 

9 

One Directive amending the Framework, Authorisation and Access Directives, and the other Directive 
amending the Universal Service and Users' Rights and ePrivacy Directives. 
The  following  Commission  services  were  invited  to  participate:  Secretary-General;  Legal  Service; 
Competition; Economic and Financial Affairs; Education and Culture; Employment and Social Affairs; 
Energy  and  Transport;  Enlargement;  Enterprise  and  Industry;  Health  and  Consumer  Protection; 
Informatics;  Internal  Market;  Justice,  Freedom  and  Security;  Regional  Policy;  Trade;  Research;  and 
Eurostat. 

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In  its  opinion  of  26  July  2007,  the  Impact  Assessment  Board  recommended  the  following 
improvements to the draft document: 

– 

– 

– 

– 

– 

'The IA report needs to explain better the changes in the regulatory environment that 
the  new  initiative  is  to  bring.  In  particular,  changes  to  Commission  powers,  and/or 
changes to procedures regarding Commission instruments in the field of privacy and 
security  need  to  be  clarified.  Similarly,  changes  to  the  current  functioning  of  the 
national regulatory authorities regarding the infrastructure (section 5 and 7) and the 
spectrum management (section 6 and 7) could be better explained. 

The relation between the actions proposed in the 5 main problem areas needs to be 
clarified.  Should  there  be  no  trade-offs  or  synergies  between  them,  it  must  be 
explained why they are bundled together in one impact assessment report. 

Environmental impacts should be better analysed. Whereas it might not be feasible to 
assess in detail environmental impacts for all policy options, their analysis should be 
improved.  Discussion  about  consequences  for  waste  generation  and  energy 
consumption  on 
travel  with 
e-communication services on the other hand needs to be added to the IA report.  

the  one  hand  and 

transport  and 

replacing 

The  simplification  resulting  from  proposed  changes  requires  further  clarification. 
Some  of  the  elements  (such  as  disclosure  of  security  breaches)  seem  to  create 
additional  obligations  for  operators,  whereas  others  (decrease  in  the  number  of 
markets) seem to aim at their reduction. Since the initiative is part of Simplification 
Rolling  Programme,  overall  simplification  effects  need  to  be  made  more  explicit. 
The  report  should  state  more  clearly  whether  an  assessment  of  the  impact  on  the 
administrative burden will be carried out at a later stage, during the implementation 
process. 

The impacts of the various options (in the relevant sections) should be compared to 
the  respective  baseline  scenario(s),  in  line  with  the  IA  guidelines.  Therefore,  the 
baseline  scenarios  in  the  comparison  tables  should  not  be  marked  with  impact 
qualifiers (+/-); but only indicate the effect of the proposed changes with the baseline 
scenario as benchmark. 

– 

A separate ex-ante evaluation of the European Authority needs to be carried out. 

In response to these comments, the analysis of options and impacts has been further improved 
and substantiated with the requested elements. Part V now includes a detailed description of 
the synergies and links between the five main areas of analysis, more detailed analysis of the 
environmental  impacts  as  well  as  an  analysis  of  the  key  simplification  elements  of  the 
initiative. As regards the administrative burden related to mandatory breach disclosure, Annex 
II  provides  further  explanation  why  quantified  measurement  is  not  provided  at  this  stage. 
Further assessment will be provided at the implementation stage. A summary of the ex-ante 
evaluation of the European Regulatory Authority satisfying the minimum requirements of the 
Financial Regulation is included in Annex III. Finally, the impacts of options in each area of 
analysis are now compared to the “no change” scenarios, which are used as a baseline for this 
comparison.  

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2. 

CONSULTATION AND EXPERTISE  

The  Commission's  review  proposals  draw  upon  an  extensive  consultation  process  that  was 
launched  by  a  public  call  for  inputs  in  November  2005,  which  resulted  in  over  150  written 
submissions and a public hearing of over 440 participants in January 2006. This was followed 
by several discussions with Member States and regulatory authorities10 prior to the adoption 
of the Communication of June 2006 presenting the Commission's initial proposals. 

At  the  second  stage  of  the  review,  the  Commission  undertook  another  set  of  consultation 
activities: 

– 

– 

– 

– 

– 

A public consultation that ran four months between June and October 2006. A total 
of 315 responses in eleven different languages were received from a broad range of 
stakeholders:  Member  States,  regulators,  network  operators  and  service  providers, 
broadcasters, users and consumers. 220 of the submissions concerned the regulatory 
review of the five directives, and 95 the consultation on the draft Recommendation 
on relevant markets11; 

A  public  workshop  was  held  on  13  July  2006  in  which  the  Commission  services 
presented the initial proposals for the review and responded to questions; 

A public workshop was also held on 10 October 2006 for all interested stakeholders 
to  provide  their  comments  to  the  Commission.  Both  of  these  workshops  attracted 
also 
several  hundred  participants.  A  number  of  national 
consulted/discussed  with  the  stakeholders  on  the  review  at  national  level  before 
submitting their response to the Commission's consultation; 

authorities 

Discussions  with  Member  States  in  High  Level  meetings  with  ministries  in 
September  2005  and  in  March  and  November  2006,  and  June  2007,  and  in  the 
Communications Committee and the Radio Spectrum Committee; and 

Discussions  with  the  national  regulatory  authorities  and  the  European  Regulators 
Group (ERG).  

In  general,  the  results  of  the  public  consultation  showed  stakeholder  views  along  the  lines 
already  expressed  in  the  call  for  input  launched  in  November  2006.  The  responses  gave 
overall  support  for  the  regulatory  approach  to  this  sector,  i.e.  ex  ante,  market  based  and 
technologically  neutral.  There  was  moreover  general  support  for  most  of  the  changes  put 
forward  by  the  Commission.  These  stakeholder  views  have  been  taken  into  account  in  the 
Commission's final legislative proposals and in this impact assessment. 

The  major  sources  of  information  for  this  impact  assessment  are  the  annual  Commission 
Reports on Implementation of the Regulatory Package in general12, and on the market reviews 

10 

11 

12 

For  more  details  on  these  consultation  activities,  see  Chapter  3  of  the  impact  assessment 
SEC(2006) 817, see URL in footnote 2. 
Submissions - except where confidentiality was requested - are available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/index_en.htm#communic
ation_review 
The latest report is the 12th Implementation Report on European Electronic Communications Regulation 
and Markets 2006, COM(2007) 155, available at: 
http://ec.europa.e/information_society/policy/ecomm/implementation_enforcement/index_en.htm. 

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(“Article 7 procedure”) in particular13; as well as studies and surveys commissioned from the 
external  consultants  for  the  review14.  The  current  report  has  particularly  benefited  from  a 
study  the  Commission  commissioned  on  the  issues  relating  to  spectrum  management15.  In 
addition,  the  Commission  conducted  a  questionnaire  on  administrative  costs  among  the 
national  regulatory  authorities  and  markets  players,  the  results  of  which  are  given  in  this 
document. 

3. 

THE MAIN OBJECTIVES IN THE CONTEXT OF THE I2010 INITIATIVE  

initiative16  stresses 

i2010 

The  Commission’s 
information  and 
communication  technologies  (ICT)  in  achieving  the  growth  and  jobs  objectives  of  the 
renewed Lisbon strategy. In the area of eCommunications, the i2010 initiative aims to create a 
Single European Information Space by 2010 that offers affordable and secure high bandwidth 
communications, rich and diverse content and digital services. 

the  crucial  role  of 

These  objectives  are  underpinned  by  the  current  EU's  electronic  communications  regulatory 
framework,  which  is  designed  to  drive  competition  in  the  market,  bringing  investment  and 
innovation,  with  choice,  quality  and  lower  prices  for  the  consumer.  This  review  has, 
accordingly, aimed at enhancing the ability of the framework to deliver on its objectives and 
supporting  the  i2010  policy,  by  proposing  adaptations  that  build  on  experience  to  date  and 
anticipate future market and technological changes.  

A major aspect of the IA is therefore to assess the extent to which the main objectives of the 
regulatory framework had been met, i.e.:  

1) 

2) 

to  create  an  open  and  competitive  single  market  for  electronic  communications 
services and networks in Europe, and thereby  

to  encourage  innovation  in  communications  networks  and  services,  by  both  new 
entrants and existing operators, for the benefit of European businesses and citizens. 

More specific objectives of the review are to examine: 

– 

– 

13 

14 

15 

16 

the impact of the regulatory framework on investment and growth;  

the scope for more efficient and flexible spectrum management in the EU; 

framework 

Communications on Market Reviews under the EU Regulatory Framework - Consolidating the internal 
market  for  electronic  communications,  COM(2006)  28  and  COM(2007)  401,  available  at: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/article_7/index_en
.htm 
Preparing the next steps of eCommunications - a contribution to the Review of the eCommunications 
regulatory  framework,  Hogan  &  Hartson  LLP  and  Analysys  Consulting,  2006;  An  assessment  of  the 
regulatory 
the  EU 
for  electronic  communications  –  growth  and 
eCommunications  sector,  London  Economics  and  PricewaterhouseCoopers,  2006;  Report  for  a  Cost 
Benefit  Analysis  of  Options  of  Better  Functioning  of 
in  Electronic 
Communications,  Cost-Benefit  Analysis  of  Option  for  Better  Functioning  of  the  Internal  Market  in 
Electronic  Communications,  the  European  Evaluation  Consortium  –  Economisti  Associati  Srl,  2007; 
and  Eurobarometer  Special  –  eCommunications  household  surveys  2006  and  2007,  available  at: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 
Benchmarking  Impacts  of  EU  Policy  Options  for  Economically  Efficient  Management  of  Radio 
Spectrum, SFC Associates, 2006. 
COM(2005) 229. 

the  Internal  Marker 

investment 

in 

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– 

– 

– 

– 

the  possibilities  to  increase  the  consistency  of  regulatory  actions  in  line  with  the 
i2010 objective to create a single e-communications market in Europe; 

ways to reduce red-tape and administrative costs associated with market reviews;  

the reinforcement of user rights and consumers protection; and 

ways to improve network security. 

4. 

SETTING THE SCENE - THE E-COMMUNICATIONS MARKET IN THE EU 

4.1. 

The overall benefits of telecoms liberalisation 

This  section  will  show  that  although  a  great  deal  of  progress  has  been  made  through  the 
current  framework,  there  continues  to  be  structural  imperfections  in  competition  which  will 
perpetuate  themselves  in  new  markets  and  services  unless  appropriate  regulatory  steps  are 
implemented. 

The telecommunications industry in the EU has evolved very far over the past two decades, 
from  state-run  telephone  monopolies  to  open  competitive  services  that  underpin  Europe's 
capacity for innovation and technological change. Overall, progress has been steady, starting 
with the freeing up of terminal equipment (1988), extending into network and service markets 
(1998)17 and culminating in the harmonised European regulatory framework (2002)18 that is 
currently under review.  

Price  developments  give  a  good  indication  of  the  extensive  impact  of  liberalisation  of 
telecommunications19. Figure 1 compares the price development telecommunications against 
other 'network industries' (i.e. electricity, gas, transport and postal services)20, all of which are 
characterised  by  bottleneck  networks  assets.  It  shows  clearly  that  the  market  opening  and 
competition  – 
-  have  pushed  down 
telecommunications prices. In 2006, consumers in the EU15 spent around 27 % less for the 
same telecoms services than 10 years ago - in real terms this represents a 40% decrease21. 

combined  with 

technological 

advances 

17 

18 

19 

20 

21 

a 

to 

led 

the 

see 

that 

EU's 

short 

review 

policy, 

overview 

telecommunication 

1999  Communications 

The liberalisation at the EU level was initiated by the publication of the European Commission Green 
Paper  in  1987  (Towards  a  Dynamic  European  Economy  -  Green  Paper  on  the  Development  of  the 
Common  Market  for  Telecommunications  Services  and  Equipment),  COM(87)  290.  On  the  history  of 
the 
at: 
http://ec.europa.eu/information_society/policy/ecomm/history/index_en.htm. 
See 
the 
http://ec.europa.eu/archives/ISPO/infosoc/telecompolicy/review99/review99.htm 
Prices  are  not  the  only  indicator  the  Commission's  annual  implementation  reports  have  tracked  the 
changes  in  the  sector  over  the  last  decade,  covering  a  wide  range  of  user  and  regulatory  issues: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/index_en.htm 
See the Annex to the Evaluation of the performance of network industries providing services of general 
economic interest – 2006 Report, Commission Staff Working Paper SEC(2007) 1024. 
However, as pointed out in the above Commission Staff Working Paper, prices depend also on a range 
of variables other than the degree of regulation or liberalisation. Therefore, when analysing whether the 
market liberalisation in the telecommunications has been successful, the development since the market 
opening  should  be  judged  against  a  'no  liberalisation'  counterfactual  situation.  An  empirical  study 
carried  out  by  Copenhagen  Economics 
that 
telecommunications and rail transport prices in the EU15 were more than 20% lower in 2001 than they 
would  have  been  without  market  opening.  Market  Opening  in  the  Network  Industries,  Copenhagen 
Economics, September 2005: http://ec.europa.eu/internal_market/economic-reports/index_en.htm. 

this  and  suggests 

in  2005  attempts 

framework: 

current 

to  do 

EN 

12 

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Figure  1.  Evolution  of  network  industry  price  indices  relative  to  the  all-items  HICP* 
since 1996, EU-25 

150

140

130

120

110

100

90

80

70

60

50

Jan-96

Jul-96

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Electricity

Passenger transport by air

Services (overall index excluding goods)

Gas

Postal services

Passenger transport by railway

Telephone and telefax services (EU15)

Note: The telephone and telefax services price index refers to the EU15 only. 

*) HICP = Harmonised Index for Consumer Prices 

Source: Evaluation of the performance of network industries providing services of general economic interest – 
2006 Report Commission Staff Working Paper, SEC(2007) 1024, (Commission calculations based on Eurostat) 

4.2. 

Recent market developments: broadband 

Accompanying  and  driving  forward  the  process  of  market  opening  has  been  a  revolution  in 
information  and  communication 
that  has  brought  affordable  digital 
communication  technologies  and  services  to  the  vast  majority  of  citizens  and  businesses. 
These processes have shifted the emphasis away from fixed voice towards mobile and data, 
and in particular towards internet and audio visual services.  

technologies 

That is why, in the current review, the focus of the regulatory discussion has been on high-
speed (broadband). Affordable broadband communications is now a prime objective both in 
terms of consumer welfare and digital inclusion, but also economic growth.  

European broadband development in the international context 

Broadband22 is the fastest growing segment in the European eCommunications sector in terms 
of revenue growth, which was estimated at between 7.8% and 8.5% in 200623.  

22 

Broadband refers generally to always-on services that are considerably faster than the ISDN (Integrated 
Services  Digital  Network)  with  the  capacity  to  transmit  significant  amounts  of  data  at  a  high  rate, 
ranging from 128 kbps (kilobits per second) to several Mbps (millions of bits per second) and beyond. 
‘Traditional’  voice  band  modems  typically  offer  a  data  rate  up  to  56  kbps.  OCED  defines  broadband 
connection as downstream access of at least 256 kbps. 

EN 

13 

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Figure 2 shows that several EU countries are now world-leaders with broadband penetration 
rate  exceeding  the  20%24.  With  the  rate  of  reaching  35%,  two  EU  Member  States  had 
surpassed Korea, which has traditionally ranked in the top of the league25. By July 2007, the 
average take-up reached 18.2% of the EU population (over 90 million lines), up from 14.9% 
in  the  previous  year.  Between  July  2006  and  July  2007,  more  than  21.5  million  broadband 
lines were taken, an increase of over 31%26. 

Figure 2. OECD broadband subscribers per 100 inhabitants (by technology), June 2007  

35

30

25

20

15

10

5

0

DSL

Cable

Fibre/LAN 

Other 

OECD average

Denmark
Netherlands
Switzerland

Korea

Norway

Iceland

Finland

Sweden

United Kingdom
Belgium
Canada
Australia

United States
Japan
Germany
Luxembourg
France

Austria

Spain
New Zealand

Portugal
Ireland
Italy
Czech Republic
Hungary

Poland
Slovak Republic
Greece

Turkey

Mexico

Source: OECD 

Further  examination  of  these  figures  assists  the  analysis  of  opening  up  competition  in  e-
communications  markets.  In  short,  the  highest  levels  of  broadband  penetration  in  the  world 
are where there is effective competition. Both inside and outside the EU, the countries with 
the highest penetration rates either have a healthy cable television industry that is competing 
on internet services, (e.g. Netherlands and Denmark, or Switzerland and Canada) or there are 
new  market  entrants  who  have  capitalised  on  easy  access  to  facilities  through  strict 
unbundling requirements (UK and France, or South Korea and Japan). 

Overall,  the  EU  member  states  where  the  pro-competitive  EU  policy  framework  has  been 
applied  effectively  have  already  achieved  high  penetration  rates  and  continue  to  add 
subscribers much faster than the comparable third countries. In 2006, the EU average annual 
increase  in  broadband  penetration  was  16%,  while  growth  rates  were  single-digit  in 
comparable  third  countries  (e.g.  Australia  3.2  %,  Canada  3.2%,  Japan,  2.6%,  Korea  1.1%, 

23 

24 

25 

26 

12th  Implementation  Report  2006.  Communications  Committee  Working  Document  COCOM07-50 
FINAL, 15 October 2007, available at: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/index_en.htm 
The  latest  available  broadband  statistics  covering  all  the  OECD  Member  States  are  from  December 
2006. Updates are available at: www.oecd.org/sti/ict/broadband 
Korea  already  had  54%  penetration  rate  for  households  in  2002  when  broadband  roll-out  was  just 
starting in the EU.  
Communications  Committee  Working  Document  COCOM07-50  FINAL,  15  October  2007,  available 
at: http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/index_en.htm 

EN 

14 

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Switzerland 5.8% and US 4.7%)27. The expert estimates forecast that by 2012, the EU15 with 
66% household rate will near that of Korea's at 69%28. 

As  regards  competition  modes,  there  is  relatively  little  full  infrastructure  competition  in 
Europe  due  to  the  low  and  patchy  coverage  of  cable.  This  compares  badly  with  the  USA, 
South  Korea,  and  Canada,  where  broadband  over  cable  is  well  developed.  For  Europeans, 
over 80% of broadband connections are DSL running via the fixed telephone line. This means 
that  the  vast  majority  of  consumers  are  using  the  local  access  network  of  the  traditional 
incumbent.  

As  far  as  new  infrastructures  are  concerned,  fibre-to-the-home  (FTTH)  networks  are  very 
little developed in Europe. This situation contrast strongly with the world leader, Japan, with 
8.8 million fibre broadband subscribers in 200629. The high Japanese take-up of fibre seems to 
be  driven  by  relatively  low  costs  (overhead  cables  are  permitted)  and  intense  local 
competition (in particular with electricity utilities). There is also strong evidence of demand 
for  more  bandwidth  among  consumers30.  The  USA  also  has  higher  levels  of  FTTH 
development in areas where cable and telephone companies are engaged in strong competition 
for market share. 

4.3. 

Consumer benefits and digital divide 

Consumers have gained many benefits from the liberalisation of eCommunications in recent 
years31.  

Lower  communications  prices:  Competition  has  more  than  halved  communications  prices 
since  liberalisation.  On  fixed  lines,  the  EU  weighted  average  charge  of  a  3  minute  call  has 
fallen by 65% and the cost of a 10 minute call by 74% since 2000. Prices for mobile services 
are now starting to fall as well, reducing almost 14% between 2005 and 200632. 

Better access and  choice: By end 2006, 95% of EU27 households had access to telephone 
services  (fixed  and/or  mobile).  In  just  eight  years  (1998–2006),  overall  mobile  penetration 
grew from 13% to 103%33. Around 81% of EU27 households had at least one mobile phone 
and 72% had fixed lines. Today over one fifth (22%) of EU households have a mobile phone 
but no fixed line34 (see Figure 3). 

27 
28 

29 

30 
31 

32 
33 
34 

See the 12th Implementation Report 2006. 
Source:  Omsyc,  2007:  http://www.omsyc.fr/.  Omsyc  estimates  a  23%  average  growth  for  EU15 
broadband  penetration  during  the  decade,  2002-2012,  whereas  in  Korea  it  would  be  3%  in  the  same 
period. 
See 2007 White Paper – Information and Communications in Japan: 
http://www.johotsusintokei.soumu.go.jp/whitepaper/eng/WP2007/chapter-1.pdf 
12th Implementation Report 2006. 
Options and impacts relating users' rights and consumer protection – including issues concerning users 
with disabilities - are further discussed in Chapter 8. 
12th Implementation Report 2006. 
Idem. 
Special Eurobarometer – eCommunications household survey, April 2007, available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 
However,  it  should  be  noted  that  the  number  of  lines  does  not  impact  traffic  volume,  and  fixed  line 
traffic remains higher than mobile traffic (between 2002-2006 fixed lines generated almost 60% of total 
telephony  traffic).  Omsyc's  estimate  expects  that  fixed  line  traffic  will  grow  thanks  to  voice  over 
broadband development so that in 2012, fixed traffic will still generate 59% of total telephone. When 
measuring telephony by the used minutes, landline telephony in the EU15 decreased an average 2% a 

EN 

15 

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Figure 3. Telephone access, EU25 households, 2006-07 

Source: Special Eurobarometer – eCommunications household survey, April 2007 

Broadband:  On  average  29%  of  the  EU  households  used  broadband  at  the  end  of  2006 
compared to 5% in 2002. Around 23% of households have broadband access, against 16% of 
households  with  a  narrowband  access35.  By  comparing  the  broadband  price  development 
worldwide, it can also be observed that, although Japan and Korea have the lowest consumer 
prices (measured by kbit/s), some EU countries are already among the cheapest, and that the 
prices in the EU have been generally falling much more rapidly than the global average (Fig 
4). 

Figure 4. International comparison of broadband prices 

Source: ITU 

Broadband penetration is also slowly transforming voice services. VoIP (voice over Internet 
Protocol)  is  a  generic  term  describing  voice  carried  over  IP-based  networks  (such  as  the 
Internet)36.  For  consumers,  VoIP  immediately  cuts  the  cost  of  voice  calls.  Although  the 

year between 2000-2006, losing a total of 113 billion minutes (851 to 738 billion minutes), whereas in 
the  same  period  mobile  communications  increased  from  187  to  466  billion  minutes,  with  average 
growth  rate  of  16%.  See  Quantifica  (formerly  OMSYC,  World  Observatory  of  Communication 
Systems): http://www.quantifica.fr/  
Special Eurobarometer – eCommunications household survey, April 2007. 
On  VoIP  in  general,  see  e.g.  VoIP:  Developments  in  the  market,  OECD,  Note  by  TISP,  2006 
(DSTI/ICCP/TISP(2004)3):  http://www.oecd.org/dataoecd/56/24/35955832.pdf.  VoIP  and  consumer 

35 
36 

EN 

16 

   EN 

 
 
 
                                                                                                                                                         
market is still at an early stage, VoIP on public broadband already accounts for more than 5% 
of  Europe’s  fixed  telephone  traffic,  up  from  2%  in  2005.  In  some  countries  VoIP  is 
particularly popular, totalling 18% of fixed telephony traffic in France and 12% in Sweden. 
Forecasts indicate that VoIP might increase by an average 47% a year, by-passing traditional 
fixed calls by 2012 with 30% of overall telephony traffic (fixed and mobile)37. 

The  Information  Society  for  all:  Broadband  is  now  a  fundamental  indicator  of  an 
(information)  society  that  is  “universal,  ubiquitous,  equitable  and  affordable".  The  ITU's 
Digital  Opportunity  Index  (DOI)  measures  the  ability  for  citizens  to  benefit  from  access  to 
information  based  on  11  internationally  agreed  indicators  (including  broadband).  The  index 
ranges from 1 (complete digital opportunity) to 0. The average DOI score 2005/06 worldwide 
was 0.40. Europe's average was 0.58, ahead of the Americas (0.45), Asia Pacific region (0.45) 
and Africa (0.22) as reported in the The World Information Society Report 200738 (see Figure 
5).  According  to  the  report,  "Europe  has  achieved  the  largest  overall  gain  in  digital 
opportunity over the last two years." 

Figure 5. Digital Opportunity, top 25 countries, 20005/06  

Source: The World Information Society Report 2007, ITU 

issues in the EU are examined in a report by the ERG's (The European Regulators Group) Report on 
"VoIP and consumer issues", ERG (06) 39:   
http://erg.eu.int/doc/publications/erg_06_39_report_voip_cons_aspects.pdf. In this context, it should be 
noted  that  the  framework  deals  with  the  markets,  and  that  the  choice  of  technological  means  and 
devices is left to the undertakings and users. As discussed in the Review Communication of June 2006, 
this approach based on technological neutrality has shown itself capable of addressing new technologies 
like  VoIP,  with  a  capacity  to  accommodate  further  technological  and  market  evolutions.  See  also  the 
Commission  Staff  Working  Document  on  the  regulatory  treatment  of  VoIP  under  the  EU  regulatory 
framework, 14 June 2004, available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/working_docs/index_en.htm 
Quantifica, 2007: http://www.quantifica.fr/ 
The report, published in May 2007, is available at: 
http://www.itu.int/osg/spu/publications/worldinformationsociety/2007/report.html 

17 

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I 

BETTER REGULATION 

Introduction 

Better regulation is a central policy objective of the EU under the Lisbon Strategy for growth 
and jobs. A range of initiatives have been launched to cut-red tape by consolidating, codifying 
and  simplifying  existing  legislation  and  improving  the  quality  of  new  legislation  through 
better  ex-ante  impact  evaluations.  The  aim  is  to  better  define  and  justified  public  policy 
initiatives  and  to  evaluate  the  costs  and  benefits  of  policy  actions39.  The  regulatory 
environment should create incentives for business, cut unnecessary costs, remove obstacles to 
adaptability  and  innovation  and  ensure  legal  certainty.  Better  regulation  also  demands  that 
policy should be applied efficiently at both EU and national level. The overall aim of better 
regulation therefore is effectiveness and efficiency of outcomes, not just fewer rules or fewer 
powers for regulators40.  

The existing regulatory framework for e-communications is already the product of a process 
of  better  regulation.  Already  in  2002  it  involved  the  modernisation,  consolidation  and 
simplification of rules by replacing 22 legal measures by a streamlined set of five directives. 
It  is  also  founded  on  the  principles  of  technological  neutrality,  thus  providing  a  flexible 
regulatory tool in the face of the fast technological change in the e-communications sector. 

The aim of the current review is to apply again the principles and tools of better regulation in 
order to achieve a higher level of public policy efficiency and effectiveness of outcomes. Part 
II of this report therefore focuses on two areas where changes have been identified that could 
achieve  increased  efficiency  simplification  and  legal  certainty.  These  are:  i)  competition, 
investment and innovation; and ii) spectrum management. 

5. 

COMPETITION, INVESTMENT AND INNOVATION 

5.1. 

Identifying the problem 

5.1.1.  Background - Current framework: ensuring a level playing field for all operators 

The  basic  concept  of  the  framework  is  that  effective  competition  and  ensuring  opportunity 
and  reward  for  innovative  companies  is  the  key  to  promoting  consumer  interest  and 
technological advance in today's converged communications environment.  

Telecommunications markets are characterised by the concentration of essential networks in 
the  hands  of  a  few  powerful  operators.  Historically,  these  networks  were  pure  monopoly 
assets, but with the opening of competition – through application of the regulatory framework 
-  there  has  been  investment  in  competing  infrastructures,  particular  on  the  more  heavily 
trafficked  core  networks.  In  some  cases,  full  end-to-end  competition  on  fixed  line 
telecommunications  has  emerged  either  through  the  upgrading  of  legacy  cable  networks  to 

39 

40 

EN 

for 

Better 

Growth 

regulation 

Union, 
See 
Commission  Communication  COM(2005)  97,  and  A  strategic  review  of  Better  Regulation  in  the 
European Union, Commission Communication COM(2006) 689, available at: 
http://ec.europa.eu/governance/better_regulation/key_docs_en.htm. 
See also Communication from the Commission: Action plan “Simplifying and improving the regulatory 
environment”, COM(2002)278l, available at: 
http://eur-lex.europa.eu/LexUriServ/site/en/com/2002/com2002_0278en01.pdf. 

European 

Jobs 

and 

the 

in 

18 

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provide  telephone  and  internet,  or  through  new-build  fibre-to-the-home  services.  The  term 
'ladder  of  investment'  has  been  coined  to  describe  how  the  regulatory  model  works:  having 
gained access to the network, market entrants start generating revenue, climb up the 'ladder of 
investment' and in the process, roll out their own infrastructures41. 

The framework is inherently deregulatory because it foresees a progressive rolling back of ex 
ante regulation, to be replaced by general competition law intervention ('ex post regulation'). 
However,  ex-ante  regulation  can  only  be  discarded  once  sustainable  competition  has  been 
established.  For  example,  for  the  vast  majority  of  European  fixed  line  subscribers,  the 
traditional copper cable that links their premises to the network is the dominant – if not the 
only - means of connection. This "local loop" – which in most cases was installed in the days 
of state run monopoly telephony -represents an essential and often non-replicable asset which 
is  in  most  cases  fully  in  the  hands  of  the  incumbent  telecommunications  operator.  Ex-ante 
regulation of such bottleneck assets ensures a level playing field for alternative operators42.  

Overview of the regulatory process under the framework 

The framework requires the national regulatory authorities (NRAs) to encourage efficient investment 
and  promote  competition43.  NRAs  can  impose  ex  ante  regulation  only  after  conducting  a  thorough 
market review.  

Starting point: Recommendation on Relevant Markets 

The national regulators must first examine those markets where competitive conditions are likely to be 
imperfect,  starting  from  a  list  of  markets  in  the  2003  Commission's  Recommendation  on  Relevant 
Markets44. That Recommendation includes 18 wholesale and retail markets. To identify a market, three 
criteria must be met: 1) There are structural or regulatory entry barriers in the market; 2) The market 
has characteristics such that it will not tend towards effective competition; and 3) competition law is 
not sufficient to address the problem. Only exceptionally may a NRA consider regulating outside the 
listed markets. It should be noted that even if the Recommendation identifies a market, regulation will 
not be warranted if there is effective competition on that market. The Recommendation constitutes an 
important part of the overall design of the framework, because it allows the Commission to adapt ex 
ante regulation to technological and market trends. 

Assessing competition in each market 

After  defining  the  relevant  markets,  NRA  must  assess  competition  in  each  market  and  particularly 
whether  any  firms  in  those  markets  have  significant  market  power  (SMP,  i.e.  a  dominant  market 
position that would allow them to operate independently of their competitors). If the markets are found 
not to be competitive - and when national and Community competition law is not sufficient to address 

41 

42 

43 
44 

See  on  'ladder  of  investment'  model  and  references  for  further  reading,  e.g.  Making  the  ladder  or 
investment operational, Martin Cave, 2004, available at 
http://itst.dk/static/Konferencer%20og%20seminarer/Cave%20for%20DTAG_ladder%20of%20investm
ent.pdf,  and  Ladder  of  Investment  or  Equality  of  Access:  The  Italian  Way,  Elena  Gallo  and  Enzo 
Pontarollo, available at: 
http://userpage.fu-berlin.de/~jmueller/its/conf/porto05/papers/Pontarollo_Gallo.pdf. 
It should be noted that the Commission’s Competition Directive 2002/77/EC (based on Article 86 of the 
EC Treaty, and which is not part of this review) requires the Member States ‘not to grant or maintain’ 
any  exclusive  or  special  rights  in  the  markets  for  electronic  communications  networks  and  services. 
This  Directive  amended  and  consolidated  the  previous  Directive  90/388/EEC  on  competition  in 
telecommunications markets as amended by a number of other directives, such as the Mobile Directive 
92/2/EC. 
Article 8.2 of the Framework Directive. 
Commission Recommendation C(2003)497, available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/recomm_guidelines/index_en.htm 

EN 

19 

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the problem - then the operators with SMP are subject to ex ante regulatory obligations (remedies), in 
order to stimulate competition. These remedies must be based on the nature of the problem identified, 
proportionate and justified45. Furthermore, ex ante access and price regulation must be set up in such a 
way  that  it  does  not  negatively  influence  investment  incentives  for  market  players  and  encourages 
companies to 'ascend the investment ladder'46. 

Remedies: flexible 'toolbox' for national regulators 

The  EU  framework  provides  the  NRAs  with  a  ‘toolbox’  of  remedies,  allowing  for  the  flexibility  to 
design  appropriate  measures  to  tackle  market  failures  and  achieve  intended  regulatory  objectives  in 
each Member State. These market failures might include excessive pricing, denial of access, delay for 
subscribers  switching  to  alternative  operators,  limitations  on  providing  wholesale  service  and  other 
discriminatory  treatment.  If,  however,  the  market  is  found  to  be  competitive,  then  the  NRA  must 
remove existing SMP designations and any accompanying regulatory requirements47. 

Local loop unbundling 

An important means of the market opening and competition in the sector is the unbundling of the local 
loop (LLU) 48, which requires incumbent operators to offer third parties access to their local loop at a 
cost-orientated price. This physical wire connection between customer and operators is normally in the 
hands of the incumbent. LLU allows the use of this  bottleneck asset by multiple operators in a way 
that allows them considerably greater flexibility in configuring their service offer than if they have to 
use the configuration offered by the incumbent.  

5.1.2.  Deregulation under the current framework 

As  already  noted,  the  Recommendation  on  Relevant  Markets  is  an  inherent  instrument  of 
better  regulation  as  it  allows  the  Commission  to  adapt  ex  ante  regulation  in  response  to 
technological and market changes (without the need to change the underlying EU legislation). 

Indeed, in the consultation documents of June 2006, the Commission indicated its intention to 
take such a deregulatory step by removing a number of retail markets from the list of markets 
susceptible  to  ex  ante  regulation  on  the  grounds  that  once  there  is  effective  wholesale 
regulation, retail regulation becomes unnecessary.  

The system of defining markets in a Recommendation provides further scope for deregulatory 
flexibility  in  that,  although  it  provides  common  guidelines,  it  does  not  prevent  national 
regulators from making (well substantiated) departures from the list of markets. For example, 
geographical markets can be defined at a sub-national scale if justified by normal competition 
law assessment. Depending on the precise competitive conditions, this could result in rolling 
back  regulation  in  some  sub-national  zones  whilst  continuing  regulation  in  others.  The 

45 

46 

47 
48 

Common principles and a methodology for this market analysis, based on European competition law, 
are  provided  in  the  Commission  guidelines  on  market  analysis  and  assessment  of  significant  power, 
2002/C  165/03.  Under  the  previous  rules,  an  operator  was  generally  subject  to  more  substantive 
regulatory measures once its market share went above 25%. Now, market power is essentially measured 
by  reference  to  the  power  of  undertaking  to raise  prices by  a  small  but  significant  amount  for  a non-
transitory  period  without  incurring  a  significant  loss  of  sales  or  revenues,  while  market  shares  are 
normally used as a proxy for market power. 
Recital  19  of  the  Access  Directive:  "The  imposition  by  national  regulatory  authorities  of  mandated 
access  that  increases  competition  in  the  short-term  should  not  reduce  incentives  for  competitors  to 
invest in alternative facilities that will secure more competition in the long-term." 
On the implementation of remedies in the Member States, see the 12th Implementation Report 2006. 
Regulation (EC) No 2887/2000 of the EP and the Council made LLU obligatory in the Member States 
at the end of 2000. 

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existing consultation mechanism in Article 7 Framework Directive gives the Commission the 
necessary instruments to give guidance and to ensure consistency of the regulatory approach. 

5.1.3.  Challenge: to what extent does the framework encourage investment and innovation? 

Investment  in  ICT  is  now  the  key  driver  of  growth  in  an  advanced  economy  because  it 
increases  productivity,  generates  new  consumer  services  and  creates  jobs.  There  is  strong 
statistical evidence that the overall performance gap between the USA and the EU in the past 
ten years has been due to lower investments and less efficient use of ICT in Europe. This is 
clearly illustrated by those countries that have achieved the fastest growth in per capita GDP 
over  last  ten  years  (Finland,  Ireland,  Sweden  and  the  UK),  which  have  all  recorded 
considerably  high  growth  rates  in  information  technology  investment  and  productivity49. 
Investment  in  ICT  and  its  greater  use  have  also  clearly  helped  new  EU  Member  States  to 
catch up with the ‘EU-15’50. 

Communications  networks  and  services  have  meanwhile  become  the  nervous  system  of  the 
economy,  which  is  why  it  so  important  that  an  open,  competitive  and  innovative 
eCommunications  market  should  be  the  centrepiece  of  EU  regulatory  policy51.  Moreover, 
broadband  penetration  and  investment  in  ICT  infrastructure  are  nowadays  generally  seen  as 
part of the structural factors necessary for innovation to take place52.  

eCommunications and growth  

ICT represents over 5% of the total GDP driving about 40% of productivity growth and one quarter of 
overall growth in the EU. Of ICT sector revenues of approximately €649 billion in 2006, €289 billion 
were  derived  from  eCommunications  (fixed  telephony,  mobile  telephony,  fixed  data  services  and 
cable), accounting for 44.5% of the total value53.  

Competition and innovation in eCommunications 

Competition  in  communications  infrastructure  can  be  measured  both  at  the  infrastructure  and  at  the 
service level (see further in Chapter 5.3.3). Service-based competition has brought lower prices over 

49 

50 

51 

52 

53 

on 

Reports 

See ICT and Europe's Productivity Performance; Industry-level Growth Account Comparisons with the 
United  States,  Review  of  Income  and  Wealth,  vol.  51  no.  4,  December  2005,  pp.  505-536: 
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-4991.2005.00166.x. 
the 
European  economy  2006  and  2007,  European  Economic  Advisory  Group,  March  2006,  March  2007: 
http://www.cesifo-group.de/portal/page?_pageid=36,286932&_dad=portal&_schema=PORTAL; 
and 
EU-KLEMS  database,  March  2007:  http://www.euklems.net  and  the  accompanying  The  EU-KLEMS 
Productivity  Report,  Issue  1,  March  2007,  Bart  Ark,  Mary  O’Mahony  and  Gerard  Ypma: 
http://www.euklems.net/data/eu_klems_productivity_report.pdf. 
See The Potential of ICT for the development and economic restructuring of the new EU Member States 
and  candidate  countries,  Marcin  Piatkowski,  IPTS  /  JRC,  Technical  Report  EUR  21589,  2005: 
http://fiste.jrc.es/pages/detail.cfm?prs=1256. 
On  the  relationship  between  investment  in  ICT  in  general  and  particularly  in  communications 
infrastructures  and  economic  growth,  see  e.g.  Infrastructure’s  contribution  to  aggregate  output, 
D. Canning ,  World  Bank  Policy  Research  Working  Paper  Series,  November  1999; 
Telecommunications  Infrastructure  and  Economic  Development :  A  simultaneous  approach,  The 
American  Economic  Review,  September  2001;  The  contribution  of  Information  and  Communication 
Technology  to  Output  Growth,  Paul  Schreyer ,  OECD  Science,  Technology  and  Industry  Working 
Papers, 2000/2, and The Economic Impact of ICT : Measurement, Evidence and Implications, OECD, 
2004. 
See  e.g.  European  Innovation  Scorecard  2006,  Economic  Research  Institute  on  Innovation  and 
Technology (MERIT) and the Joint Research Centre of the European Commission, 2007, available at: 
http://www.proinno-europe.eu/doc/EIS2006_final.pdf. 
Source: EITO and IDATE, 2006. See further discussion in the 12th Implementation Report 2006. 

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the short term but infrastructure competition offers a more sustainable basis for long term competition 
and  innovation54.  Investments  in  competing  infrastructures  are  more  easily  justified  for  business 
clients than for residential subscribers, because they spend more on communications services. 

The opening up of competition has encouraged the emergence of new players not only new 
operators but also service providers such as internet companies providing IP-based telephony, 
which  are  leveraging  their  rapidly  growing  customer  bases  to  gain  competitive  advantages. 
The  increased  competitive  pressure  constitutes  a  challenge  for  traditional  operators  to 
continue  to  increase  revenues  and  maintain  profitability.  They  are  meeting  this  challenge 
through  cost-cutting  measures  and  efforts  to  retain  customers  through  innovative  flat  rate 
pricing  models.  Both  objectives  are  being  achieved  through  substantial  new  investments  in 
Next Generation Networks (NGN), that involves modernisation of both the 'core' network (i.e. 
moving to an all IP architecture), and the 'access' components of the network (i.e. rolling out 
optical fibre all or part of the way to the customers premises). 

NGN core networks 

The  move  to  IP  architectures  in  core  networks  increases  flexibility  and  efficiency  of  network 
operation, since it allows multiple services to be offered over a single infrastructure. Subscribers will 
not only receive upgraded versions of existing services but also new content rich services55.  

For example, BT estimates that the reduced cost of upgrading its core network to a full-IP will bring 
around one billion pounds savings a year by 2008 / 2009 against an investment of £10 billion. Next 
generation access networks also bring financial advantages in the long term through greater reliability 
and lower maintenance costs. This is an especially important efficiency gain for incumbent operators, 
which had developed a variety of networks dedicated to the provision of different services, and which 
are  still  dependent  for  approximately  60%  of  their  earnings56  on  their  'traditional'  voice  and  access 
businesses57. In general new entrants have more modern core networks and many are already IP based. 

NGN access networks 

Most  existing  local  access  lines  in  Europe  are  copper  (or  metallic)  loops  from  the  operator's  central 
office that connects the core network to the local access network. The cost of modernising these legacy 
copper  networks  by  fibre  links  is  very  high  in  Europe.  Generally,  European  planning  rules  require 
cables  to  run  underground.  Thus  re-cabling  the  local  access  network  calls  for  substantial  civil 
engineering works, not least because only around half of the existing copper cables are in ducts, with 
the other half being buried in the ground58. These civil works can amount to 50%-80% of the total cost 
per  customer,  depending  on  the  fibre  solution  selected  and  local  characteristics  (such  as  population 
density, existence and space capacity in the ducts, labour cost and digging conditions).  

Construction  costs  appear  to  be  higher  in  Europe  than  in  other  major  regions  as  it  is  not  usually 
possible to use aerial fibre (unlike the US and Japan)59. For a new entrant, the economics of rolling out 

54 

55 

56 
57 
58 
59 

Infrastructure-Based  versus  Service-Based  Competition  in  Telecommunications,  Jörg  Kittl,  Martin 
Lundborg and Ernst-Olav Ruhle, Communications & Strategies 65, 2006. 
The fundamental difference between NGNs and "traditional telecom networks" is a shift from 'circuit-
switched' voice-based single service networks to 'packet-based' multi-service networks, of which 'voice' 
will be only a one of a palette of available services. NGNs were discussed in the Annex 3 of the first IA 
of June 2006 (which also provides links to further reading), see URL in footnote 2. 
When measuring profits by EBITDA: earnings before interest, taxes, depreciation and amortisation. 
See the 12th Implementation Report 2006. 
The Fibre Battle – Changing dynamics in European wireline, JP Morgan, 4 December 2006. 
See idem. and e.g. Very high-speed Point of reference and outlook – Press points 10 November 2006, 
ARCEP: 
A 
summary of various case studies is provided in ERG Consultation Document on Regulatory Principles 
of Next Generation Access (NGA) (07) 16: 
http://erg.eu.int/doc/publications/consult_regprinc_nga/erg_cons_doc_on_reg_princ_of_nga.pdf 

http://www.arcep.fr/fileadmin/reprise/dossiers/fibre/slides-fttx-prog-101106ang.pdf. 

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fibre to either the cabinet or the home are challenging, in particular where it is not possible to make 
use of existing underground duct space.  

As a way to reduce the costs of upgrading to access networks, several incumbents are implementing 
plans to extend fibre only as far as the street cabinet and then to deploy VDSL over the existing copper 
sub-loop between the street cabinet and the customer premises. In this way, fibre is brought closer to 
the subscribers allowing a higher speed service, whilst the costs of the upgrade are spread across all 
subscribers  served  by  the  street  cabinet.  Estimates  indicate  that  the  costs  for  incumbents  to  roll  out 
VDSL would be around € 200 per household and for FTTH between € 500 and 2000 per household in 
the  European  metropolitan  areas.  This  approach  however  is  not  viable  where  the  local  loop  is  long, 
which is the case in some European markets, and in those countries Next Generation Access can only 
proceed via a full deployment of FTTH (fibre to the home). 

Competition  has  clearly  been  the  main  driver  of  investment  in  the  sector  in  recent  times. 
However, particularly as regards the large investments required to upgrade to high bandwidth 
and  all-IP  networks,  regulation  has  to  balance  the  immediate  gains  for  consumers  of  fierce 
price competition (that keeps margins in the sector very sharp), and the long term stability of 
revenue that investors seek when making large commitments to infrastructural renewal.  

More  precisely,  the  question  for  this  review  is  whether  in  this  sector  where  technologies 
develop  quickly  and  demands  for  higher  speed  and  capacity  of  networks  are  always  on  the 
rise, the current EU framework has found the right balance between encouraging investment 
and innovation and promoting price-orientated service competition.  

5.1.4.  Evidence base for the problem 

Chapter 4 has already described how broadband development in the EU measures up against 
other  major  regions  in  the  world.  This  section  discusses  further  the  available  evidence 
concerning  the  impact  of  regulation,  competition  and  investment  on  broadband  networks.  It 
considers  first,  the  situation  regarding  ex  ante  regulation  and  competition  in  the 
eCommunications markets, followed by an overview of investments in the sector. 

EU framework as a factor for investment  

The  literature  on  regulation,  investment  and  innovation  has  not  yet  been  able  to  confirm  an 
unambiguous  empirical  relationship  between  the  current  framework  and  investment.  This  would 
require a longer timeframe over which to conduct the analysis60. Nevertheless, an econometric study, 
commissioned  to  support  this  impact  assessment,  has  been  able  to  provide  estimates  of  the  level  of 
eCommunications  investment  in  the  EU  and  to  examine  its  main  drivers61.  The  study  covered  the 

60 

61 

of 

120, 

(IFS) 

2006, 

Journal 

Studies 

Economics 

P  Howitt,  Quarterly 

On  the  related  research  see  e.g.  the  following  (which  also  include  further  surveys  of  the  literature): 
Competition and Innovation: An Inverted-U Relationship, P. Aghion, N. Bloom, R, Blundell, R. Griffith 
701-728: 
and 
http://www.jstor.org/journals/00335533.html; The link between product market reform, innovation and 
EU  macroeconomic  performance,  Rachel  Griffith,  Rupert  Harrison  and  Helen  Simpson,  Institute  for 
Fiscal 
2006: 
http://ec.europa.eu/economy_finance/publications/economic_papers/2006/economicpapers243_en.htm; 
Regulating Infrastructure: The Impact on Risk and Investment, Graeme Guthrie, Journal of Economic 
Literature, 2006, vol. 44, issue 4, pages 925-972: 
http://econpapers.repec.org/article/aeajeclit/v_3A44_3Ay_3A2006_3Ai_3A4_3Ap_3A925-972.htm. 
See  further  details  in  the  study  commissioned  for  this  review:  An  assessment  of  the  regulatory 
framework for electronic communications – growth and investment in the EU eCommunications sector, 
London 
2006: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 

PricewaterhouseCoopers, 

Economics 

Economic 

ECFIN, 

Papers, 

pages 

243, 

DG 

and 

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period for which investment data was available, i.e. 2001-2004. Although, given the short time over 
which  the  empirical  observations  run,  its  findings  might  be  considered  as  preliminary62,  the  results 
suggest that effective national regulation under the EU framework is associated with higher levels of 
investment in the sector alongside other positively correlated factors such as GDP per capita, market 
scale and population density. It is worth noting that larger firms tend to invest more due to their ability 
to spread investments across a number  of markets,  and that incumbents generally remain the largest 
players on the market. 

1) 

Competition and ex ante regulation: situation in markets 

Based on NRA analyses of national markets (as notified to the Commission under the Article 
7  procedure),  it  is  possible  to  compile  an  overview  of  the  current  situation  of  ex  ante 
regulation  and  competition  in  eCommunications  markets  across  the  EU  (Figure  6).  'No 
effective  competition'  means  that  NRAs  are  imposing  obligations  on  operators  with 
significant market power, whereas 'effective competition' means that no ex ante regulation is 
in place. 

This shows that while a number of markets have already become effectively competitive, the 
overall  picture  is  of  market  failures  (especially  dominance)  across  most  markets.  It  is 
especially noteworthy that NRAs in all Member States have found that there is no effective 
competition in relation to retail fixed access services (markets 1 and 2). This reflects the lack 
of infrastructure competition over the 'last mile' (see further discussion below) 63.  

62 

63 

For  criticism  on  the  study,  see.  Review  of  the  EU  Regulatory  Framework  for  eCommunications: 
Analysing the relationship between Regulation and Investment in the Telecommunication Sector, Hans 
W.  Friederiszick  and  Lars-Hendrik  Röller,  ESMT,  2007:  http://www.esmt.org/en/114288;  and  Access 
the  Telecommunications  Sector:  An  Empirical 
regulation  and  Infrastructure  Investment 
Investigation, 
2007: 
with 
LECG 
http://www.etno.be/Portals/34/ETNO%20Documents/LECG_Final%20Report.pdf  
While  competition  is  prevalent  in  a  number  of  Member  States,  it  is  considered  that  on  balance  the 
market for mobile call origination (market 15) should be kept under regular review, given the findings 
of  single  or  joint  dominance  in  some  Member  States  as  well  as  the  development  towards  converged 
fixed-mobile  products  and  trends  for  further  consolidation  of  the  sector.  In  addition,  entry  barriers 
remain  high,  although  this  may  change  in  the  light  of  the  spectrum  reform  proposed  by  the 
Commission. 

September 

support 

ETNO, 

Ltd, 

of 

in 

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Figure 6. Overview of market analysis under the framework, June 2007* 

Source: European Commission64 

*) In the table, 1 to 7 inclusive relate to fixed retail market, and markets 8 to 18 are wholesale markets, which 
comprise  fixed  services  market  (markets  8  to  14),  mobile  services  (markets  15  to  17),  and  broadcasting 
(market 18). 

2) 

Investment trends in eCommunications 

The  current  EU  framework  became  applicable  in  2003,  when  the  sector  was  just  starting  to 
recover from the financial crisis caused by the burst of the "internet bubble".  From 1997 to 
2001, increases in investments in the sector in Europe have been estimated as ranging from 
50% to 100%. In the following years investment declined, levelling off in 2003 and rising in 
2004 to slightly above the investment level in 199765. 

In fact, 2006 was the fourth consecutive year of increased year-on-year investments levels in 
the  European  communications  sector.  Aggregate  investment  –  measured  in  terms  of  capital 
expenditure  –  is  estimated  to  have  risen  to  more  than  €  47  billion  in  2006,  representing  an 
increase  of  5%  over  200566.  The  2005  investment  figure  of  €  45  billion  ($  65  billion) 
exceeded  that  of  other  major  regions  (Asia  Pacific:  $  63  billion  and  North  America:  $  62 
billion)67. 

64 

65 

66 

67 

This is a simplified table that does not take into account distinction between 'effective competition' and 
'partial competition'. See the updated and more detailed table at: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/article_7/index_en
.htm 
See An assessment of the regulatory framework for electronic communications – growth and investment 
in  the  EU  eCommunications  sector,  London  Economics  and  PricewaterhouseCoopers,  2006: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 
The  report's  data  is  based  on  ECTA,  ETNO,  ECCA,  OECD,  Cable  Europe,  European  Commission 
sources as well as financial research by investment banks Morgan Stanley and Goldman Sachs. 
Infonetics, 2005. 

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The typical incumbent firm in the fixed or mobile sector invested approximately 13% of its 
revenues in 2006. This percentage is slightly below the levels seen in the late 1990s, although 
they are in line with long-run historical averages for the sector. As noted above, incumbents 
being larger and present in a wider range of markets continue to outspend their competitors in 
absolute (though not always in relative) terms. 

The EU average telecommunications expenditure as percentage of GDP was 3.03 % in 2006. 
The  highest  figures  are  witnessed  in  fast  growing  EU  Member  States  whose  infrastructures 
have been undergoing a major renewal, such as Latvia (7.55%), Bulgaria (7.11%) and Estonia 
(6.8%). The average in the EU15 was 2.92%, moderately ahead of the USA (2.14%) but well 
behind Japans (4.2%)68. 

As  for  telecommunications  expenditure  per  capita  in  2006,  the  EU25  average  was  €  709 
(EU15  €  826),  with  the  highest  expenditures  in  Sweden  (€  1.196),  Denmark  (€  1.155)  and 
Ireland (€ 990) followed by the Netherlands (€ 984) the UK (€ 990). This is again comparable 
with the USA (€ 769) but well behind Japan (€ 1.228)69. 

Investments in next generation networks 

Both incumbents and alternative operators have on-going or announced investments in new generation 
core and access networks (NGAs). In absolute terms, according to publicly available data, the largest 
investment in next generation core networks in the EU is the €15 billion investment in the UK by the 
incumbent. As for access networks, the largest investment announcements have been by the Italian and 
German  incumbents,  €  6.5  billion  and  €  3  billion  respectively.  In  the  Netherlands  and  Belgium  the 
incumbents are to invest around € 900 million and € 300 million, respectively. 

As regards new entrant investments, announcements include: a German city network operator planning 
to invest € 250 million in fibre; three  French DSL  operators (with announcements  summing to €1.6 
billion) plus the cable operators with large scale fibre deployments. The French incumbent has yet to 
make  major  announcements.  Cable  companies  elsewhere  in  the  EU  including  Belgium  and  the 
Netherlands have also announced fibre deployment projects.  

Besides  private  projects,  there  are  also  several  public  and  public-private  partnership  projects,  often 
backed  by  EU  funding.  For  example,  in  Greece  a  major  public-private  partnership  project  of  €  210 
million is co-financed by the European Fund for Regional Development70. 

5.1.5. 

Summarising the problem 

Regulatory  action  over  the  coming  years  will  have  a  strong  bearing  on  the  pace  and  the 
manner  of  Europe's  transition  to  a  high-speed  and  full  IP-based  telecommunication 
infrastructure. Prima facie, the strong comparative position of the EU in terms of broadband 
penetration  rates  provides  empirical  evidence  that  the  regulatory  framework  is  encouraging 
innovation in new Information Society services.  

However,  it  still  needs  to  be  verified  whether  the  right  balance  between  flexibility  for  the 
operators  and  predictability  of  regulation  has  been  found,  and  to  what  extent  the  current 
framework  contributes  to  investment  and  innovation.  In  particular,  there  is  concern  that  if 
insufficient  investments  are  made  in  new  generation  networks  offering  bandwidths  several 

68 
69 
70 

EITO 2007: http://www.eito.com/ 
Idem.  
For an overview on NGA development and country cases studies, see ERG Consultation Document on 
Regulatory Principles of Next Generation Access (NGA) (07) 16: 
http://erg.eu.int/doc/publications/consult_regprinc_nga/erg_cons_doc_on_reg_princ_of_nga.pdf. 

EN 

26 

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times  faster  than  those  currently  available  in  Europe,  the  EU  risks  being  outperformed  by 
other  major  economies  (such  as  Japan,  Korea  and  the  US)  where  such  developments  are 
already well underway. There is a potential risk here to Europe's competitiveness, as well as 
having detrimental effects to innovation, consumer benefits, digital inclusion and creation of a 
more sustainable knowledge-based economy. 

In policy terms, the issue is to strike a regulatory balance between, on the one hand, allowing 
incentives  for  investors  in  new  core  and  access  networks  –  in  the  face  of  considerable 
uncertainty over the evolution of demand for these services – and, on the other hand, avoiding 
the  immediate  foreclosure  of  new  markets  by  sanctioning  the  reassertion  of  monopoly 
privileges by the dominant market players over these new infrastructures71. 

A  particular  focus  of  debate  has  been  the  extent  to  which  new  generation  networks  in 
themselves  constitute  new  markets72.  Recital  27  of  the  Framework  Directive  notes  that  in 
newly  emerging  markets  the  market  leader  is  de  facto  likely  to  have  a  substantial  market 
share, and thus should not be subjected to inappropriate ex ante obligations. As already noted, 
however,  new  generation  networks  provide  a  technological  platform  for  both  more  efficient 
delivery  of  existing  services  as  well  as  the  addition  of  new  services.  Thus,  a  new 
infrastructure  cannot  be  considered,  a  priori,  as  equivalent  to  a  new  market.  Indeed,  new 
infrastructure investments can even be used to reinforce the dominance of the lead player in 
existing markets. 

Nevertheless, the large investments involved in high-speed networks do require regulators to 
take into account the risks involved in making these investments and permit adequate returns 
on investments. Incumbents, in particular, criticise mandated access to their infrastructure and 
the price at which this is imposed (which they usually consider to be too low) arguing that it 
provides  disincentives  to  investment,  especially  the  major  investments  needed  for  next 
generation access. On this basis, some incumbents have called for a firm date to be set for the 
withdrawal  of  sector-specific  ex  ante  regulation;  whilst  others  for  'regulatory  holidays'  for 
major  new  investments.  By  contrast,  alternative  operators  fear  that  the  removal  of  access 
obligations  –  in  particular  the  obligation  to  unbundle  local  loops  and  to  provide  backhaul 
connections  to  the  alternative  operators'  network  -  would  inhibit  the  emergence  of 
infrastructural competition by undermining their growing investments in core networks. They 
argue  therefore  for  their  part  that  ex  ante  regulation  and  open  access  provisions  on 
incumbents' networks are strongly correlated with increased investment and innovation. 

The  regulatory  challenge  is  therefore  to  balance  the  conflicting  interests  of  economic 
operators, all of whom need legal certainty about the future course of regulatory practice in 
order to make investment decisions. This means that ex ante regulation should be targeted on 
those  areas  where  there  are  enduring  bottlenecks  that  determine  access  to  the  marketplace, 
and  that  the  regulatory  measures  should  be  effective  and  proportionate  in  order  to  make 
market  entry  possible  for  operators  that  are  willing  to  invest  in  providing  services,  whilst 
safeguarding the long-term economic sustainability of the dominant network providers. 

71 

72 

EN 

regulatory 

Commission  guidelines  on  market  analysis  and  the  assessment  of  significant  market  power  under  the 
Community 
services 
(2002/C 165/03), OJ C 165 of 11.7.2002, p. 6:  
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2002/c_165/c_16520020711en00060031.pdf 
See submissions to the public consultation on the review: 
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/review_2/index_en.htm 

for  electronic  communications  networks  and 

framework 

27 

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5.2. 

The objective  

The overall objective is to ensure that the EU's regulatory environment promotes competition, 
investment  and  innovation  in  electronic  communications,  so  that  user  needs  are  met  and 
consumer interests are protected. 

The specific aims within this overall objective are: 

– 

– 

Ensure  effective  competition  which  brings  tangible  benefits  to  consumers  in 
particular through greater choice of services and lower prices; and 

Promote  investment  and  innovation  in  high-speed  communications  infrastructures 
and new services. 

5.3. 

Policy options and assessment of impacts 

Three main policy options73 are explored: 

Option 1: 

Adopt  an  ‘open  access’  model  for  new  network  infrastructure  (i.e.  separating 
infrastructure provision from service provision to a greater or lesser extent); 

Option 2: 

No  regulation:  remove  or  restrict  sector-specific  regulation  ('regulatory 
holidays'); and 

Option 3: 

Maintain the current model of the framework. 

5.3.1.  Option 1 – Adopt 'open access' model for new infrastructure: separate infrastructure 

from service provision 

This option addresses the problem of trying to ensure fair competition in a market where some 
operators are vertically integrated, owning the network infrastructure and providing services, 
and others are not. 

Network  industries  require  a  specific  regulatory  approach  because  the  dominant  players 
control  access  to  infrastructures  that  are  essential  for  competitors  to  provide  services  in  the 
market place. These facilities are described as "non replicable assets" both because the costs 
of  duplicating  cannot  be  justified  by  any  reasonable  business  case  and  also  in  may  cases 
because there is no public will to see multiple physical networks serving  the  same  purpose. 
They are therefore often described as "natural monopolies" and as such are subject to ex ante 
regulation in order to make sure that access to them is maintained on an equal footing in order 
to encourage competition. 

The application of behavioural ex ante remedies (wholesale price caps, obligations to provide 
reference  offers,  cost  orientation,  etc)  does  not  always  lead  to  equivalent  access  to  the 
bottleneck  assets.  Thus,  alternative  service  providers  often  report  problems  of  achieving 
equivalent treatment to the service provider of the incumbent operator. In short, the incumbent 
has both the motive and the means, through control of these bottleneck assets, to discriminate 
in favour of their vertically integrated subsidiaries.  

73 

Note that the numbering of the options here is different than in the IA Report of June 2006. 

EN 

28 

   EN 

 
                                                 
Where such access problems have a significant and enduring impact on competition, further 
regulatory intervention may be justified to require a transparent separation between the parts 
of the incumbent controlling the bottleneck assets and the other divisions. These interventions 
can be carried in a graduated way, which can be presented in simplified form as:  

– 

– 

– 

Accounting separation means the keeping of separate revenue and cost accounts for 
different activities, in order to achieve a detailed and accurate statement of the cost 
and profits made by an operator for a specific activity.  

Functional Separation means the establishment of an operationally separated entities, 
the ownership of which remains with the parent company. The separate entities have 
separate accounts but they are not legally independent entities. 

Structural  separation  or  'ownership  unbundling'  or  'divestiture'  means  that  some  or 
the  entire  network  is  placed  in  a  separate  legal  entity  and  is  placed  under  different 
ownership. 

Accounting separation can be seen as a complement to behavioural remedies in that it permits 
more  accurate  application  of  price  control  measures,  in  order  to  avoid  price  discrimination. 
However,  it  does  not  address  non-price  discrimination,  such  as  delays  in  switching  over 
customers to competitors, limits on wholesale product offers, differential service quality, etc. 
In  addition,  policing  obligations  for  non-discrimination  in  vertically  integrated  undertakings 
are  notoriously  difficult74.  For  example,  operators  with  obligations  of  accounting  separation 
have incentives to obscure any anti-competitive behaviour in the accounts.  

Thus,  where  discrimination  is  found  to  be  a  continuing  impediment  to  competition,  more 
fundamental separation measures might be warranted that not only increase the transparency 
of prices but also remove incentives to discriminate or deny access or use cross-subsidisation 
to  compete  unfairly  by  addressing  the  underlying  motive  for  discrimination  -  the  internal 
profit  motive  of  the  firm.  In  theory,  both  structural  and  functional  separation  of  bottleneck 
network assets and network services would give the access provider an incentive to grant all 
access  seekers  (service  providers)  non-discriminatory  terms  and  conditions.  This  is  the 
fundamental  aim  of  functional  and  structural  separation  in  network  industries75.  And  in  so 
doing  it  should,  in  principle,  create  a  level  playing  field  for  all  service  providers,  promote 
competition in service provision and lead to better services at lower costs for consumers.  

In network industries, vertical separation is being implemented in one form or another in most 
OECD countries (see figure 7). However, experience over recent years reveals that the vertical 
separation model is more likely to be successful in some sectors and countries than in others76.  

74 

75 

76 

In telecommunications, a vertically integrated company may achieve lower cost structures (for instance 
by spreading billing costs across a wide range of services) as well as by producing service packages at a 
lower cost than a firm producing the same services on a stand-alone basis. Vertical integration enables 
the  firm  to  co-ordinate  production  and  investment  decisions  by  minimising  external  transaction 
processes and their attendant costs and delays. See e.g. The benefits and costs of structural separation 
of 
2003: 
http://www.oecd.org/dataoecd/39/63/18518340.pdf 
See  e.g.  Structural  Separation  in  Regulated  Industries,  OECD  2001,  DAFFE/CLP(2000)11: 
http://www.oecd.org/dataoecd/49/15/2474629.pdf. 
See e.g. World Development Report 2002: Building Institutions for Markets, World Bank, Washington 
2002,  available  at:  http://www.worldbank.org/wdr/2001/fulltext/fulltext2002.htm,  and  Vertical 

(STI/ICCP/TISP(2002)13/), 

TISP,  OECD 

loop,  Note 

local 

the 

by 

EN 

29 

   EN 

 
                                                 
Figure 7. Vertical separation cases and projects in main OECD countries 

Source: IDATE, 200777. 

A detailed analysis undertaken for the recent proposals for unbundling the energy sector in the 
EU concludes that "the option of full ownership unbundling has a number of positive impacts 
on  the  market,  in  particular  by  stimulating  investment  in  particular  in  interconnectors, 
reducing  market  concentration  and  bringing  down  prices".  At  the  same  time,  there  is  no 
indication that ownership unbundling would harm credit ratings, share prices, R&D activity or 
the relationship with external suppliers. The proposals for ownership unbundling ensure that 
EU energy networks cannot be owned by non-EU supply companies, or by EU supplier78. 

At  an  overall  level  in  sectors  such  as  telecoms,  water,  electricity  and  gas,  the  benefits  of 
preventing  foreclosure  and  the  scope  for  innovation  if  competition  is  strong  seem  to  be 
relatively high, whereas the costs in these sectors in terms of dis-economies of coordination 
and the costs of the split can be seen as moderate to low79. This goes someway to explain the 
problems  that  have  been  experienced  in  the  case  of  structural  separation  of  railways,  where 
the net benefits of separation can be expected to be rather low80. 

Recent  analysis  of  experiences  in  separation  in  different  infrastructure  sectors  indicate  that 
some of the theoretical disadvantages - particularly tendencies to over or under invest in the 
infrastructure  and  problems  of  coordination  due  to  the  rupture  of  the  vertical  integration  or 

77 

78 

79 

80 

Restructuring (or Not) of the Infrastructure Sectors of Transition Economies, Russell Pittman, Journal 
of Industry Competition & Trade, 2003: 3, pp. 
The  real  impact  of  structural  separation,  Julien  Salanave,  Communications  &  Strategies,  no  65,  1st 
quarter 2007, p. 187: http://www.idate-shop.com/fic/revue_telech/624/CS65_SALANAVE.pdf. 
European  Commission  Staff  Working  Document  SEC  (2007)  1179,  Impact  Assessment  for  the 
legislative  package  on 
for  electricity  and  gas,  2007,  available  at: 
http://ec.europa.eu/energy/electricity/package_2007/index_en.htm  
Regulating Infrastructures: monopoly, contracts and discretion, J. Gomez-Ibanez, Harvard University 
Press, 2003, 
See  e.g.  the  above-mentioned  World  Development  Report  2002:  Building  Institutions  for  Markets, 
World Bank, Washington 2002. 

internal  market 

the 

EN 

30 

   EN 

 
 
                                                                                                                                                         
double marginalisation - can be overcome through effective regulatory and private contracting 
arrangements81.  

Assessment of impacts of Option 1 

a) General 

It  is  evident  from  the  above  that  not  all  sectors  are  the  same  as  regards  the  application  of 
vertical  separation  and  that  therefore  the  benefits  and  drawbacks  of  the  two  basic  forms  of 
vertical  separation  must  be  further  analysed  in  the  context  of  the  specific  techno-economic 
characteristics of the eCommunications sector. 

Under  the  current  framework,  NRAs  can  already  impose  accounting  separation  and  cost 
accounting  in  order  to  calculate  appropriate  wholesale  access  charges  and  to  avoid  price 
discrimination to operators designated having significant market power82.  

Structural  separation  cannot  be  imposed  under  the  legal  basis  of  the  regulatory  framework, 
but  could  in  principle  be  imposed  under  competition  law  instruments  (Council  Regulation 
(EC) No 1/2003 permits the break-up of a company found to have infringed competition law, 
if it can be shown that no alternative behavioural remedy is equally effective)83. 

Techno-economic characteristics of eCommunications vs. other network industries 

Although  the  eCommunications  and  other  network  industries  share  many  similar  characteristics, 
there  are  also  a  number  of  differences.  The  energy  sector,  for  instance,  is  not  as  technologically 
dynamic as telecommunications networks, the services transmitted can be considered as commodities 
and  there  are  fewer  examples  of  competing  network  infrastructures  because  liberalisation  and 
competition has not been achieved to the same degree. In energy networks the main bottleneck is long 
distance  transmission  networks  rather  than  the  local  access  networks  that  form  the  key  remaining 
bottlenecks  in  telecommunications.  Nevertheless,  telecommunication  networks  are  still  characterised 
by strong market dominance which is based upon direct ownership of bottleneck assets by vertically 
integrated  incumbents.  Thus  whilst  the  problems  of  discrimination  are  endemic  to  all  network 
industries, the remedies cannot a priori assumed to be the same.  

It should be noted that vertical separation does not remove the need for regulatory oversight 
of  the  dominant  entity.  If  implemented  effectively  it  resolves  the  problem  of  discrimination 
but  it  raises  new  demands  for  regulatory  oversight  such  as  controlling  a  tendency  for 
excessive pricing by the infrastructure provider and ensuring that investment in the network 
infrastructure  is  adequate.  These  problems  can  be  rather  difficult  to  tackle,  and  some  have 
in 
argued 
telecommunications  given  the  high  rate  of  technological  change  and  the  potential  loss  of 

potential  benefits  of 

non-discrimination, 

especially 

outweigh 

the 

81 

82 

83 

See the review paper Network separation and investment incentives in Telecommunication, M. Cave, M 
and C. Doyle, University or Warwick, 2007: http://www.thinktel.org/inprimopiano02.asp?ID=391 and 
Regulating  infrastructure:  the  impact  on  risk  and  investment,  G.  Guthrie,  Journal  of  Economic 
Literature, 44: 925-972 
Article  11  of  the  Access  Directive,  see  further  the  Commission  Recommendation  on  accounting 
separation and cost accounting systems under the regulatory framework for electronic communications, 
(C(2005) 3480, 19 September 2005. 
Council Regulation on the implementation of the rules on competition laid down in Articles 81 and 82 
http://eur-
of 
lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!DocNumber&lg=en&type_doc=Regulatio
n&an_doc=2003&nu_doc=1 

December 

1/2003 

Treaty 

2002: 

(EC) 

the 

No 

16 

of 

EN 

31 

   EN 

 
                                                 
economies of scope in the coordination of investments in services and infrastructures. That is 
why, as noted in the Impact Assessment of June 2006, it is essential that a careful cost benefit 
analysis is carried out in any serious consideration of vertical separation84. 

Regulatory developments in energy sectors and the issue of ownership separation 

The  Commission  has  recently  proposed  changes  to  the  legal  framework  for  the  energy  sectors.  Its 
sector inquiry into competition in gas and electricity markets published at the beginning of 2007 found 
that  despite  the  EU  liberalisation  directives,  there  are  several  sector-specific  problems  such  as  high 
levels of market concentration, vertical integration of supply, generation and infrastructure leading to a 
lack of equal access to, and insufficient investment in infrastructure85.  

The expert study commissioned for the regulatory review found stakeholder support for the notion that 
ownership separation ('full TSO86 ownership unbundling') "could remove the fundamental conflict of 
interest in a network owner affiliates and would contribute to ensuring non-discriminatory access. It 
was  also  felt  that  the  creation  of  network-only  businesses  probably  would  make  regulation  easier. 
However,  many  respondents  pointed  out  that  there  would  be  strong  opposition  to  full  ownership 
unbundling and that the benefits were not self-evident or possible to qualify" 87.  

Following  these  findings,  the  Commission  has  proposed  ownership  unbundling  (i.e.  structural 
separation)  as  the  most  effective  means  to  ensure  choice  for  energy  users  and  to  encourage 
investment88.  In  certain  cases,  where  ownership  unbundling  is  not  practicable,  a  second  option 
establishing  an  independent  system  operator  (ISO)  to  carry  out  the  operational  management  of  the 
transmission has also been tabled, but under strict conditions. These conditions include, inter alia, that 
the candidate operator has at its disposal the required financial, technical and human resources to carry 
out its tasks; that it has committed to complying with a ten year network development plan proposed 
by the regulatory authority; and that it has demonstrated its ability to comply with its obligations on 
conditions for access to the network for cross-border exchanges in electricity89. 

b) Structural Separation 

Structural separation has the advantage of providing a clear-cut regulatory response to serious 
competition problems in network industries. There are practical examples of structural separation 
being successfully implemented in telecommunications.  

Structural separation of AT&T in the USA 

84 

85 

86 

87 

88 

89 

sector 

energy 

inquiry, 

available 

January  2007, 

(SEC(2006)1724,  10 

Draft  Report  to  Council  on  Experiences  with  Structural  Separation,  Working  Party  No.  2  on 
Competition and Regulation, OECD, 2.8.2005 (DAF/COMP/WP2(2005)1/REV1), for official use. 
See Communication Energy Policy for Europe, COM(2007) 1, 10 January 2007 and DG Competition 
report  on 
at: 
http://ec.europa.eu/comm/competition/sectors/energy/inquiry/index.html.  Note  that  the  conclusions  of 
the  European  Council  of  15  February  2007  called  for  "effective  separation  of  supply  and  production 
activities from network operations (unbundling), based on independently run and adequately regulated 
network  operation  systems  which  guarantee  equal  and  open  access  to  transport  infrastructures  and 
independence of decisions on investment in infrastructure." 
Transmission System Operators (i.e. entities operating the high voltage electricity networks and the gas 
transport). 
EU Energy Review – Stakeholder Consultation and Cost Benefit Analysis, ECORYS, ECN and Moffatt 
Associates, 2007 (publication pending). 
Common rules for the internal market in electricity, COM (2007) 0528, Proposal for a Directive of the 
European  Parliament  and of  the  Council  amending  Directive 2003/54/EC  of  the  European  Parliament 
at: 
and 
http://ec.europa.eu/energy/electricity/package_2007/index_en.htm  
Idem, Art. 10.2. 

the  Council 

September 

available 

2007, 

2007, 

June 

26 

19 

of 

of 

EN 

32 

   EN 

 
                                                 
The  most  famous  example  of  divestiture  in  telecommunications  –  and  which  is  also  generally 
considered  a  success  -  is  the  separation  of  AT&T  from  the  Regional  Bell  Operating  Companies 
(RBOCs)  in  the  United  States  in  198490.  With  the  divestiture,  not  only  were  the  local  operations  of 
AT&T structurally separated from its long distance and international operations, but ownership of the 
two groups of companies was separated by means of a share swap. With their ownership separate from 
AT&T,  the  RBOCs  (or  “Baby  Bells”)  no  longer  had  an  incentive  to  favour  AT&T  over  its  long 
distance  competitors.  Therefore,  all 
local 
telecommunications services from RBOCs on similar, non-discriminatory terms. The divestiture also 
eliminated  concerns  about  anti-competitive  cross-subsidies  between  AT&T's  local  and  long  distance 
operations.  

long  distance  competitors  obtained  access 

to 

However,  structural  separation  also  carries  with  it  a  number  of  significant  regulatory 
difficulties.  First,  it  makes  it  difficult  to  coordinate  infrastructure  investment  with  service 
development, which is particularly acute in the communications industry, where technological 
change  is  rapid.  Furthermore,  the  pressing  demands  for  investments  in  next  generation 
networks  (NGN)  blur  the  split  between  competitive  and  bottleneck  assets.  As  fibre  is 
extended  out  from  the  central  office  to  the  street  cabinet  or  to  the  home  to  enable  fast 
broadband  access  (see  Chapter  5.1.3),  investment  coordination  is  likely  to  become  more 
important, not least due to the uncertainty of demand for new services and higher bandwidths. 

Secondly, it is difficult to define the best way to split the operation into its component parts. 
The  coming  of  next  generation  networks  has  been  seen  by  some  as  creating  a  logical 
separation between the infrastructure that carries electronic communications and the services 
that  that  they  comprise91.  Indeed,  next  generation  networks  can  in  principle  be  completely 
blind  as  to  the  types  of  services  and  content  that  they  carry,  which  is  the  ultimate 
commodification of telecommunications traffic.  

However,  a  perfect  split  between  the  transport  and  the  service  layers  may  by  no  means  as 
straightforward  as  it  appears  in  theory.  Rather,  it  is  argued,  networks  will  continue  to  be 
hybrids  of  different  legacy  systems  which  makes  it  difficult  to  identify  an  appropriate 
boundary  at  which  to  apply  structural  separation,  given  the  uncertainties  surrounding  new 
network  architectures.  Moreover,  once  implemented,  such  separation  is  not  easy  to  adapt 
afterwards. There is therefore a risk of an inappropriate market structure being imposed and 
becoming entrenched92. 

Thirdly, there are substantial one-off implementation costs associated with the break-up of the 
integrated firm (see Box). Structural separation of ownership may have a considerable impact 
on the share value of the regulated company Having said this there is evidence that voluntary 

90 

91 

92 

The  process  was  already  initiated  in  1974  by  the  U.S.  Justice  Department’s  anti-trust  suit,  which 
claimed  that  the  vertical  structure  of  the  company  provided  an  opportunity  for  unfair  competition 
against  other  providers  of  long-distance  service.  For  example,  by  charging  high  local  rates  or  by 
providing  poor  local  service  to  other  providers  of  long-distance  service  (which  require local  service), 
AT&T  could harm  long-distance  competitors.  Another  concern  was  the  difficulty  of monitoring  cost-
shifting among AT&T's regulated (telephone) and other relatively unregulated businesses (such as the 
manufacture of telephones and other equipment). 
See ERG Consultation Document on Regulatory Principles of Next Generation Access (NGA) (07) 16: 
http://erg.eu.int/doc/publications/consult_regprinc_nga/erg_cons_doc_on_reg_princ_of_nga.pdf.  This 
document  uses  the  term  NGA  "as  the  term  NGN  is  often  used  as  a  catch-all  phrase  with  regard  to 
access networks, a NGA network is generally meant to be a packet switching (IP)-based access network 
reaching from multi-functional access and aggregation nodes to the end-users". 
See e.g. Regulating for non-price discrimination. The case of UK fixed telecom, Cave M., Correa L. & 
Crocioni P., in Competition and Regulation in Network Industries, 1(3), 2006, pp. 383. 

EN 

33 

   EN 

 
                                                 
divestiture  of  network  assets  from  the  service  layer  may  actually  create  rather  than  destroy 
shareholder value, as is seen in the interest of the Irish incumbent to voluntarily separate its 
network from its service operations (see below). 

Examples of estimated implementation costs of structural separation in telecoms 

The  implementation  costs  of  structural  separation  include  several  components:  branding  (stationary, 
vehicles etc.), buildings, communications, and advertising (PR/media relations, website etc.), financial 
and  management  reporting  systems,  hardware  and  software,  information  systems,  legal,  office 
equipment, recruitment and transition planning93. Publicly reported estimates of structural separation 
of  the  last  years  include  for  instance  the  following  (note  that  these  estimates  should  be  treated  with 
caution, as they cannot be confirmed):  

Australia: In 2003, Telstra (Australian incumbent operator) estimated that its full structural separation 
would cost AUD 2 billion in 2003 (around € 1.23 billion), and would require an annual incremental 
operating cost of AUD 80 million (around € 49 million) per year94. 

USA  (Florida):  In  2001,  it  was  estimated  that  total  economic  costs  of  the  proposed  structural 
separation  of  BellSouth  in  Florida  would  have  been  USD  1.2  billion,  including  an  estimate  for 
additional  costs  of  structural  separation.  The  study  concluded  that:  "Thus,  the  cost  of  structural 
separation  exceeds  the  supposed  benefit  of  local  competition  (in  Florida,  estimated  to  be  as  high  as 
USD 248 million per year)"95. 

In summary, an OECD study on structural separation in telecoms notes that "The impact on 
end-user  consumers  is  uncertain.  If  competition  strengthens  significantly,  it  is  possible  that 
prices  could  fall,  with  innovation  and  quality  of  service  improving.  But  there  is  inadequate 
evidence  to  generate  confidence  that  this  would  necessarily  happen.  Prices  could  also  rise 
significantly"96. 

Moreover, a recent US study examined the issues of separation and monopoly in telecoms by 
using data from 67 countries that privatised the dominant telephone firm in the period 1984-
2003.  It  found  that  mandatory  vertical  separation  reduces  international  telephony  usage  and 
the  number  of  fixed  lines  in  service.  The  study  concludes  that  "monopoly  and  vertical 
separation harm those consumers that they were precisely designed to help: the downstream 
(business)  users  of  international  telephony  and  the  upstream  users  of  residential  local 
telephony"97. 

Given  this  experience  and  the  high  level  and  non  revocable  intervention  involved,  very 
significant benefits of mandated structural separation in terms of gains from achieving equal 
would  have  to  be  demonstrated  for  it  to  be  a  suitable  remedy  in  the  telecommunications 
sector.  

93 

94 

95 

96 

97 

no 

59 

Submission 

https://www.oecd.org/dataoecd/39/63/18518340.pdf, 

See e.g. The benefits and costs of structural separation of the local loop, Note by TISP, OECD, 2003 
(STI/ICCP/TISP(2002)13/): 
Structural 
Separation  of  BellSouth  Telecommunications  and  Its  Effects  on  Florida  Consumers,"  TeleNomic 
Research, July 31, 2001. Stephen B. Pociask. 
Telstra 
Inquiry 
http://www.aph.gov.au/house/committee/cita/telstra/subslist.htm. 
Structural  Separation  of  BellSouth  Telecommunications  and  Its  Effects  on  Florida  Consumers," 
TeleNomic Research, July 31, 2001. Stephen B. Pociask. 
The  benefits  and  costs  of  structural  separation  of  the  local  loop,  Note  by  TISP,  OECD 
(STI/ICCP/TISP(2002)13/), 2003: http://www.oecd.org/dataoecd/39/63/18518340.pdf 
Consequences of Vertical Separation and Monopoly: Evidence from the Telecom Privatizations, Bruno 
E.  Viani.,  AEI-Brookings  Joint  Center  for  Regulatory  Studies,  Working  Paper  06-20,  August  2006: 
http://www.aei-brookings.org/admin/authorpdfs/page.php?id=1318. 

January 

Telstra 

2003: 

dated 

and 

31 

to 

EN 

34 

   EN 

 
                                                 
c) Functional separation 

The  risks  associated  with  structural  separation  in  the  e-communications  sector  encourage  a 
search  for  alternatives  ways  of  correcting  persistent  discriminatory  behaviour.  Functional 
separation would be a less radical intervention but still hold out the prospect of the creating 
new incentives for access to be supplied on an equal basis to all services operators. Functional 
separation  within  an  operator  entails  changes  to  its  organisation  and  incentive  structure, 
including setting up information barriers between the access and services part of the business, 
but it does not force the operator to sell off assets. 

Functional separation has several advantages: Because it impacts several access markets at the 
same time, functional separation could address in a single remedy some of the difficulties that 
arise  from  compartmentalised  analysis  of  individual  markets.  It  also  reduces  needs  for 
detailed  enforcement  of  remedies  and  therefore  contributes  to  better  regulation.  It  has  been 
seen  therefore  to  give  greater  legal  certainty  to  both  incumbent  and  new  market  entrants, 
which can encourage investment in the market. 

Functional  separation  can  also  help  to  unblock  the  problem  whereby  dominant  carriers  can 
delay investments in access upgrades to avoid cannibalising existing downstream revenues, as 
is  the  case,  for  example,  with  broadband  in  countries  where  local  loop  unbundling  is  not 
available on a non-discriminatory basis. 

On  the  other  hand,  there  are  risks  associated  with  functional  separation:  it  may  reduce 
incentives  for  new  entrants  to  invest  in  alternative  local  loop  infrastructures,  and  thereby 
inhibit  infrastructure  based  competition  in  the  access  network  as  all  market  players  would 
share the same infrastructures under exactly the same conditions. It is not necessarily the case 
however  that  functional  separation  will  in  itself  lead  to  an  under  spend  on  next  generation 
access.  In  a  market  driven  situation,  operators  make  investment  choices  based  on  their 
evaluation  of  the  evolution  of  demand  on  the  market.  With  functional  separation,  it  is  the 
regulator,  through  controlling  the  rate  of  return  allowed  to  the  incumbent's  access  division, 
who has to balance incentives for investment in new infrastructures against keeping wholesale 
prices at a competitive level. This means that, depending on the skill of the regulator and the 
cooperation  of  the  incumbent,  functional  separation  could  as  easily  lead  to  over  as  under 
investment in the infrastructure.  

And as in case of structural separation, functional separation may reduce economies of scope 
or make difficult to coordinate investments.  

In the EU, functional separation has been already implemented in the UK, in 2006. BT agreed 
to implement a functional separation remedy under threat of the UK Competition Commission 
referral seeking full structural separation through divestiture of the network assets of the BT 
business.  The  UK  situation,  whereby  the  NRA  also  acts  as  NCA  (national  competition 
authority) for the sector - with appeal to the Competition Commission – is only present in five 
EU Member States. 

Functional separation in the UK 

To implement functional separation, BT set up a division called Openreach charged with freeing up 
access  to  BT's  local  exchanges.  This  separated  the  access  and  non-access  (core  and  retail)  services 
offered by BT without requiring BT to sell its infrastructure to third parties. 

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35 

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The  undertakings  given  by  BT98  to  the  NRA  (Ofcom)  devise  in  particular  managerial  incentives, 
which  should  guarantee  non-discriminatory  separation  of  the  new  division.  For  example,  the 
management team running Openreach has to be in a separate building from the rest of BT; managerial 
incentives depend only upon the performance of Openreach, not of BT Group as a whole. There are a 
number  of  rules  and  procedures  to  prevent  the  flow  of  sensitive  information  from  BT  Wholesale 
(including  Openreach)  to  BT  Retail.  Openreach  must  provide  separate  financial  statements  and 
regulatory reports, and use the Openreach brand, which must be separated from the rest of BT. These 
arrangements  are  monitored  by  a  complaints  body  called  the  Equality  of  Access  Board  (comprising 
five members, two from the BT Group and three independent members)99.  

As for costs, BT has reported that the one-off costs of setting up Openreach in 2006 were £ 70 million 
(around € 103 million)100, which are an order of magnitude lower than the estimated costs of structural 
separation cited above. In addition, the Openreach decision is thought to have increased confidence in 
BT corporation as a whole that has lifted its stock market valuation substantially in the past 2 years. 
Some analysts suggest that this is because investors are now valuing BT shares in the same terms as 
utility stocks, which typically trade at much high ratios than mixed service and infrastructure firms.  

The UK experience with Openreach is still rather recent and it is too early to assess its final 
outcome.  However,  it  has  been  reported  that  when  Openreach  went  into  operation  at  the 
beginning of 2006, only 200,000 phone lines had been unbundled in the UK over the years. 
The number of unbundled lines has grown to over 3.3 million by October 2007101.  

The functional separation model has lately attracted attention in the other Member States. The 
Italian NRA (Agcom) is studying the possibility of Telecom Italia separating Telecom Italia’s 
retail and network operation (Telecom Italia’s network business would be placed into a new 
unit similar to Openreach). Also the Swedish regulator NRA (PTS) has indicated that in order 
to increase access to TeliaSonera’s (a Swedish-Finnish incumbent) access network, it sees that 
‘”the  most  suitable  model  is  one  based  on  TeliaSonera  being  functionally  separated” 
following the Openreach example102. 

Despite these positive early signs from the UK situation, the drawbacks in terms of the level 
of intervention and the scale of costs involved indicate that it should be reserved for situations 
where  there  is  an  enduring  problem  of  non-price  discrimination  that  cannot  be  otherwise 
resolved.  This  clearly  requires  a  thorough  cost  benefit  assessment.  In  places  such  as  the 
Netherlands,  where  infrastructure  competition  is  highly  developed,  imposing  functional 
separation  on  KPN  could  be  disproportionate  and  could  possibly  harm  infrastructure 

98 

99 

100 

101 

102 

See Statements in the Strategic Review of Telecommunications and Undertakings in Lieu of a Reference 
under the 2002 Enterprise Act, Ofcom, 22 September 2005, available at: 
http://www.ofcom.org.uk/consult/condocs/statement_tsr/statement.pdf  
See Openreach web-site: http://www.openreach.co.uk/orpg/home/home.do, and the EAB:  
http://www.btplc.com/Thegroup/Theboard/Boardcommittees/EqualityofAccessBoard/EqualityofAccess
Board.htm 
BT’s Annual Report and Account 2006, available at:   
http://www.btplc.com/Sharesandperformance/Annualreportandreview/Annualreports/Annualreportsarch
ive.htm 
See Key Performance Indicators for Local Loop Unbundling, 24.10.2007, Openreach: 
http://www.openreach.co.uk/orpg/products/llu/kpi/kpi.do 
See Proposal for Swedish Broadband Strategy, PTS-ER-2007:7, 15.2.2007: 
http://www.pts.se/Archive/Documents/EN/Proposed_broadband_strategy_eng.pdf.  Consequently, 
in 
April 2007, the Swedish government requested PTS to investigate the proposed function separation of 
TeliaSonera. 

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36 

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competition103.  Similarly,  in  France  where  accounting  separation  and  other  behavioural 
remedies  backed  by  effective  sanctions  seem  to  have  resolved  many  of  the  problems  of 
discrimination, functional separation may not even be a consideration104. 

d) Voluntary arrangements of separation 

For  the  operators,  there  are  potential  advantages  for  undergoing  some  form  of  ownership 
separation. For example, it is reported that the Irish incumbent, eircom (which was recently 
purchased by a private equity fund) is currently considering a voluntary structural separation 
between  retail  division  (which  would  be  taken  over  by  eircom's  employee  share  ownership 
trust) and network infrastructure (which would be placed in the equity fund)105. This move is 
expected to increase the overall value of the entity (by better matching assets with investors) 
as  the  potentially  high-growth  retail  division  would  be  separated  from  the  more  stable  and 
cash-generating wholesale division.  

Another  example  comes  outside  Europe:  in  August  2006,  Telecom  Corp.  of  New  Zealand 
announced  plans  to  separate  its  wholesale  and  retail  businesses106.  However,  in  September 
2007, the New Zealand government ordered Telecom Corp. of New Zealand to split into three 
operating divisions ( wholesale, retail and network )107.  

Voluntary arrangements by operators, or between operators and government agencies, are not 
dependent on the EU framework for implementation. Nevertheless, there is an obligation on 
the  Member  States  not  to  act  against  the  provisions  of  the  framework,  and  so  it  would  be 
necessary for the Member State to ensure that any undertakings accepted are compatible with 
the framework. 

5.3.2.  Option 2 - No regulation: remove or restrict  sector-specific  regulation ('regulatory 

holidays') 

Option 2 captures two related arguments in favour of the lifting of ex ante regulation in the 
eCommunications  markets.  The  first  argument  is  based  on  the  inherently  deregulatory 
character of the current framework in that it requires ex ante regulation of markets to be lifted 
when effective competition has been established. Some stakeholders, particularly incumbents, 
have argued that the level of competition on the market is now sufficiently stable for a fixed 
date  to  be  set  for  the  removal  of  ex  ante  regulation.  This,  it  is  argued,  will  provide  greater 
regulatory  predictability  and  thus  give  network  operators  a  clearer  financial  incentive  for 
investing in new infrastructures.  

103 

104 
105 
106 

107 

OPTA's board is of the opinion that the Dutch market situation does not call for a remedy that would 
assume  that  effective  and  sustainable  infrastructure  competition  is  non-existent  or  not  attainable. 
OPTA's  letter,  Brief  aan  marktpartijen  inzake  beleidsregels  en  functionele  scheiding,  2  March  2007, 
available at: 
http://www.opta.nl/asp/nieuwsenpublicaties/achtergrondinformatie/document.asp?id=2138, see also The 
business case for sub-loop unbundling in the Netherlands, Analysys Consulting, Final Report for OPTA 
(public version), 26 January 2007, available at: 
http://www.opta.nl/download/Analysys+Final+Report%2Epdf. 
See La Lettre de l'Autorité, N° 55, avril 2007, available at: http://www.arcep.fr/index.php?id=21. 
See e.g. Wall Street Journal Europe, 3 November 2006. 
See Submissions on the Telecommunications Amendment Bill, Telecom New Zealand, 15 August 2006, 
available at: http://www.telecom-media.co.nz/resources/938549-v5.pdf. 
See  e.g.  Financial  Times,  26  September  2007:  http://www.ft.com/cms/s/0/7a4ce11c-6bec-11dc-b6a0-
0000779fd2ac.html 

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37 

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A  second,  distinct  but  parallel  argument  concerns  new  generation  infrastructures,  which  are 
seen as introducing new markets in which first movers have a de facto dominance as a direct 
result  of  their  investments.  This  argument,  which  pleads  in  favour  of  "regulatory  holidays", 
argues  that  such  ground-breaking  investors  should  not  be  disincentivised  by  being 
immediately subjected to ex ante regulation. 

Assessment of impacts of Option 2 

This  option  sets  a  clear  deadline  for  the  removal  of  ex  ante  regulation  or  exempts  certain 
investments  from  regulation  (at  least  temporarily).  The  supporters  of  this  option  are  mainly 
incumbent  operators  who  claim  that  they  need  a  certain  period  of  time  without  ex  ante 
regulation  of  next  generation  infrastructures  in  order  to  be  able  to  exploit  the  'first  mover 
advantage', which would enable them to recover the high and risky capital expenditure.  

It  is  important  to  note  that  removing  ex-ante  EU  telecoms  regulation  would  not  mean  "no 
regulation".  Investment  projects  would  still  be  subject  to  national  sector-specific  rules,  and 
EU and national competition law, i.e. ex post regulation, would be still applicable.  

Instead  of  progressive  deregulation  based  on  how  far  sustainable  competition  has  been 
established,  the  first  variant  of  the  option  proposes  a  fixed  date  for  total  deregulation.  The 
problem with this approach is that it essentially undermines the pro-competitive intent of the 
existing regulatory system. Experience shows that competition progresses at different rates in 
different  markets,  thus  a  blanket  removal  of  regulation  introduces  a  strong  risk  of  the 
reassertion of monopolistic behaviour in those market where an incumbent operator retains its 
dominant  position.  This  would  have  a  considerable  potential  impact  on  the  development  of 
sustainable competition and consumer welfare. 

As  far  as  the  second  option  –  regulatory  holidays  on  new  fibre  investments  -  is  concerned, 
there is both empirical and theoretical evidence to call upon. As regards empirical evidence, 
some  market  players  have  supported  their  claim  for  'regulatory  holidays'  by  referring  to  the 
US broadband market where regulated access to new fibre investment by telecom operators is 
the  exception,  and  where  –  according  to  this  claim  –  the  companies  are  therefore  investing 
more  and  there  is  a  faster  roll  out  of  high-speed  fibre  networks  (see  results  from  the  public 
consultation in Chapter 5.5).  

However, as regards penetration rates, it has already been demonstrated above that broadband 
take-up in the EU - especially in the best performing Member States - is now faster than in the 
USA. As regards speed, the US market dynamics are different mainly due to the widespread 
infrastructural competition between cable and telecommunications networks which is driving 
fibre investment figures above that of the EU. 

As already noted in the first IA report of June 2006, relatively few US subscribers use DSL 
(Digital Subscriber Line) technology and the telecommunication companies are the minority 
player in the broadband market, which is dominated by cable (TV) companies (Figure 8). The 
greater local loop length in the US means that the copper telecommunications network cannot 
support  very  high  speeds,  and  therefore  the  US  telecom  companies  are  forced  to  invest  in 
fibre  if  they  want  to  catch-up  with  a  strong  cable  sector,  which  has  been  offering  high 
bandwidth in the big cities for several years. 

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38 

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Figure 8. DSL and cable markets shares in the USA and the EU  

USA

7%

38%

55%

DSL

Cable

Other 

EU 25

20

80

DSL

Cable & Other

Source: OECD, European Commission 

The above figure also illustrates the reason why the regulatory approaches to broadband are 
different  in  the  EU  and  US.  The  advanced  infrastructural  competition  in  the  US  led  the 
Federal Communications Committee (FCC) to decide not to apply the unbundling provisions 
of the US Communication Act of 1996 to the broadband markets, relying predominately on 
inter platform competition between the telecom (xDSL) and the TV-cable networks108.  

The  US  experience  does  lend  some  plausibility  to  the  argument  that  a  "regulatory  holiday" 
where  there  is  infrastructural  competition  will  stimulate  investment  in  new  networks. 
However, in the EU given the different network geographies, it cannot be assumed that this 
will result directly in massive fibre investments. Moreover, there are indications that the US 
regulatory  approach  to  rely  solely  on  infrastructure  competition  might  be  detrimental  to 
consumer choice. The lack of access competition on the 'last mile' means that consumers are 
only  offered  what  the  "cable  and  telephone  broadband  duopoly"  provide109.  This  issue  is 
closely linked to the US debate on "net neutrality", which is further discussed in Chapter 7.  

5.3.3.  Option 3 - No change to the regulatory framework: maintain the current model  

As  described  above,  the  current  framework  is  based  on  regulation  of  markets.  This  market 
based approach is a response to convergence; it allows inter-platform competition to be fully 
taken into account, and avoids technology-specific regulation. The same regulatory principles 
apply  regardless  of  which  kind  of  existing  or  potentially  new  technology  is  involved. 
Regulation must be lifted when there is effective competition.  

This  option  therefore  implies  that  ex  ante  regulation  should  not  be  removed  “en  bloc”  but 
progressively  as  an  outcome  of  market  analysis  by  the  NRAs  and  revision  of  the  list  of 
relevant markets (of the Commission Recommendation) by the Commission, as competition 
becomes effective in these markets. 

Assessment of impacts of Option 3 

108 

109 

See  e.g.  Is  the  U.S.  Dancing  to  a  Different  Drummer?  Scott  Marcus,  Communications  &  Strategies, 
No 60, 4th quarter 2005: http://www.idate.fr/fic/revue_telech/132/CS60%20MARCUS.pdf. 
See  e.g.  Broadband  Reality  Check 
II,  S.  Derek  Turner,  Free  Press,  September  2006: 
http://www.freepress.net/docs/bbrc2-final.pdf  and  America's  Internet  Disconnect,  Michael  J.  Cobbs 
(member  of  the  FCC),  Washington  Post,  8  November  2006,:  http://www.washingtonpost.com/wp-
dyn/content/article/2006/11/07/AR2006110701230.html. 

EN 

39 

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Maintaining  the  current  regulatory  framework  (Option  3)  provides  continuity  and  the 
opportunity to build on existing achievements. The attraction of the current system is that it 
provides  a  consistent  regulatory  framework,  but  national  regulators  still  have  sufficient 
flexibility  and  possibility  to  design  their  interventions  to  suit  the  realities  of  the  markets  - 
including  unbundling  and  wholesale  broadband  access  markets  -  in  each  Member  State.  In 
essence, the NRAs have the flexibility to introduce measures to foster both infrastructure and 
service-based competition.  

The recent market data provides evidence on the effects of option 3, by examining the results 
achieved so far under the current framework. As noted above, competition in broadband can 
be  measured  both  at  the  infrastructure  (local  loop  unbundling  +  other  technologies,  mainly 
cable modem) and at the service level (bitstream and resale of DSL lines). Take-up in the EU 
has  been  particularly  strong  in  those  countries  where  infrastructure-based  competition  has 
been  effective,  which  allows  consumers  to  choose  between  different  modes  of  broadband 
access.  

Thus, all leading Member States in terms of penetration, notably the Netherlands, Denmark, 
Finland  and  Sweden  (see  below  figure),  have  also  a  high  roll-out  of  cable  and  have 
arrangements  in  place  which  allow  alternative  operators  to  gain  access  to  the  existing 
telecoms networks110.  

Figure 9. Broadband penetration rate in the EU, July 2006-2007 

Source: Communications Committee Working Document, COCOM07-50 FINAL, 15 October 2007 

Effective market regulation permitting access to the incumbent's infrastructure also stimulates 
competition, and decisive regulatory action for example in France and the United Kingdom, 
has clearly been important. As a consequence, France has now one of the highest broadband 
penetration  rates  based  on  service-based  competition.  Also  other  Member  States  have 
significant service-based competition, generally based on full or shared local loop unbundling. 
In these countries alternative operators hold significant  parts of the ADSL market (e.g. UK, 
Germany, Sweden, Finland and Austria)111. 

110 
111 

12th Implementation Report 2006. 
Idem. 

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40 

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As can be seen from the figure below, there has been also a move from resale to local loop 
unbundling  and  shared  access,  which  are  crucial  for  the  competitive  supply  of  triple  play 
services.  

Figure 10. New entrants' DSL lines by access type, Jan 2004 – Jan 2007, EU 25  

New entrants' DSL by type of access

16.000.000

14.000.000

12.000.000

10.000.000

8.000.000

6.000.000

4.000.000

2.000.000

0

8.246.139

January 2004

January 2005

January 2006

January 2007

LLU (F.U.L. + shared access)

Bistream

Resale

Source: Commission services 

In  January  2007  there  were  more  than  5.6  million  unbundled  local  loops  (LLU)  lines 
compared to January 2006. This can be seen as a positive structural change as the alternative 
operators  are  replacing  bitstream  wholesale  access  with  fully  unbundled  or  shared  access 
lines.  Successful  wholesale  access  regulation  has  also  contributed  to  the  strong  growth  of 
resale, which grew by 3.5 million lines in 2006, as low entry barriers allow potential market 
players (who usually have low investment incentive) to enter the market. 

It can therefore be observed that that from 2003 to early 2007, there has been a gradual but 
steady  development  of  infrastructure-based  competition.  In  2006  alternative  providers 
continued to 'climb the ladder of investment' with more than 4.1 million new fully unbundled 
local  loops  (up  by  79%  from  2005),  investing  in  the  process  several  billion  euros  into  new 
infrastructure. On average, new entrants now have 52% of the EU market (if resale products 
are excluded, new entrants have market share of 40.7%). In some countries (e.g. Italy, UK and 
Spain), the rollout of own networks by the alternative operators has started to emerge112.  

As regards next generation network investments, guidance provided by the ERG could help to 
provide  operators  contemplating  new  investments  to  know  how  NRAs  will  apply  the 
framework and which obligations they might apply in specific circumstances113. For example, 
NRAs can adapt the remedies to take account of the main costs of upgrading the local access 
network, which are usually not the costs of the fibre itself, but the costs associated with civil 

112 
113 

Idem. 
ERG  Opinion  on  Regulatory  Principles  of  Next  Generation,  ERG 
http://erg.eu.int/documents/docs/index_en.htm 

(07)  16  Rev  2: 

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41 

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engineering works, i.e. the time it takes to be granted rights of way and to dig up roads and 
pavements to lay ducts.  

In this regard, it is worth noting that duct sharing or joint duct usage would drastically reduce 
the costs for the roll out of parallel cable or fibre networks, thereby facilitating infrastructure 
based competition. It is already the case that NRAs can under the framework adapt remedies 
to  facilitate  sharing  of  passive  infrastructures  (ducts,  inspection  chambers,  street  cabinets, 
etc). Indeed, in one Member State duct sharing has been already imposed on the incumbent. 
The  practical  feasibility  of  this  approach,  however,  varies  considerably  from  place  to  place. 
For  example,  duct  sharing  appears  to  be  feasible  in  greenfield  situations  where  ducts  have 
been installed relatively recently and are not congested114.  

As regards existing ducts there is no overall picture of the level of congestion and the physical 
condition  in  the  EU,  although  it  can  be  assumed  from  their  age  that  many  will  be  in  poor 
shape  and  it  is  estimated  that  about  50%  of  local  loops  are  buried  directly  in  the  ground. 
Passive  infrastructure  sharing  in  the  EU  therefore,  while  attractive  in  principle,  requires  a 
detailed local mapping of local loop networks to gauge its practicability.  

5.4. 

Results of the public consultation 

In  general,  the  public  consultation  showed  support  for  the  current  model  of  the  framework 
that  was  seen  to  promote  competition  and  investment.  Especially  new  entrants  saw  that 
effective  pro-competitive  ex  ante  regulation  and  open  access  provisions  on  incumbents' 
networks are strongly correlated with increased investment and innovation115. 

As  for  the  alternative  options,  only  a  limited  number  of  stakeholders  expressed  their  views. 
The  new  entrants  and  the  European  Regulatory  Group  as  well  as  couple  of  Member  States 
supported 'open access model' in its more limited form, i.e. functional separation. However, 
operators generally saw that this should be based on voluntary action. Several Member States 
preferred no change, whereas incumbents were clearly against forced structural or functional 
separation. 

Critics  of  the  current  approach,  in  most  cases  the  incumbent  operators,  argued  that  the 
framework  does  not  promote  future  investment  and  innovation.  Reference  was  made 
specifically to the NGNs, which in their opinion merit regulatory forbearance, as they should 
be  considered  new  investments  and  therefore  be  treated  as  new  and  emerging  markets.  The 
argument is based on the fact that developing new consumer applications and video services 
will  require  more  bandwidth  than  ADSL  can  provide  and  investment  in  high  speed  NGN 
access technologies of the FTTx116 type is therefore necessary if Europe does not want to be 

114 
115 

116 

and 

competition”. 

Some ducts are 30-40 years old, are in a poor state of repair and congested with cables. 
In  this  context,  see  in  particular  the  'Regulatory  scorecard'  commissioned  by  ECTA  (European 
Competitive  Telecommunications  Association),  which  “by  measuring  the  powers  and  performance  of 
NRAs  and  the  regulatory  regimes  overall,  seeks  to  determine  how  effectively  countries  promote 
investment 
at: 
latest 
http://www.ectaportal.com/en/basic651.html. The construction of this scorecard has been criticised by a 
study commissioned by ETNO (European Telecommunications Network Operators' Association), see A 
sound basis for evidence based policy? A critique of the ECTA regulatory scorecard and SPC Network 
papers on investment and broadband, Indepen, June 2006. 
http://www.etno.be/Portals/34/publications/other/Indepen%20Study_June%202006.pdf. 
FTTx  stand  for  Fiber-to-the-x  where  “x”  may  be  the  home  (FTTH),  the  curb  (FTTC)  or  building 
(FTTB). 

Scorecard 

available 

2006 

The 

is 

EN 

42 

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left  behind117.  Deregulation  of  the  US  broadband  market  was  brought  up  as  an  argument 
against  the  EU  regulatory  approach,  and  predictions  of  faster  fibre  roll  out  in  the  US  were 
presented as evidence supporting the claim for 'regulatory holidays'118. Alternative operators 
were  strongly  against  such  approaches  as  they  fear  that  their  investments  in  core  networks 
will be threatened if incumbents re-exert their monopoly power over local access.  

5.5. 

Comparison of options and impacts 

Option 1 

Option  1  ('open  access  model')  implies  mandated  vertical  separation  between  infrastructure 
provision and service provision, and represents a major intervention into the property rights of 
firms  

The evidence examined above suggests that in the telecommunication sector, the benefits of 
structural  separation  -  in  terms  of  a  once-and-for-all  regulatory  solution  to  access 
discrimination - would be quite difficult to justify against the costs, in view of the high one-
off costs to implement the split, the loss of economies of scope and increased difficulties of 
coordinating  investment  and  innovations  between  services  and  the  unbundled  network 
operations. 

In  addition,  as  regards  investments  in  next  generation  networks,  the  largest  part  of  the 
potential  reward  for  taking  the  risk  of  investing  in  these  new  networks  would  accrue  to 
external  service  providers  rather  than  an  internal  services  division.  Only  direct  regulatory 
incentives for the network operator (in the form of guaranteed rates of return) might overcome 
the reluctance of a separated access provider to make such investments, which then puts the 
burden of determining the pace of innovation onto the regulator rather than the market. 

This  problem  is  mitigated  under  the  functional  separation  model.  By  maintaining  common 
ownership  of  the  two  business  divisions,  the  investment  incentives  and  market  signals  are 
preserved to a large extent - even though co-ordination problems may still arise - whilst also 
increasing  the  incentive  to  behave  in  a  non-discriminatory  manner.  Moreover,  regulatory 
action can be taken to incentivise investments in the local loop. This is functional separation's 
biggest advantage over structural separation, and the primary reason why the stakeholders in 
the  public  consultation  has  suggested  functional  separation  as  a  possible  remedy  and  not 
divestiture. 

Functional  separation  could  serve  to  make  competition  more  effective  in  a  service-based 
competition environment where infrastructure-based competition is not expected to develop in 
a reasonable period. As a regulatory measure, it might be warranted when there are systematic 
market  power  problems  identified  across  a  number  of  markets  (rather  than  on  an  individual 
market).  It  could  therefore  be  considered  when  all  other  regulatory  tools  have  proved 
inadequate to address market and competition failures.  

117 

118 

These arguments are advanced particularly by the FTTH Council Europe in its consultation contribution 
The Business Case for Incumbent Telco Fiber Networks, prepared by Heavy Reading for FTTH Council 
Europe, January 2006: 
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/review_2/index_en.htm 
See e.g. the contribution by ETNO at URL above. 

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However,  there  is  a  risk  that  different  national  approaches  to  functional  separation  could 
fragment  the  internal  market  and  hinder  both  competition  and  investment.  Setting  common 
EU  criteria  for  the  implementation  of  functional  separation  would  therefore  improve  legal 
consistency  and  certainty  in  the  sector,  thereby  contributing  to  better  regulation  (note  that 
regulatory  consistency  is  further  discussed  in  Chapter  7).  In  particular,  the  common 
conditions should not prevent appropriate investment co-ordination mechanisms between the 
different  separate  business  entities  in  order  to  ensure  that  the  economic  and  management 
supervision rights of the parent company are protected.  

Moreover,  the  costs  and  benefits  of  functional  separation,  and  therefore  the  desirability  of 
imposing  such  a  solution,  depend  on  national  circumstances.  Before  implementing  this 
remedy,  the  national  regulatory  authority  would  need  to  undertake  a  detailed  cost-benefit 
analysis and demonstrate that the proposed measure met the set criteria. 

The  remaining  risk  is  that  access  infrastructure  competition  is  weakened  under  functional 
separation (since competitors find it more attractive to 'rent' access than to invest in their own 
infrastructure),  causing  subsequent  network  investments  to  be  delayed.  However  it  is  worth 
remembering that infrastructure competition on the access networks is relatively uncommon 
in  Europe,  with  only  about  20%  of  the  market  accounted  for  by  alternative  providers. 
Moreover, the costs and technical architectures of next generation access networks - such as 
VDSL  networks  -  are  likely  to  make  the  emergence  of  further  access  competition  rather 
difficult,  except  in  certain  high  density  zones  or  in  special  cases  such  as  new  build  cabling 
where duct sharing is commercially viable119. 

Options 2 and 3  

From  2003  to  2006,  there  was  a  gradual  but  steady  development  of  infrastructure-based 
competition. Alternative providers 'climbed the ladder of investment' spending in the process 
several  billion  euros  for  new  infrastructure.  In  2006  alone,  the  number  of  fully  unbundled 
local loops grew by 4.1 million (up by 79% from 2005). 

When  considering  Option  2  (removing  or  restricting  ex  ante  regulation)  and  Option  3  ('no 
change  to  the  current  model')  based  on  the  available  evidence,  two  features  can  be 
consistently  identified.  The  presence  of  competing  (effective)  alternative  infrastructures 
appears  as  a  key  element  in  broadband  development.  In  the  absence  of  such  infrastructure 
competition,  regulation  plays  a  vital  role  in  setting  the  right  conditions  for  accessing  the 
incumbent's infrastructure and thereby creating service-based competition. New players such 
as  internet  service  providers  exert  pressure  on  traditional  fixed  and  mobile  providers  to 
innovate and develop new strategies, including investment in broadband and next generation 
networks  to  create  new,  more  lucrative  revenue  streams  from,  for  example,  consumer  and 
business services.  

The  strongest  record  for  investment  and  take  up  of  new  services  can  be  observed  in  those 
Member  States  –  led  by  Denmark  and  the  Netherlands  -  where  infrastructure-based 
competition between telecommunications operators and cable operators has been effective.  

119 

See further discussion in the context of the situation in the Netherlands, The business case for sub-loop 
unbundling  in  the  Netherlands,  Analysys  Consulting,  Final  Report  for  OPTA  (public  version),  26 
January 2007, available at: http://www.opta.nl/download/Analysys+Final+Report%2Epdf. 

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44 

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Regulatory holidays – even temporary ones - for dominant operators would lock out effective 
competition, while this operator itself would gain first-mover advantage across a wide range 
of telecom services. Although competition has become effective in several eCommunications 
markets over the last years, the monitoring data still reveals the existence of market failures in 
most markets and in particular in fixed line access. 

As large European operators compete for global business in the each other's national markets, 
regulatory holidays would place some of them at an unfair advantage if they were protected 
from opening their own domestic broadband networks while at the same time they were able 
to gain access to broadband network in other countries through open access regulation. 

Against this background, Option 2 (removing or restricting ex ante regulation) carries a strong 
risk of disrupting the level playing field between market players and causing consumer harm 
without any clear indication that it would lead to more investment and innovation. The mere 
installation of new technology or new infrastructure does not merit 'regulatory holidays' and 
cannot in itself change existing access obligations. "Regulatory holidays" may only (if at all) 
yield short-term benefits, but will not lead to sustainable investment and consumer-benefits in 
the long run. 

The argument that a moratorium on regulation is financially necessary to justify investments 
in  access  networks  can  be  met  by  a  suitable  adaptation  of  the  existing  regulatory  pricing 
obligations.  These  can  include  recognition  that  where  investing  in  access  networks  is  more 
risky than maintaining the PSTN (Public Switched Telephone Network), incumbents should 
receive a greater return on capital at the wholesale level as already foreseen by the regulatory 
framework120.  

The table below provides a summary on main likely impacts and risks arising from the each 
of  the  three  policy  options  with  respect  to  the  different  economic  and  social  dimensions. 
Impacts  of  Option  1  and  2  are  compared  to  the  “no  change”  option  3,  which  provides  a 
baseline scenario for the assessment.  

120 

Article 12 of the Access Directive. 

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Table 1. Summary on the main impacts and risks of the options  

IMPACTS 
AND 
RISKS  

Investment 
and 
innovation 

Competition 

Internal 
market 

EU  compe-
titiveness 
(vis-à-vis 
third 
countries) 

Economic 
operators' 
costs 
benefits 

and 

Public sector 
costs 

Consumer 
benefits 

Option 1 – Adopt 'open 
access' model 

Option 2 – Limit ex ante 
regulation 

Option 3 - No change 

Higher  predictability  of  regulation  may 
lead to more investment and innovation 
by  alternative  operators.  Risk  of 
inadequate  investment  by  structurally 
separated 
/ 
incumbents  due  to  reduced  investment 
incentive. 

operators 

network 

ECONOMIC  

Higher  predictability  of  regulation  may 
lead to more investment and innovation 
by  incumbents.  Risk  of  less  investment 
by alternative / new operators that may 
be  driven  out  of  market  due  to  higher 
market entry barrier. 

services 

Can  lead  to  more  service  competition 
as  separation  between  infrastructure 
operators' 
and 
incentive 
to  discriminate  or  deny 
access. Risk of removing incentives for 
access infrastructure competition where 
infrastructure can be replicated. 

removes 

lead 

theoretically 

Can 
to  more 
infrastructure-based  competition  where 
alternative  infrastructures  are  possible, 
but  bigger  risk  of  reduced  competition 
due 
re-monopolisation  where 
infrastructure is difficult to replicate (e.g. 
local loop). 

to 

facilitate  EU  wide  wholesale 
Could 
offers and thus open up internal market 
services  for  business  and  consumers, 
but diverging national approaches could 
emerge  and  divestiture  would  be 
infrastructure 
disproportionate  when 
competition is effective.  

Impact depends on effect divestiture on 
competition and investment. 

for 

removal  ex  ante 
Fixed  date 
internal 
the 
regulation  could  distort 
market 
in  some 
markets/ MS and competition in others). 

(with  monopolies 

short 

term  gains 

Potential 
from 
increased infrastructure investment, but 
re-monopolisation  of  markets  would 
on  mid-term 
impact 
competition investment and innovation. 

negatively 

Outcome  depends  on  the  degree  of 
separation. 
Implies  high  set-up  and 
compliance costs. Mandatory measures 
could negatively impact share values of 
the  service  divisions  of 
integrated 
operators but improve the market value 
of  the  separated  entity  as  it  would  be 
subjected to utility style rates of return.  

Lower  compliance  costs  for  operators 
with  significant  market  power.  May 
initially  have  a  positive  effect  on  the 
share value of the incumbents / network 
operators.  Could 
the 
business model of alternative operators. 

undermine 

Generally  implies  less  administrative 
burden (but even in case of divestiture, 
regulation  to  prevent  monopoly  pricing 
required). 

Outcome  depends  on  the  degree  of 
limiting  ex  ante  regulation.  Generally 
implies less administrative burden. 

should 

framework 

Competitive  environment  fostered  by 
the 
induce 
investment.  Risk  of  heterogeneous 
to 
implementation 
lower 
regulatory 
hampering 
predictability 
investment and innovation. 

inconsistency 
hence 

lead 
/ 

that  may 

Application  of 
in 
the 
Member  States  has  been  shown  to 
promote competition 

framework 

the 
application 
Consistent 
framework  in  Member  States  would 
promote the internal market. 

of 

implementation 

Effective 
would 
increase  competition  and  hence  EU 
competitiveness. 

gradually 

Compliance  costs  (of  the  operators 
with  significant  market  power)  with 
the  existing  regulation  remain  but 
as 
should 
markets 
effectively 
become 
competitive  and  regulation  is  rolled 
back.  Maintaining  openness  of  key 
bottleneck  assets  open  is  crucial  to 
alternative operator business models. 

decrease 

Administrative  burden  associated 
with  ex  ante  regulation  remains  but 
as 
should 
effectively 
markets 
competitive. 

decrease 

gradually 

become 

Increased service competition may lead 
to  more  choice  and  lower  prices.  In 
longer term risk of slow next generation 
regulatory 
if 
broadband  deployment 
incentives are not adequate. 

High  risk  of  re-monopolisation 
that 
would  likely  lead  to  less  consumer 
choice and higher prices.  

Development  towards  more  choice 
and cheaper prices likely to continue 
and  transition  to  new  services  if 
regulation  is  implemented  effectively 
and consistently in MS. 

 SOCIAL 

and 

Social 
digital 
inclusion 

stem 

Depends  on  the  degree  of  separation. 
from  attenuation  of 
Risks 
incentives to invest in new infrastructure 
in  less  attractive  areas  thus  widening 
the digital divide. 

High  risk  of  re-monopolisation  of  some 
markets  leading  to  higher  prices  and 
delays  in  rolling  out  new  services  in 
areas  of  weak  demand,  thus  widening 
the digital divide. 

Current  ex  ante  regulation  promotes 
to  bring  higher 
likely 
competition 
penetration  of  new  services 
thus 
contributing  to  the  digital  inclusion, 
but move to high speed broadband in 
rural areas uncertain. 

Employment 
and 
labour 
market 

jobs 

in  alternative 
created 
New 
operators  and  especially  growth 
in 
indirect  employment  in  web  services 
are 
outweigh  market 
consolidation  and  rationalisation  in  the 
regulated firm. 

likely 

to 

Initial  positive  effects  for  incumbents, 
but risk of overall negative employment 
effects for other sectors of the economy 
through  spill-over  effects  (e.g.  through 
higher  prices)  and  on  alternative 
operators. 

jobs  created 

in  alternative 
New 
operators  and  especially  growth  in 
indirect  employment  in  web  services 
are 
to  outweigh  market 
consolidation  and  rationalisation  in 
the regulated firm. 

likely 

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46 

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5.6. 

 Conclusion 

The above analysis indicates that competition and convergence are key factors that are driving 
telecom  operators  to  modernise  their  network  and  make  substantial  investments  to  Next 
Generation  Networks  (NGN).  Recent  technological  and  market  developments  indicate  the 
need  for  some  adjustments  to  the  regulatory  framework,  although  the  empirical  evidence 
suggests that the approach is fundamentally sound. 

A  combination  of  infrastructure  competition  and  regulation  seems  to  produce  the  highest 
national broadband penetration rates. In much of the EU – but by no means all – there is now 
infrastructure competition on the core networks. But, only in a small minority of cases is there 
infrastructural  competition  on  access  networks.  In  the  absence  of  such  choice  of 
infrastructure, there is a continuing need to apply the ex ante regulation. 

The  market  situation,  however,  is  very  different  from  one  part  of  Europe  to  another,  even 
from  city  to  city  and  region  to  region  inside  the  same  Member  State.  That  is  why  the 
flexibility that the current framework provides to the national regulators to take account of the 
specific situation in each market is crucial. NRAs can introduce regulatory measures to foster 
infrastructure or service-based competition, or a mixture of both, while taking into account of 
the  need  of  risky  investments  to  generate  adequate  return  on  capital  when  mandating  pro-
competitive access obligations. The current model also caters for the needs of the enlarged EU 
where the market conditions between the Member States are more diverse than before. 

The  revision  of  the  2003  Commission  Recommendation  on  Relevant  Markets  –  which  has 
been  conducted  in  parallel  with  this  review121-  shows  that  the  existing  model  of  the 
framework has the inbuilt flexibility to make possible substantial deregulation by phasing out 
11 of the 18 markets previously considered susceptible to ex ante regulation. Regulation in the 
sector  can  therefore  focus  on  wholesale  markets,  where  the  key  bottlenecks  for  effective 
competition still remain as discussed above.  

However,  the  key  risk  that  the  existing  flexible  approach  carries  is  the  danger  of 
heterogeneous  implementation  of  ex  ante  remedies,  which  can  lead  to  lack  of  regulatory 
consistency  in  the  single  market,  thereby  hampering  the  emergence  of  services  at  a  pan-
European  scale  such  as  EU  wide  mobile,  internet  and  business  services,  all  of  which  are 
important for Europe's competitiveness, growth and jobs. This is further discussed in Chapter 
7. 

The Commission therefore considers that a modified Option 3 is the most appropriate option. 
The modification would be to add mandatory  functional separation - as discussed under the 
Option 1 - as an exceptional measure available in the NRA's regulatory toolbox. This could 
serve to enhance competition in an environment where it could be demonstrated that standard 
remedies  were  insufficient  to  improve  market  failure  and  where  there  was  little  prospect  of 
infrastructure  competition  within  a  reasonable  timeframe.  As  it  is  an  exceptional  remedy, 
Commission oversight will be necessary to reduce the risk that different national approaches 
lead to fragmentation of the internal market. 

121 

See Recommendation C(2007) 5406 and its associated Explanatory Note, Commission Staff Working 
Document SEC(2007) 1483, available at: 
http://ec.europa.eu/information_society/policy/ecomm/tomorrow/index_en.htm. 

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6. 

SPECTRUM MANAGEMENT 

6.1. 

Identifying the problem 

6.1.1. 

Introduction 

Introduction 

The overreaching goal of spectrum policy is to ensure that spectrum is managed to deliver the 
most efficient use from a social and economic perspective. Spectrum management reform is 
probably the most important area of this review, certainly in terms of the potential gains for 
Europe. As highlighted already in the Impact Assessment of June 2006122, spectrum policy in 
general  must  take  into  account  not  only  the  electronic  communications  services  but  also  all 
other  spectrum  uses,  such  as  defence,  aeronautical,  maritime,  medical,  scientific,  industrial, 
etc.  The  analysis  presented  in  this  impact  assessment  focuses  on  implications  for 
eCommunications services. 

importance  of  radio  spectrum  as  a  production  factor  for  electronic 
The  relative 
communications  services  and  networks 
(such  as  mobile,  wireless  and  satellite 
communications, TV and radio broadcasting distribution, and other services such as transport, 
radio location and Galileo satellite system) has increased dramatically during the last decade, 
so  has  the  importance  of  the  provisions  related  to  radio  spectrum  within  the  regulatory 
framework.  

The “value” of spectrum 

Spectrum can be considered as a public good; it has both public and market value. While it is difficult 
to measure the real economic value of spectrum as such123, it is possible to express the importance of 
spectrum using the parameter of the total value of spectrum dependent services. It is estimated that the 
total value of radio spectrum dependent services in the EU today is about EUR 250 € billion124.  

The  use  of  spectrum  is  determined  in  particular  by  two  parameters,  “Who  decides  who  can 
use a spectrum band?”, and “Who decides for what it can be used for?” Both these parameters 
have  traditionally  been  under  the  control  of  Member  States  administrations,  and  the 
organisation of spectrum management varies widely from one Member State to the other125. 

122 
123 

124 

125 

SEC(2006) 817, see Chapter 1 above. 
A spectrum auction can assign a certain market value to a specific spectrum band. However, this can be 
a significantly distorted value as the current less than efficient spectrum management creates artificial 
scarcity and market prices can be inflated (as it was the case e.g. in the 3G auctions). 
See  study  on  Conditions  and  options  in  introducing  secondary  trading  of  radio  spectrum  in  the 
European  Community,  Analysys  Consulting,  DotEcon  and  Hogan  &  Hartson,  2004  (hereinafter 
Analysys et al. 2004) which estimated that figure to be EUR 200 billion in 2004. The estimate covers 
the  European  Economic  Area,  i.e.  all  EU  Member  States  and  Iceland,  Norway  and  Lichtenstein.  The 
study is available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 
See  a  table  describing  the  organisation  of  spectrum  management  in  the  Member  States  at: 
http://ec.europa.eu/information_society/policy/radio_spectrum/general_overview/spectrum_member_st
ates/index_en.htm 

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The  most  important  problems  related  to  the  current  system  of  managing  spectrum  can  be 
summarised as follows:  

– 

– 

– 

– 

Spectrum  is  rigidly  segmented  between  the  classical  services  (broadcasting,  fixed, 
mobile communications) and other applications; 

National  borders  are  increasingly  irrelevant  for  optimal  radio  spectrum  use. 
Fragmentation of the management of access to spectrum rights limits investment and 
innovation  and  does  not  allow  operators  and  equipment  manufacturers  to  realise 
economies of scale; 

There are legacy issues related to diverging conditions to access radio spectrum for 
different spectrum users; and 

Access to spectrum for new and innovative services and technologies is limited and, 
as  a  result  of  the  rigidity  of  current  spectrum  allocations,  usually  available  only  in 
higher frequencies with worse propagation characteristics. 

In the current situation, spectrum is for the most part rigidly allocated to specific technologies 
and/or for specific usages, and its use is generally based on exclusive individual rights subject 
to stringent conditions with no possibility to sell or lease such rights to other potential users. 
Some users hold large amounts of valuable spectrum that they do not use to its full capacity, 
while for new entrants it can be very difficult to acquire suitable spectrum.  

The  problems  of  inefficiencies  in  distribution  and  use  of  spectrum  result  in  increased  costs, 
lost opportunities for operators and manufacturers and reduced investment in and take-up of 
new  innovative  applications  and  services.  Evidence  from  recent  studies  and  academic 
literature supports this general conclusion as described below.  

In addition, the switchover to digital broadcasting and the emergence of the "digital dividend" 
(the  switchover  from  analogue  to  digital  terrestrial  TV  that  will  free  up  an  unprecedented 
amount  of  spectrum  in  Europe)  are  poised  to  trigger  the  largest  re-organisation  of  spectrum 
resources  in  Europe  for  decades.  This  formidable  challenge  is  also  an  opportunity  to  put  to 
work the new spectrum management reforms on a significant scale. This necessitates that the 
regulatory framework be adapted in time to be able to conduct the required coordination on a 
European level and reap the full potential of the digital dividend from a social and economic 
perspective.  

However, this IA does not assess impacts of digital dividend as such but address the broader 
issues  of  spectrum  management.  In  parallel  to  this  Review,  the  Commission  adopted  a 
Communication  on  a  common  approach  to  the  use  of  the  spectrum  released  by  the  digital 
switchover. 

Evidence base for the problem  

During  recent  years,  there  has  been  a  growing  body  of  evidence  suggesting  that  the 
mainstream  way  of  managing  spectrum  is  leading  to  a  seriously  sub-optimised  use  of  the 
resource. For example, scans of the actual use of the spectrum such as those undertaken by the 
national  regulatory  authority  in  the  UK  (Office  of  Communications,  Ofcom)  at  various 

EN 

49 

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locations  in  2004  confirm  this  impression126.  Even  in  central  London,  much  of  the  most 
attractive spectrum was left empty, although formally the entire spectrum measured had been 
allocated  to  a  specific  use.  Another  oft-quoted  fact  is  that  newer,  and  presumably  better 
technologies,  can  only  be  introduced  in  the  higher  parts  of  the  spectrum,  which  are  less 
attractive  due  to  poor  propagation  characteristics.  It  is  clear  that  the  present  regulation  of 
spectrum does not deliver. 

Much  of  the  early  academic  debate  was  split  among  two  camps,  those  insisting  on  a  pure 
economic  approach  using  economic  means  to  distribute  spectrum  and  manage  interference, 
and the other camp seeing a future paradigm of unlicensed use where everybody could access 
the  spectrum  under  the  condition  that  one  abides  by  a  limited  set  of  rules  to  ensure 
interference management. 

As the debate has matured and moved closer to the level of actual policy development, there 
has  been  a  growing  agreement  that  all  three  paradigms  linked  to  spectrum  management  - 
administrative approach, market-based approach and unlicensed use - have a contribution to 
make to an efficiently managed spectrum policy. Apart from a number of studies conducted 
for  Ofcom127,  the  German  national  regulatory  authority  (Bundesnetzagentur,  BNetzA) 
commissioned  a  very  useful  study128,  and  the  French  Commission  Consultative  des 
Radiocommunications  specifically  studied  the  future  use  of  the  valuable  UHF  spectrum129, 
while the European Commission has finalised two studies, specifically looking at the market-
based approach and at the unlicensed use of spectrum130.  

Two other recent studies on the digital dividend have estimated that more flexible approaches 
to  spectrum  allocation  in  the  UHF  bands  lead  to  respectively  20  billion  euros  of  extra 
growth131 or up to 0.6% p.a. extra growth between 2010 and 2020132 . 

Although these studies have different emphasis, the common thread is that they all conclude 
that  the  removal  of  unnecessary  restrictions  on  spectrum  use,  what  we  now  call  technology 
and  service  neutrality,  would  substantially  increase  the  benefits  that  society  derives  from 
spectrum use. 

While the studies that were commissioned by national authorities quite naturally have focused 
on  the  regulatory  actions  that  would  prove  most  useful  for  national  regulatory  action,  the 
studies commissioned by the European Commission were specifically directed at identifying 
the  appropriate  role  for  a  common  approach  at  the  EU  level.  A  study  conducted  in  2004 

126 

127 
128 

129 

130 

131 

132 

See  Spectrum  Framework  Review,  Ofcom  consultation  issued  on  23  November  2004,  available  at: 
http://www.ofcom.org.uk/consult/condocs/sfr/sfr2/. 
For reference to these studies, see the above Ofcom consultation document. 
Towards More Flexible Spectrum Regulation, WIK Consult, 2005, available at:   
http://www.bundesnetzagentur.de/media/archive/4745.pdf. 
Rapport  du  groupe  de  travail  sur  les  enjeux  et  perspectives  d’accès  aux  fréquences  basses  pour  les 
services de communications électroniques, 10 October 2007: 
http://www.arcep.fr/uploads/tx_gspublication/rapport-ccr-151007.pdf 
See,  respectively,  Analysys  et  al.  2004  (see  footnote  124  above)  and  study  on  Technical,  Regulatory 
and  Economic  issues  relating  to  Collective  Use  of  Radio  Spectrum,  Mott  MacDonald  Ltd,  Aegis 
Systems, 
at: 
http://ec.europa.eu/information_society/policy/radio_spectrum/archives/index_en.htm#compl_studies.  
Assessing the Impact of an Early Decision on Digital Dividend Spectrum Allocation, Spectrum Strategy 
Consultants, 2007.  
The  Mobile  Provide,  Economic  Impacts  of  Alternative  Uses  of  the  Digital  Dividend,  SCF  Associates, 
2007. 

and  WIK  Consult, 

Indepen  Consulting 

available 

IDATE, 

2006, 

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estimated  that  even  if  Member  States  individually  took  the  most  appropriate  action  to 
modernise their spectrum management, the effect would be that Europe would fail to realise 
30% of the potential benefits unless the Union coordinated its efforts133.  

This  study  focused  specifically  on  the  issue  of  spectrum  trading.  To  assess  the  potential 
impact of co-ordination, it examined different co-ordination scenarios and benchmarked them 
against  the  status  quo  (which  assumed  that  the  Commission  undertakes  no  further  action  to 
co-ordinate  trading  or  liberalisation  of  spectrum).  The  study  concluded  that  the  net  benefits 
are greatest if all Member States introduce trading and liberalisation (i.e. more flexibility in 
spectrum  management)  in  certain  bands.  The  welfare  benefits  of  this  co-ordinated  approach 
are  potentially  significant  whereas  the  cost  of  introducing  liberalisation  alone  is  relatively 
small.  

Future market developments 

Apart from the body of evidence focussing on the reform of spectrum management, the recent data and 
studies  on  future  market  trends  again  suggest  that  the  current  system  of  managing  spectrum  is 
unsustainable from a mid-term and long-term perspective. 

A study compiled for the European Commission / the Institute for Prospective Technological Studies 
(IPTS)134  examined  in  particular  the  development  of  alternative  wireless  technologies,  such  as 
ultra-wide  band,  WiMAX,  Flash-OFDM,  WiFi  or  meshed  networks135.  These  technologies  represent 
an  alternative  and/or  complement  to  the  traditional  2G  (GSM)  and  3G.  The  study  concludes  that 
alternative  wireless  technologies  (AWTs)  have  a  big  potential  and  their  development  could  have 
important economic implications for Europe. One of the bottlenecks for AWTs development identified 
in  the  study  is  the  existence  of  licensing  regimes  in  many  EU  countries  imposing  limitations  on 
spectrum availability. 

Mobile and wireless technologies will be increasingly important for regions where high-speed fibre or 
cable  networks  cannot  be  deployed.  In  these  geographical  areas,  more  and  more  data  will  be 
transmitted via mobile or other wireless types of networks and consequently, more spectrum will be 
needed to account for the increasing needs for data transfer and higher speeds. In such areas, which 
largely coincide with rural areas and parts of Europe with a less developed infrastructure, it is likely to 
be necessary for new broadband systems to use spectrum from the digital dividend in order to become 
feasible. 

According to expert forecasts, also the traditional mobile services are expected to grow in the coming 
years.  The  second  generation  of  mobile  services  will  be  gradually  replaced  by  the  third  generation 
with an increase from around 58 million mobile connections in 2006 to over 300 million 3G mobile 
connections in 2010136 in Western Europe. With growing penetration of 3G technologies, an increase 
in usage of mobile data services can be expected (services such as mobile TV, location-based services, 
etc.), which will put additional pressure on availability of spectrum. 

Fixed  network  incumbents  start  implementing  fixed-to-mobile  convergence  solutions  and  offer 
services  that  can  seamlessly  switch  between  GSM  (or  3G)  network  and  WiFi  network  using 
dual-mode handsets. BT Fusion is one of the pioneers in this respect and forecasts that there will be 
22 million  dual-mode  handsets  in  the  U.K.  by  2010137.  These  multi-platform  solutions  again  require 

133 
134 

135 

136 

137 

Analysys et al. 2004, see URL in footnote 124. 
IPTS  is  one  of  the  7  research  institutes  that  form  part  of  the  European  Commission's  Joint  Research 
Centre. 
Mapping  European  wireless  trends  and  drivers,  E.  Bohlin,  S.  Lindmark,  C.  Rodríguez  and  J-C. 
Burgelman, 2006, available at: ftp://ftp.jrc.es/pub/EURdoc/eur22250en.pdf. 
These  are  estimates  of  the  Gartner’s  mobile  services  forecasting  model.  Mobile  connections  by 
technology, Western Europe, 2001-2010, Gartner, July 2006. 
The Future of Consumer Voice – the Telcos, Gartner, January 2007. 

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sufficiently  flexible  and  available  spectrum  both  for  GSM/3G  technologies  and  alternative  wireless 
technologies. 

Availability  of  radio  spectrum  is  essential  for  RFID  applications.  The  market  for  RFID  systems  is 
growing  rapidly  with  annual  growth  of  45%  in  the  EU  and  almost  60%  in  the  global  market.  The 
Commission  recently  issued  a  Communication  on  RFID  in  Europe138  where  the  issue  of  RFID 
potential and spectrum availability is also discussed. 

It  should  be  remembered  that  communications  between  people  is  not  the  whole  picture.  Machine  to 
machine communication, the so called 'Internet of Things' – means that there is a far larger population 
of  users  of  the  radio  spectrum  than  just  humans.  Such  applications  are,  for  example,  industrial 
telemetry,  managing  traffic  flows  in  major  cities  or  handling  car-to-car  communications  to  avoid 
accidents. 

Potential demand for wireless services in the EU 

A  study  commissioned  by  the  IPTS  on  the  demand  for  future  mobile  communications  markets  and 
services in Europe139 presents alternative socio-economic scenarios from which potential demand for 
wireless services in the EU in the years 2010, 2015 and 2020 is derived140. The most realistic scenario 
('Constant  change  scenario')  suggests  a  sharp  increase  in  wireless  traffic,  particularly  for  enterprises 
after 2015, as showed in the figure. Increase in the demand for wireless services is growing (not shown 
by the Figure 9), but growth is moderate before 2010 compared to afterwards.  

Figure 11. Estimated mobile traffic (within the 'Constant change scenario') 

Source: The Demand for Future Mobile Communications Markets and Services in Europe, S. Forge et al., 2006. 

138 

139 

140 

See Commission Communication on Radio Frequency Identification (RFID) in Europe: steps towards a 
policy framework, COM(2007) 96: http://ec.europa.eu/information_society/policy/rfid/index_en.htm 
See  The  Demand  for  Future  Mobile  Communications  Markets  and  Services  in  Europe,  S.  Forge,  C. 
Blackman, E. Bohlin, April 2005, available at: 
http://fms.jrc.es/documents/FMS%20FINAL%20REPORT.pdf. 
These  scenarios  are:  1)  ‘Smooth  development’:  EU  economies  unite  to  provide  growth  and 
development,  in  a  fair  and  managed way  that  brings prosperity  across  all  25  members;  2)  ‘Economic 
stagnation’:  the  EU  economy  slowly  declines,  as  did  the  Japanese  economy  between  1988  and  2003. 
Outputs  gradually  shrink  and  government  policy  reactions  to  strong  deflation  are  unsuccessful  or 
frozen. EU economic growth falls behind that of Asia; and 3) ‘Constant change’: The economy overall 
follows a moderately positive trend, with ups and downs. Ad hoc growth and recession often occur in 
parallel in different areas or countries, with stop-go progressions and regressions in specific areas of the 
EU. However, prosperity slowly increases for many in the EU. 

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6.1.2.  Policy response to the identified problem so far 

There has been a shift in the perception of the parties involved in developing spectrum policy 
in  Europe  during  the  five  years  that  have  followed  the  adoption  of  the  Radio  Spectrum 
Decision.  As  a  case  in  point,  the  European  Council  in  December  2006  referred  to  the 
immediate  ICT  policy  needs  as  including  "the  development  of  spectrum  allocation  models 
meeting  all  objectives,  the  fast  promotion  of  advanced  mobile  services  and  to  the  extent 
possible a coordinated approach for the use of spectrum capacity, becoming available as a 
result of digital switch-over"141. 

This  realisation of the European dimension  of the issue and the need to coordinate decision 
making  and  ensure  the  single  market  are  increasingly  present  in  exchanges  between 
decision-makers.  The  Radio  Spectrum  Policy  Group  (RSPG),  which  is  composed  of 
high-level  representatives  from  Member  States,  is  advising  the  Commission  on  issues  of 
strategic importance in this field. The group has developed the WAPECS concept (Wireless 
Access  Policy  for  Electronic  Communication  Services)  since  2004  and  the  work  has  been 
used  in  developing  the  present  legislative  proposal142.  The  RSPG  has  also  highlighted  the 
significant interest of a reinforced  cooperation in EU  spectrum policy in two other strategic 
areas: the deployment of multimedia services (RSPG Opinion number 5) and the future use of 
the digital dividend (RSPG Opinion number 7). 

Under  comitology,  the  Radio  Spectrum  Committee  has  provided  the  Commission  with  the 
support  necessary  to  adopt  a  number  of  regulatory  opinions.  In  previous  years,  these  have 
mainly  concerned  ad-hoc  Decisions  supporting  a  specific  use,  such  as  automotive  radars  or 
assisted hearing devices, although a framework Decision on Short Range Devices143 has also 
been  adopted.  In  response  to  demand  from  operators  and  manufacturers,  in  2007  several 
Decisions have been adopted with direct implications for electronic communications services, 
such  as  the  Decision  on  2  GHz  mobile  satellite  systems,  the  Decision  on  harmonised 
availability of information regarding spectrum use144, and the expected forthcoming Decision 
on  harmonised  use  of  the  900  and  1800  MHz  bands  (enabling  3G  and  other  services  to  be 
used  in  the  GSM  bands)  combined  with  the  repeal  of  the  1987  GSM  Directive  and  the 
Decision  on  Mobile  Communication  aboard  Aircraft.  These  measures  are  interlinked  with 
equipment regulations under the R&TTE Directive145. This Directive relies to a large extent 
on standardisation. 

Despite these efforts, the reality in Europe is that there is still a system of cumbersome and 
top-heavy  procedures,  where  decisions  on  use  of  spectrum  are  mainly  taken  by  public 
administrations  and  specified  in  some  detail.  Even  when  EU-level  agreement  on  technical 
harmonisation is achieved - which requires a complex coordination of schedules between the 
EU and the CEPT146 - the ensuing licenses are still issued in 27 different ways. The review of 
the regulatory framework thus provides the occasion to propose a simpler and more efficient 
regulatory system. 

141 
142 
143 

144 
145 

146 

Presidency Conclusions of the European Council 16879/06 of 15.12.2006, see paragraph 30. 
For more details, see RSPG's web-site: http://rspg.groups.eu.int. 
Commission Decision 2006/771/EC of 9 November 2006, available at:   
http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/index_en.htm 
Commission Decision (C(2007) 2085) of 16 May 2007, see URL above. 
Directive 1999/5/EC of 9 March 1999 on radio equipment and telecommunications terminal equipment 
and the mutual recognition of their conformity. 
European Conference of Postal and Telecommunications Administrations: http://www.cept.org/ 

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6.1.3. 

Summarising the problem 

The  available  evidence  shows  that  the  importance  of  mobile  and  wireless  communications 
markets  and  services  will  further 
the  current,  predominantly 
command-and-control spectrum management system has reached its limits.  

increase,  and 

that 

The  problem  is  how  to  adapt  the  system  to  stimulate  new  and  innovative  services,  which 
require much more flexible use of spectrum. The cross-border nature of wireless services also 
represents a strong case for harmonisation and better co-ordination at the EU level.  

6.2. 

The objective 

The overall objective of spectrum management in the EU is to ensure that a scarce resource in 
high demand is used for the maximum benefit of society, and that change in technology and 
demand structure can speedily be reflected in how the resource is used. 

Specific aims within this overall objective are: 

– 

– 

– 

– 

– 

– 

Give spectrum users more freedom in deciding how they use spectrum by reducing 
the regulatory burden on them; 

Remove barriers to access for new entrants and new technologies; 

Ensure management of interference between users; 

Provide incentives for innovation and investment; 

Ensure  that  there  is  a  co-ordinated  approach  to  spectrum  management  at  EU  level: 
and 

Facilitate  the  optimisation  of  the  potential  social  and  economic  value  of  the  digital 
dividend. 

At the same time, any change to the current system must ensure that current license holders 
will be able to retain the rights enjoyed under the licence, subject to review for very long-term 
licences. 

6.3. 

Initial Policy options (June 2006) 

The identification of options for spectrum management reform in this section is based on the 
initial  set  of  options  outlined  in  the  Impact  Assessment  of  June  2006.  The  Commission 
identified the following three initial options:  

– 

– 

– 

Create an EU entity in charge of managing EU aspects of spectrum; 

Adapt  the  regulatory  framework  and  improve  co-ordination  at  EU  level  through 
wider use of committee mechanism; and  

No change to the regulatory framework.  

These options were subject to public scrutiny during the subsequent public consultation and to 
further analysis with assistance of external experts.  

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6.4. 

Results of the public consultation 

The  public  consultation  showed  reluctance  in  most  responses  to  embrace  unlicensed 
spectrum,  citing  concerns  that  interference  would  not  be  resolved.  Some  respondents  were 
however  strongly  in  favour,  as  they  believe  that  interference  management  solutions  are 
already available. 

The responses on the proposed changes to the regulatory framework were in general in favour 
of  service  neutrality.  The  exception  was  the  broadcasting  community  and  the  operators  of 
distributions systems for terrestrial television. Most other negative answers had interpreted the 
term "service" as it is used by the ITU147, rather than applying the definition in the regulatory 
framework. These answers more properly concern technology neutrality. 

Technology neutrality was also mainly viewed favourably by most respondents. There were 
concerns  that  an  excessively  neutral  approach  would  lead  to  a  massive  increase  in 
interference. On the other hand, a careful removal of technical restrictions was welcomed. A 
particular  case  was  the  fear  among  satellite  operators  that  terrestrial  uses  would  overwhelm 
the weak satellite signals. This shows the need for a level of continuing technical regulation. 

There  was  wide-spread  recognition  of  the  European  dimension  of  spectrum  policy  and  the 
need  to  strengthen  the  collaboration  and  coordination  in  spectrum  management.  Some 
respondents indicated a European Spectrum Agency as the preferred tool. 

The public consultation confirmed the perceived trend towards welcoming secondary trading. 
Most Member States, industry associations and companies were in favour. The opposing view 
was  mainly  coming  from  terrestrial  broadcasters  and  from  some  Member  States,  who  were 
concerned that trading would affect broadcasting or that hoarding of spectrum would result in 
unfair competition and barriers to access. 

In addition, the European Parliament by its own initiative adopted a resolution on 14 February 
2007148  addressing  European  spectrum  policy.  The  resolution  recognises  the  desirability  to 
make  more  use  of  unlicensed  spectrum  as  one  of  three  spectrum  management  paradigms 
(unlicensed,  spectrum  markets  and  traditional).  The  Parliament  strongly  emphasises  the 
efficient  use  of  spectrum  by  all  stakeholders  and  regulators.  It  endorses  the  principles  of 
technology  and  service  neutrality  and  the  principle  of  viewing  electronic  communications 
spectrum as a coherent entity from a technology neutrality perspective. It stresses the need to 
safeguard the functioning of media services provided by broadcasters and notes that this may 
justify exceptions to service neutrality and the award of sufficient spectrum to such users. 

The European Parliament identifies the necessity for EU harmonisation of spectrum combined 
with  the  removal  of  over-prescriptive  regulatory  constraints,  to  provide  access  for  new 
services  and  new  technologies.  It  also  notes  the  need  for  clear  definitions  of  rights  and  for 
efficient dispute resolutions mechanisms.  

The  Parliament  furthermore  notes  that  fragmented  decision-making  in  Europe  presented 
serious obstacles to the Single Market and called for enhanced cooperation. It welcomes the 

147 

148 

ITU  uses  very  high  level  definitions,  relating  to  technical  characteristics  of  the  networks  and 
transmissions. 
The provisional version of the resolution (P6_TA-PROV(2007)0041) is available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/index_en.htm 

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Commission's market-based approach to spectrum, and notes that the traditional model would 
continue to be relevant, particularly where important public interests are at stake. 

6.5. 

Revised policy options 

As a result of the public consultation, the Commission has reconsidered some aspects of the 
initial policy options. The initial set of options dealt mainly with one aspect of the spectrum 
policy,  i.e.  the  level  of  EU  co-ordination.  The  option  of  "creating  an  EU  entity"  suggested 
strong harmonisation measures in the form of an independent EU body whereas the option of 
"adapt  the  framework  and  improve  co-ordination  at  EU  level"  suggested  improving 
co-ordination through comitology procedures. 

The second aspect of spectrum policy is the actual substance of the spectrum policy reform, 
i.e. options for transition to a more efficient spectrum management system. The key problems 
identified  in  this  chapter  relate  mainly  to  the  substance  of  spectrum  policy.  The  spectrum 
management  chapter  will  therefore  focus  on  assessing  the  various  spectrum  management 
models  and  on  providing  possible  solutions  to  the  problems  identified.  Co-ordination  is 
discussed  at  a  more  general  level  and  is  addressed  separately  in  Chapter  7  on  Regulatory 
consistency  and  effectiveness.  Chapter  7  analyses  possible  institutional  arrangements  and 
co-ordination  mechanisms  not  only  for  spectrum  management  but  for  the  whole  area  of 
regulation  in  electronic  communications,  including  the  option  “creating  an  EU  regulatory 
entity” of some sort. 

6.5.1.  Option  1  –  adapt  the  regulatory  framework  by  introducing  the  principle  of 

technology and service neutrality and co-ordinated spectrum trading 

A number of proposals reflected in this option are mirrored in the Commission strategy of a 
comprehensive spectrum reform, i.e. a strategy towards more flexible and efficient spectrum 
management. The general principles of the strategy for spectrum policy reform were already 
outlined in the Commission Communications of 2005149 and are embedded in the WAPECS 
concept  which  have  been  endorsed  and  accepted  by  Member  States  and  most  stakeholder 
groups.  The  concrete  legislative  changes  are  closely  linked  to  the  specific  objectives 
summarized  in  Chapter  6.2.  The  proposals  relate  to  extending  the  concept  of  general 
authorisations to spectrum, introduction of technology and service neutrality and introduction 
of spectrum trading in specific bands.  

Unlicensed spectrum as an extension of general authorisations  

The regulatory framework would require national regulators to consciously assess whether a 
spectrum band that has become available would not be better used if allocated under a general 
authorisation,  and  justify  when  a  licensed  approach  is  chosen.  The  provision  would 
future-proof  the  framework  in  that  it  enables  regulators  to  adapt  to  technological 
developments without requiring revision of the legal text. 

Strengthening of technology neutrality and the introduction of service neutrality 

149 

A market-based approach to spectrum management in the European Union, COM(2005)400, and final 
COM(2005)  400,  and  A  Forward-looking  radio  spectrum  policy  for  the  European  Union  -  Second 
annual report, COM(2005) 411, available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/index_en.htm 

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This  provision  would  reinforce  the  existing  principle  of  technology  neutrality,  to  the  extent 
this  can  be  done  without  worsening  the  situation  for  other  spectrum  users  (through  an 
increased  interference)  and  without  risking  the  functioning  of  safety-of-life  services. 
Similarly,  the  requirement  in  the  legislation  to  apply  service  neutrality  would  permit  the 
delivery of any electronic communications service, with limited exceptions to ensure general 
interest  objectives,  such  as  the  delivery  of  broadcast  content  services.  In  both  cases  there 
would be a consultation requirement to increase transparency.  

The  principles  of  service  neutrality  and  technology  neutrality  would  apply  to  new  licenses, 
with  an  option  for  existing  licenses  to  be  transformed  into  technology  and  service  neutral 
ones.  A  relatively  long  transition  period  is  foreseen  for  the  final  transition  of  the  existing 
licences  to  technology  and  service  neutral  ones.  To  ensure  the  consistency  of  the  legal 
framework,  both  the  Framework  Directive,  dealing  with  allocation  of  spectrum,  and  the 
Authorisation  Directive,  dealing  with  the  individual  rights,  would  have  to  be  updated  to 
reflect the principles. Harmonisation of technical parameters as applied to spectrum as is done 
under  the  Radio  Spectrum  Decision  would  proceed,  and  define  the  EU-level  limitations  to 
technology neutrality in a specific band.  

This provision is related to the objective of giving spectrum users more flexibility in how they 
use spectrum by reducing the regulatory burden on them.  

Progressive introduction of secondary trading in specified bands 

The regulation of service and technology neutrality will release a lot of the potential uses of 
the  radio  spectrum,  but  seen  in  isolation,  it  would  only  affect the  pool  of  existing  spectrum 
usage rights holders. This entails the risk that users would seek to ensure their market position 
by adopting a position of no change, which could limit the introduction of new technologies 
and services. This would also limit the turnover of spectrum usage rights to the time of expiry 
of the license, which again would introduce an element of scarcity, in this case in time.  

Therefore, the regulatory framework would introduce the provision that, in designated bands, 
users have the option to buy or sell spectrum usage rights through secondary trading, with this 
option  applicable  in  every  Member  State  (to  safeguard  the  single  market  in  services  and 
equipment). The selection of bands, in which trading would be an option for the user, would 
be  through  comitology  decisions.  It  should  be  noted  that  this  provision  would  not  change 
anything  in  the  initial  award  of  spectrum  rights  by  the  issuing  authority,  but  only  apply  to 
subsequent trading between users. Trading is thus a necessary complement to technology and 
service neutrality. 

In conclusion, this option creates basic conditions for flexible spectrum use and combines the 
three spectrum management models – the unlicensed, administrative and market-based150 – in 
one  policy  framework.  Every  model  would  then  be  used  according  to  the  specific 
circumstances in specific bands. More flexibility does not mean “reallocation” of spectrum in 
the  sense  that  spectrum  would  be  taken  away  from  one  party  and  given  to  another.  The 
principal idea is that spectrum would be made tradable or leasable through spectrum trading 
and  made  subject  to  service  and  technology  neutrality,  thereby  giving  greater  choice  and 
powers to spectrum users. 

150 

See Chapter 6.6.1 below for more explanation. 

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6.5.2.  Option 2 – no change to the regulatory framework  

The  Commission  has  already  taken  a  number  of  steps  towards  more  flexible  spectrum  use 
already under the current legislative framework151. However, the possibilities of introducing a 
more flexible and co-ordinated approach within the current legislation are limited. There is no 
mechanism to ensure a coherent designation of bands where the use of spectrum is subject to 
general  authorisations  and  no  mechanism  to  ensure  a  coherent  introduction  of  spectrum 
trading.  This  leads  to  a  patchwork  of  different  regulatory  solutions  in  different  Member 
States.  

The current framework did introduce sound principles such as general authorisations as a rule 
and exclusive individual rights as the exception, the principle of technology neutrality or the 
possibility  of  secondary  spectrum  trading.  However,  the  current  practice  does  not  seem  to 
reflect  these  general  principles,  no  coherent  application  is  ensured  and  most  bands  are 
systematically subject to individual rights. The procedure of assignment and authorisation for 
pan-European  and/or  cross-border  services  is  very  complex,  lengthy  and  burdensome. 
Coordination among Member States is based on a voluntary approach which does not lead to 
any coherent implementation of the general principles. Staying with the current cumbersome 
system would therefore go against the main objective of simplification and better regulation. 

In conclusion, this option would rely on the existing provisions and the voluntary approach to 
co-ordination to achieve the overall objective of more flexible and efficient use of spectrum. 
As a base-line option, it will be assessed against the other option.  

6.6. 

Assessment of impacts  

Assessment of economic and social impacts of spectrum policy reform is a very complex and 
challenging task. It requires a careful application of economic theory and models to the real 
situation on the market while taking into account future uncertainties and rapid technological 
development. To this aim, the impact analysis has been carried out in four stages:  

i) 

ii) 

iii) 

iv) 

Outlining  the  characteristics  and  impacts  of  the  three  basic  spectrum  management 
models – unlicensed approach, market-based approach and administrative approach; 

Quantitative modelling of impacts using three scenarios (see Annex I); 

Assessment of options and impacts; and 

Conclusion. 

It has to be borne in mind that the econometric model used is a simplified representation of 
the reality and cannot capture all the details of the proposed policy and do not exactly mirror 
the  policy  options  outlined  above.  However,  the  scenario  approach  represents  a  very  useful 
basis for comparative assessment and impact simulation.  

151 

For  example,  the  planned  repeal  of  the  GSM  directive  coupled  with  a  Commission  Decision  for  the 
harmonised use of the 900 and 1800 MHz bands will have important economic impact on the market, as 
it will allow mobile operators to use 3G technologies in the bands previously restricted only to GSM 
technology. 

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6.6.1.  Three spectrum management models 

In theory, three different models of spectrum management can be identified:  

– 

– 

– 

the administrative model where states make decisions on allocation of spectrum and 
assignment of spectrum usage rights and no secondary trading is permitted; 

the  market-based  model  where  the  state  is  responsible  for  primary  assignment  of 
usage rights and secondary trading and change of use is permitted; and 

the  unlicensed  model  where  users  have  complete  autonomy  over  how  they  use 
spectrum and anybody has access to spectrum.  

Spectrum management policy was traditionally based on the administrative model. Option 2 
would  be  the  one  which  most  resembles  the  administrative  approach.  Although  the  current 
includes  some  provisions  aiming  at  more  flexible  spectrum 
regulatory  framework 
administrative 
management,  most  Member 
“command-and-control” approach.  

largely 

States 

apply 

still 

the 

Throughout the academic debate, a preferred spectrum management model was promoted by 
its proponents by emphasising a particular benefit of that model. It may be useful to recall the 
sub-objectives and plot the models against  them. Such  an exercise indicates that there is  no 
single "best" management model, but that all three have their place in a reformed framework.  

"Unlicensed" approach 

Regulatory 
burden 

An unlicensed approach would provide the option to deliver any service. (++) It would 
also permit different technologies to be used. (++) 

Access 

Anyone  could  access  and  use  the  spectrum  (++).  New  technologies  could  access 
spectrum, but there could be an issue of managing generational change (+) 

Interference  The  necessary  technologies  to  implement  interference  management  are  today  available 
for  short  range  communications  (+)  Technologies  for  managing  interference  are  a 
constraint  on  product  design  and  require  industry  agreement  and  licensing  (-)  Longer 
range  communications  can  as  yet  not  be  managed  in  this  way  (-  -)  In  future  this  may 
move to a (+) 

Innovation 

It would enable innovation and investment in services, as well as increased competition 
(++) 

"Market-based" approach 

Regulatory 
burden 

An  introduction  of  secondary  trading  of  spectrum  usage  rights  between  users  would 
deliver some benefits though simpler transfer (+) If this is combined with a removal of 
existing  restrictions  on  services  and  a  limitation  of  technical  restrictions  to  the  least 
necessary the effect would increase (++) 

Access 

Secondary  trading  would  complement  administrative  awards  of  spectrum  (+)  New 
technology generations can be implemented by the user (++) 

Interference  The  definition  of  technical  parameters  of  spectrum  usage  rights  would  be  crucial  to 
interference  management.  Increased  monitoring  and  enforcement  would be  required  to 

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manage the expected "denser" use (+) 

Innovation 

Innovation  and  investment  would  be  strongly  encouraged.  Artificial  regulatory 
bottlenecks  constraining  competition  would  be  removed  (++)  Risk  for  this  being 
replaced by hoarding (- -)  

"Administrative" approach 

Regulatory 
burden 

Access 

Regulatory burden could be diminished, which would benefit existing users (+) 

Access to spectrum for new entrants would remain unchanged (=) If regulatory burden 
is lowered new technologies would have improved access provided that benefits existing 
users (+/=) 

Interference 

Interference management would remain at a high level (++) 

Innovation 

Innovation  and  investment  would  depend  on  administrative  decisions.  Limited 
competition would benefit operators and technology providers, but not consumers (-) 

6.6.2.  Quantitative modelling of impacts using scenarios  

Ideally there should be a direct and measurable effect of a specific regulatory choice, so that 
action "A" would result in outcome "B". In the present case, such a mechanistic approach is 
unfortunately unavailable. Complexity is however no argument against a structured approach 
and the Commission decided to contract external support to construct an econometric model 
to identify the impacts of certain policy choices152. 

A model such as the one outlined in Annex I can be used only if there is a clear understanding 
of its limitations. It should be noted that building a verifiable econometric model is hampered 
by  lack  of  comparable  data  or  incomplete  sets  of  statistics.  To  our  knowledge,  the 
econometric  model  developed  for  the  current  exercise  in  order  to  test  the  impacts  of 
regulatory choices, is one of the first attempts to deliver an evidence-based impact assessment 
in the field of spectrum management. 

6.7. 

Asessment of options and impacts 

The  modelling  exercise  described  in  Annex  I  shows  that  effective  provision  of  services 
through  unlicensed  spectrum,  in  parallel  with  existing  licensed  services,  would  increase 
competition. However the necessary interference management technologies to permit a major 
expansion  of  the  use  of  unlicensed  spectrum  are  not  available  today.  From  a  perspective  of 
EU  legislation,  Option  1  would  therefore  require  the  national  regulator  to  consider  the 
availability of interference management technologies before issuing individual rights of use. 

Impact  of  general  authorisations  The  only  viable  economic  justification  for  granting 
exclusive usage rights on the basis of individual licences is the fact that there is a significant 
risk of harmful interference with other technologies. However, as pointed out earlier, Member 
States often grant individual licences even if general authorisation could be a viable option. 

152 

Benchmarking  Impacts  of  EU  Policy  Options  for  Economically  Efficient  Management  of  Radio 
Spectrum, SFC Associates, 2006, available at: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 

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This  has  clearly  the  effect  of  creating  artificial  barriers  for  any  potential  competition  and 
artificial scarcity of spectrum on the market. Option 1 would require a justification whenever 
exclusive  rights  are  granted.  This  would  enable  fast  uptake  of  technologies  that  alleviate 
spectrum  scarcity  when  they  become  available,  but  safeguard  other  users  from  interference 
until that time. This provision would contribute to the objective of better access to spectrum 
for new entrants and new technologies. 

Impacts of technology and service neutrality 

The  establishment  of  service  and  technology  neutrality  as  the  main  principles  (proposed  in 
Option  1)  would  remove  most  regulatory  restraints,  not  only  strengthening  competition,  but 
also  reducing  the  regulatory  burden  on  the  user.  It  should  be  noted  that  to  offer  a  different 
service  or  to  adopt  a  different  technology  would  be  an  option  for  the  user,  not  imposed  by 
regulation.  The  effect  on  innovation  would  be  to  enable  an  operator  to  introduce  new 
technologies  in  the  bands  where  he  holds  the  usage  rights.  This  would  make  it  practical  to 
deploy new technologies in the lower, more attractive bands, which in turn lower the cost of 
introducing new technologies and increase their uptake by consumers. 

Impacts of spectrum trading 

The effect of service and technology neutrality without spectrum trading would be to increase 
competition, but only within the existing set of spectrum users. Looking at experiences from 
other  regulated  industries,  such  limited  competition  would  most  likely  lead  to  operators 
seeking to safeguard market share. The combination of service and technology neutrality with 
spectrum  trading,  complemented  by  enforcement  of  competition  rules,  would  ensure  open 
market access for new technologies and new service providers.  

As  noted  earlier,  the  purpose  of  the  reform  is  not  to  reallocate  spectrum  from  one  group  of 
stakeholders (current spectrum holders) to another (new entrants). The three key elements of 
the reform proposed in Option 1 will create more flexibility, lower the barriers to entry and 
encourage  more  competition.  Current  spectrum  holders  will  have  to  adapt  to  the  new  more 
competitive  market  but  they  will  also  have  greater  possibilities  to  use  their  spectrum  more 
efficiently. Additionally, the digital dividend will have a positive impact in this process as it 
will  release  more  spectrum  for  innovative  services,  which  also  helps  to  bridge  the  digital 
divide153. 

Co-ordinated approach 

Option 1 incorporates strengthened co-ordination mechanisms (e.g. co-ordination of spectrum 
trading, co-ordinated identification of unlicensed bands, common definition of exceptions to 
technology and service neutrality, etc.), whereas Option 2 is based on voluntary co-ordination. 
Voluntary  coordination  without  implementation  requirements,  such  as  is  done  through  the 
CEPT today, results in substantial regulatory uncertainty and a fragmented regulatory system. 
This affects smaller operators and manufacturers more than larger ones, as the latter have well 
developed communication channels with administrations. 

No modern radio  technology for civilian use is developed with only one target market.  The 
cost of development and the need to lower cost through large-scale production and purchasing 

153 

See discussion and reference to recent studies on this subject in Chapter 6.1.1. 

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necessitates a European, or even global, approach by industry. There is thus a strong market 
impetus to coalescing around common standards. 

A  future  operator  may  wish  to  develop  a  service  (or  mix  of  services)  using  a  technology 
covering several, and possibly all, Member States. Such a seamless network would deliver an 
increasing  total  value  of  the  network,  to  the  operator  but  also  to  society.  These  trends  of 
reduced  regulation  and  larger  geographical  target  areas,  combined  with  a  need  for  stronger 
legal certainty, argue for limited regulation coordinated at EU level.  

Impacts of Option 2 – no change 

The effect of allocating a band of spectrum used for electronic communication services to a 
specific technology  and service is to limit competition. This occurs mainly through limiting 
the  number  of  licenses,  i.e.  competitors,  but  also  by  preventing  the  introduction  of  new 
technology.  Option  2  (no  change)  is  close  to  that  situation  because,  although  it  allows  for 
different management models (market-based, unlicensed or administrative), the reality is that 
a technology and service-based administrative model still prevails in most bands and in most 
Member  States.  The  negative  consequences  of  limited  competition  and  artificial  spectrum 
scarcity are discussed and quantified in more detail in the modelling exercise in Annex I and 
summarised in the table below.  

As regards the impact on different stakeholders, it clearly varies, depending on whether they 
are current spectrum holders or not. Holders of large amounts of valuable spectrum (e.g. the 
broadcasting industry) would clearly benefit from the status quo situation. New entrants but 
also  some  incumbent  operators,  who  see  new  opportunities  in  deployment  of  new 
technologies  in  more  suitable  spectrum  bands,  would  clearly  prefer  more  flexible 
arrangements. 

The table below provides a summary on main likely impacts and risks arising from the each 
of  the  three  policy  options  with  respect  to  the  different  economic  and  social  dimensions. 
Impacts  of  Option  1  are  compared  to  the  “no  change”  option  2,  which  provides  a  baseline 
scenario for the assessment. The signs represent a scale of possible impacts vis-à-vis the “no 
change scenario”: (cid:172) positive impact, O neutral impact, − negative impact. 

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Table 2. Summary on the main impacts and risks of the options  

IMPACTS 
AND RISKS  

Option 1 – Introduce the principle of 
technology and service neutrality and co-
ordinated spectrum trading  

Option 2 - No change  

ECONOMIC  

Investment and 
innovation 

(cid:172) More flexible and co-ordinated spectrum management 
will  significantly  encourage  investment  and  innovation. 
New  entrants  will  be  able  to  acquire  spectrum  through 
spectrum  trading  or  operate  in  unlicensed  bands  (if 
technologies managing interference are available).  

facilitate  cross-border 

Does  not 
investment  and 
deployment  of  new  innovative  cross-border  services. 
Differences  in  regulation  do  not  particularly  encourage 
operators to invest in other MS.  

Competition 

spectrum 
regulation  will  be 

(cid:172)/O  Introduction  of  co-ordinated  spectrum  trading  could 
lead to more consolidation of the mobile/wireless market. 
effective 
Preventing 
through 
competition 
crucial.  Stronger 
competitive  pressure  on  broadcasters.  Gradual  increase 
in  competition  from  new  entrants  and  new  technologies 
as  more  unlicensed  bands  become  available 
(i.e. 
development towards Scenario 1).  

hording 

Limited  competition,  disadvantageous  position  for  new 
entrants,  and  uneven  development  in  Member  States 
(some  MS  advanced  in  market  opening  and  introduce 
more  flexibility  whereas  others  still  rely  predominantly  on 
administrative model of spectrum management).  

Internal market, 
regulatory 
consistency 

(cid:172)  Improvements  removing  the  current  fragmentation  in 
national  spectrum  policies  –  through  strengthened  co-
ordination  mechanisms.  More 
for 
development  or  cross-border  or  pan-European  services 
using frequencies.  

opportunities 

Inconsistent application of rules, slow progress based on 
voluntary  co-ordination  with  lengthy  and  cumbersome 
procedures,  risk  of  increasing  differences  between  MS. 
Slow deployment of cross-border services.  

EU 
competitiveness  

(cid:172)/O  More  flexibility  and  better  co-ordination  of  spectrum 
management  should  strengthen  competitiveness  of  the 
mobile/wireless  industry.  Risk  of  spectrum  hording  and 
oligopoly  situations  (i.e.  operators  with  “deep  pockets 
controlling  the  market)  if  competition  law  is  not  properly 
enforced.  

Risk  of  gradual  erosion  of  the  mobile/wireless  industry’s 
competitiveness vis-à-vis the rest of the world. Economies 
of  scale  and scope  harder  to  achieve  for  mobile/wireless 
operators, slower uptake of cross-border services.  

Economic 
operators' costs 
and benefits 

(cid:172)/−  More  opportunities  for  new  entrants,  challenges  for 
incumbent  telcos  and  distributors  of  broadcasting  (see 
more detailed analysis of stakeholder impacts in Table X.) 

Reaffirmed position for the current spectrum holders, high 
barriers  of  entry  for  new  service  providers  and  new 
technologies, impact varies by national spectrum regime.  

Administrative 
costs, 
simplification 

(cid:172)/O Overall reduction due to lower administrative burden 
and  less  regulation  for  operators.  Less  burdensome 
general authorisations will be used more often than more 
burdensome  individual  licenses.  Some  additional  burden 
related  to  transition  to  a  more  flexible  and  co-ordinated 
system.  

No  change,  no  reduction  of  administrative  burden  for 
operators.  Partial  reduction  possible  in  MS  which  decide 
to implement a more flexible spectrum regime.  

Consumer 
benefits  

Overall 
economic 
growth 

(cid:172)  More  choice,  more  services,  lower  cost  (especially  if 
more unlicensed bands are used in the future).  

Same  choices  as  today,  big  differences  between  MS  as 
regards  service  offerings  and  prices  (not  justified  by 
differences in the underlying costs) 

(cid:173)/O  Economic  modelling  using  scenarios  shows  that 
more  flexible  and  co-ordinated  spectrum  management 
has a significant and positive impact on GDP growth (the 
difference  between  the  best-case  and  the  worst-case 
scenario  would  be  approx.  0.1%  of  the  annual  GDP 
growth)  

 SOCIAL 

Slower  GDP  growth  than  in  Option  1  (scenario  3  shows 
the  worst-case  model  for  this  option  where  MS  withdraw 
from any EU co-ordination)  

Social and 
digital inclusion 

(cid:172)/O  Impact  will  depend  on  other  factors,  such  as  the 
future  universal  service  concept.  Positive  impact  of  co-
ordination on regulatory consistency should have positive 
effect on digital inclusion across the EU. More choice and 
cheaper  wireless  services  should  contribute  to  social 
inclusion and bridging the digital gap between regions. 

Impact  will  depend  on  other  factors,  such  as  the  future 
universal  service  concept.  Wireless  services  generally 
less  affordable  and  less  available  across  the  EU  than  in 
Option  1.  However,  big  differences  between  MS  can  be 
expected.  

Employment 
and labour 
market 

(cid:173)/O  Difficult  to  predict  the  outcome.  Scenario  modelling 
shows  a  positive  impact  on  employment  in  knowledge 
industries.  Positive  spill-over  effects  to  other  sectors  can 
be  expected.  Negative  employment  effect  for  market 
players who will not adapt to the change.  

Only  limited  spill-over  effects  can  be  expected  due  to 
slower  deployment  of  new  wireless  technologies  and 
services.  

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6.8. 

Conclusion 

This  impact  assessment  has  identified  a  number  of  problems  and  challenges  in  the  current 
system of spectrum management. The prevailing administrative system of spectrum allocation 
does  not  provide  sufficient  flexibility,  hinders  new  entry  and  access  to  spectrum  for  new 
innovative technologies. As the demand for spectrum is expected to rise in the coming years, 
the problem of allocation inefficiencies will get bigger and could result in lost opportunities 
for innovation and deployment of new technologies. Voluntary co-ordination does not provide 
sufficiently  stable  regulatory  environment  across  the  EU,  leads  to  fragmentation,  delays  in 
implementation of policies and administrative burdens for cross-border operators or operators 
providing pan-European or cross-border services.  

Two  policy  options  related  to  the  spectrum  management  systems  were  identified. 
Co-ordination  mechanisms,  particularly  co-ordinated  authorisation  and  regulation  of 
pan-European  services,  are  addressed  in  the  section  dealing  with  institutional  issues.  The 
econometric  model  suggests  that  more  flexibility,  service  and  technology  neutrality  and  a 
co-ordinated  approach  at  the  EU  level  leads  to  better  results  in  terms  of  GDP  growth, 
consumer benefits and more competition in the  market. In particular, the scenario assuming 
co-ordinated spectrum trading in combination with use of unlicensed bands is beneficial for 
competition,  innovation  and  investment  in  new  technologies.  Option  1  (introducing  the 
principle  of  technology  and  service  neutrality  and  co-ordinated  spectrum  trading)  would 
create  a  regulatory  environment  where  a  move  to  a  wider  use  of  unlicensed  bands  could 
become possible in the future. It has to be borne in mind, however, that the current state of 
technology  does  not  enable  substantial  opening  of  bands  for  unlicensed  use  due  to  risks  of 
interference. Until these changes, secondary markets would be the primary tool to lower the 
barriers  to  access,  which  in  turn  emphasises  the  need  for  a  well-functioning  competition 
regulation, particularly in the initial phase of implementation.  

Voluntary co-ordination (Option 2, i.e. no change to the framework) or no co-ordination at all 
as described in the third scenario gives less advantageous results for all the macro-economic 
parameters. No co-ordination would lead to a set of smaller mostly national markets arising in 
both  services  and  products.  Economies  of  scale  for  equipment  and  many  services  would  be 
difficult  to  realise.  The  current  system  of  voluntary  co-ordination  has  delivered  results, 
despite  being  cumbersome.  However,  given  the  speed  of  technology  development  and  the 
cross-border nature of many wireless services, fast and timely co-ordination will become even 
more crucial in the future. The Commission considers therefore that Option 1 (introducing the 
principle of technology and service neutrality and co-ordinated spectrum trading) is the most 
appropriate basis for a reformed spectrum management in Europe. 

III 

COMPLETING THE SINGLE MARKET IN ELECTRONIC COMMUNICATIONS 

Introduction 

A  major  goal  of  the  EU  framework  is  to  create  an  internal  market  of  e-communications  in 
Europe, in particular through transparent, predictable and effective regulation.  

The  attractiveness  of  the  European  Union  as  investment  location  depends  inter  alia  on  the 
size  and  openness  of  its  markets  and  its  regulatory  environment.  A  fully  integrated  Internal 
Market would make the EU more attractive to investors and deliver  benefits to citizens and 

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consumers travelling across Europe. In short, developing the Internal Market can significantly 
contribute to growth and investments and provide benefit to European citizens. 

Since  the  framework  was  adopted  in  2002,  markets  have  become  more  integrated:  although 
markets  remain  mostly  national,  except  for  satellite  services,  there  is  a  noticeable  trend 
towards consolidation of market players and the emergence of operators with a trans-national 
footprint.  New  technology  -  notably  the  use  of  IP-based  networks  and  services  –  can  be 
expected  to  reinforce  this  trend  towards  trans-national  services  extending  outside  the 
geographical  frontiers  of  a  Member  State.  The  further  emergence  of  strong  pan-European 
communications  services  and  operators  crucially  depends  on  the  regulatory  environment  in 
the  EU  as  a  whole154.  It  is  clear  that  a  fully  integrated  Internal  Market  would  significantly 
facilitate development of new technologies and cross-border services.  

Despite the general acknowledgement of the potential benefit of a single European market for 
electronic  communications,  the  internal  market  for  eCommunications  is  far  from  being 
completed.  In  the  current  institutional  model,  Member  States  retain  key  responsibilities  in 
managing  spectrum,  numbers  and  in  regulating  national  markets.  Implementation  of  the 
regulatory  framework  differs  across  the  EU  and  these  differences  create  in  some  cases 
significant barriers to development of cross-border services and cross-border investment. The 
following  sections  analyse  the  problem  of  regulatory  inconsistency  and  internal  market 
barriers in more detail.  

7. 

REGULATORY  CONSISTENCY  AND  EFFECTIVENESS: 
PROCEDURAL ISSUES 

INSTITUTIONAL  AND 

7.1. 

Identifying the problem  

7.1.1. 

Institutional design  

As initially described in the IA report of June 2006155, the regulatory model of the framework 
has  essentially  two  sides:  it  aims  to  create  a  consistent  regulatory  approach  throughout  the 
single  market  while  at  the  same  time  decentralising  the  application  to  permit  maximum 
flexibility  in  view  of  the  NRAs'  expert  knowledge  of  local  market  conditions.  The  main 
features of the current institutional and procedural design are described in the box below. 

Independent national regulatory authorities 

The  framework  devolves  ex-ante  regulation  of  markets  to  national  regulatory  authorities  (NRAs)  on 
the  grounds  that  they  are  closest  to  their  markets  and  therefore  better  placed  to  regulate  them.  The 
main  requirement  of  the  framework  is  that  the  NRAs  are  genuinely  independent  and  impartial.  In 
particular,  the  Member  States  that  own  e-communications  operators  must  clearly  separate  the 
regulatory tasks from the state's ownership and/or control activities to guarantee the impartiality of the 
NRA's decisions and consequently to ensure a level playing field for all operators156.  

154 

155 
156 

Pan-European or cross-Community services can be defined as a specific category of services, which are 
deployed  across  the  entire  Community  or  at  least  across  several  Member  States.  Pan-European 
operators are operators providing services across the whole EU or in the substantial part of it. 
See Chapter 5.3. 
Article 3 of the Framework Directive. 

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Detailed  responsibilities  and  tasks  of  the  NRAs  differ  among  the  various  Member  States,  but  all  of 
them  have  at  least  one  NRA  who  is  charged  with  application  of  the  rules  particularly  concerning 
regular supervision of the market. 

Internal market consolidation mechanism – Article 7 procedures 

In  order  to  avoid  the  fragmentation  that  decentralisation  could  bring,  the  framework  contains  an 
'internal  market  consolidation  mechanism':  the  process  of  notification  to  the  Commission  and 
consultation of other NRAs under Article 7 of the Framework Directive.  

Accordingly, if an NRA identifies competitive blockages at local and national level after conducting a 
market  review,  it  must  submit  the  draft  regulatory  measure  (in  case  it  may  affect  trade  between 
Member States) for consultation to the Commission and to NRAs of other Member States. Each NRA 
must take full account of the opinions of other national authorities and of the Commission. Member 
States are also required to establish a single information point on all current consultations and to make 
the results of consultation publicly available.  

The Commission has the additional power, after further examination, to ensure consistency of NRAs' 
measures by requiring the notifying NRA to withdraw the draft regulatory measure "if it would create 
a barrier to the single market or if it has serious doubts as to its compatibility with Community law". 
Whereas this power has been given to the Commission with regard to two aspects of ex ante regulation 
(defining  relevant  markets  and  designating  undertakings  as  having  SMP),  it  does  not  cover  the 
regulatory ‘remedies’ being proposed. 

The  purpose  of  'Article  7  procedure'  is  therefore  to  ensure  that  the  benefits  of  consistent  regulatory 
policy feed through to all European users and limit ex ante regulation to where it is really necessary. 
As  recently  reported  in  the  12th  implementation  report,  most  NRAs  have  now  completed  the  first 
round  of  market  analysis  and  notified  the  results  to  the  Commission.  The  experience  so  far  has 
demonstrated that the consultation mechanism of Article 7 procedures has indeed helped to bring more 
consistency across the EU as well more transparency to the regulatory process. However, consistency 
in regulatory remedies has still not been achieved, as discussed below.  

European Regulators Group 

As part of the cooperation between the Commission and the NRAs, the Commission established the 
European Regulators Group (ERG) in 2002 to "advise and assist the Commission in consolidating the 
internal market for electronic communications … in such a way as to contribute to the development of 
the  internal  market  and  to  the  consistent  application  in  all  Member  States  of  the  regulatory 
framework"157. 

The  ERG  brings 
regulating 
the  heads  of  national  authorities 
e-communications  markets158.  It  has  adopted  “common  positions”  to  guide  national  authorities  on 
regulatory implementation159.  

responsible 

together 

for 

7.1.2. 

Inconsistency in remedies imposed by NRAs 

The Commission’s oversight of market review procedures has helped to strengthen the single 
market in electronic communications, particularly in the areas of market definition and market 

157 

158 
159 

Commission Decision 2002/627/EC of 29 July 2002 as amended. Prior to the creation of the ERG, an 
informal  forum,  the  Independent  Regulators  Group  (IRG)  was  set  up  in  1997.  It  has  coordinated 
regulatory practice among its member countries on voluntary basis by setting common rules, which its 
members pledge to observe to the greatest possible extent in their decisions. 
For further information, see ERG's web-site: http://erg.eu.int/. 
See  for  example,  "Revised  ERG  Common  Position  on  the  approach  to  Appropriate  remedies  in  the 
ECNS regulatory framework", May 2006: 
http://erg.eu.int/doc/meeting/erg_06_33_remedies_common_position_june_06.pdf. 

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analysis where a significant degree of consistency has been achieved160. Regulatory measures 
(i.e.  remedies)  imposed  on  operators  with  significant  market  power  (SMP)  are  decided  by 
NRAs who can choose from a list of remedies defined in the Regulatory Framework. The key 
question  is  whether  an  optimum  degree  of  regulatory  consistency  has  been  achieved  by  the 
current institutional model.  

As  reported  already  in  the  first  impact  assessment,  market  players  particularly  continue  to 
complain about regulatory inconsistency, i.e. that there are differences in approach of national 
regulatory  authorities  in  different  countries,  and  point  to  the  increased  cost  for  business  of 
handling 27 different regulatory approaches.  

A  number  of  inconsistencies  have  emerged  in  the  remedies  imposed  in  a  given  market 
situation  by  different  NRAs161.  For  example,  accounting  separation  has  been  implemented 
effectively  in  only  a  few  countries;  naked  bitstream  and  wholesale  ethernet  services  are 
available in less than ten countries; and non-discrimination remains ineffectively enforced. In 
particular,  there  are  considerable  variations  between  Member  States  in  applying  certain 
regulatory obligations such as scope of access obligations and price control.  

The  second  Commission  Communication  on  market  reviews  under  the  EU  Regulatory 
Framework and the accompanying Staff Working Document162 provide concrete examples of 
inconsistent  application  of  remedies.  The  average  mobile  termination  rates  (MTR)  for 
example  vary  considerably  across  Member  States.  While  part  of  this  variation  can  be 
explained by different underlying costs of operators in different countries, the rest is due to 
different price setting methodologies used by the NRAs, different timeframes for reducing the 
MTRs,  or  the  application  of  asymmetrical  MTRs  whereby  some  NRAs  authorise  higher 
termination rates for smaller operators. Similar differences exist for prices in other regulated 
markets,  such  as  the  monthly  rental  for  leased  lines,  interconnection  charges  or  costs  of 
unbundled local loops. Prices in the cheapest countries can be up to 5 times lower than those 
in the most expensive countries.  

Consistency in regulation at the wholesale level is particularly important as it provides input 
to  retail  services  for  customers.  Availability  of  various  wholesale  access  products  on 
reasonable terms across the EU provides a possibility for operators to offer similar services to 
their customers in different Member States. For example, not all Member States obliged the 
incumbent to make available bitstream access which enables alternative operators to provide 
broadband  to  end  customers  without  the  obligation  to  rent  a  telephone  line  from  the 
incumbent.  

The ability to access consistent EU-wide wholesale offers is becoming increasingly important 
with  the  shift  to  internet-based  services  (such  as  VOIP,  IPTV  or  Web  2.0  services  –  see 
section  7.1.3),  which  are  inherently  spatially  unconstrained,  not  to  mention  the  need  for 
competitive  wholesale  offers  to  support  the  growth  in  EU-wide  mobile  data  services  which 

160 

161 

162 

See e.g. the 2nd Commission Communication on market reviews under the EU Regulatory Framework, 
2007 (to be adopted). 
See the 12th Implementation Report and the 2nd Commission Communication on market reviews under 
the  EU  Regulatory  Framework  –  Consolidating  the  internal  market  for  electronic  communications, 
COM(2007) 
at: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/article_7/index_en
.htm 
Idem. 

available 

401, 

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rely on easy interconnection with trans-European backbone networks. Achieving this type of 
market  opening  is  fundamental  to  achieving  the  scale  economies  that  the  internal  market 
offers,  so  that  Europe  can  lead  in  the  convergence  of  network  services  and  the  emergence 
content-rich business and consumer offers.  

Services  of  cross-border  nature  or  potential  would  also  benefit  from  a  more  consistent 
regulatory  approach.  There  are  very  different  operating  conditions  in  different  countries, 
which have significant implications for the internal market. In particular, the current situation 
in  which  similar  situations  are  treated  in  distinctly  different  manners  by  NRAs  -  and 
consequently undertakings are subject to different obligations - is incompatible within a single 
market  since  it  creates  uneven  access  conditions  and  indirectly  distorts  the  competitive 
environment.  

Given the fact that already today market players generate around one third of their revenues in 
Member  States  other  than  their  own163,  further  cross-border  growth  would  be  enhanced  if 
greater  consistency  were  achieved,  to  the  benefit  of  business  and  consumers.  International 
voice roaming is now subject to a specific harmonised regulation at the EU level164, due to the 
difficulties of regulating this complex market encountered by individual NRAs. 

Inconsistencies  may  also  arise  from  application  of  Art.  5  which  empowers  regulators  to 
impose remedies, under certain conditions, on undertakings without Significant Market Power 
(SMP)  in  order  to  ensure  adequate  access  and  interconnection,  and  the  interoperability  of 
services. This should be seen as an exception to the normal approach whereby operators are 
not subject to ex ante obligations unless there is a lack of effective competition in the relevant 
market  and  they  are  found  to  have  SMP  in  such  a  market.  This  provision  may  give  rise  to 
additional inconsistencies in the application of the framework, if no co-ordination mechanism 
is put in place.  

The  12th  Implementation  report  notes  concerns  remain  regarding  the  effectiveness  of  some 
NRAs, which also depends on the resources they can call on and their ability to enforce their 
own decisions. The report also points out that independence of NRAs is still an issue in some 
Member  States:  …“the  extent  of  political  influence  over  day-to-day  regulatory  decisions  in 
some Member States is an issue calling for further examination”165. 

Inconsistencies in the implementation of the regulatory framework create uneven conditions 
for service providers, particularly those who operate in different Member States (see below) 
but  ultimately  also  to  European  consumers.  Differences  in  regulatory  approach  result  in 
different levels of availability or pricing of services in different Member States.  

Stakeholders affected by the lack of harmonised conditions 

Service providers active in different Member States and those providing services with cross-
border or pan-European potential are the most affected by the lack of harmonised operating 
conditions. 

163 
164 

165 

See the 12th Implementation Report. 
See Impact Assessment of the Roaming Regulation: 
http://ec.europa.eu/information_society/activities/roaming/docs/assessment_en.pdf. 
See the 12th implementation report 2006, p. 14. 

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Regulatory  consistency  across  the  EU  is  particularly  important  for  providers  of  services  to 
international  business  users.  International  business  customers  expect  a  similar  level  and 
quality  of  services  across  national  borders.  Although  these  service  providers  are  limited  in 
number,  the  value  of  voice  and  data  services  they  provide  to  business  customers  is  already 
very significant in global terms and growing.  

The lack of a coherent regulatory approach affects new entrants in particular, but increasingly 
fixed incumbents are investing outside their "home" territories where they face the challenges 
of being 'new entrants'.  

A  report  sponsored  by  BT  on  the  provision  of  electronic  communications  services  to 
international  business  customers  provides  numerous  case  studies  of  businesses  in  different 
sectors and concludes that ubiquitous connectivity is essential for businesses and for Europe’s 
competitiveness166.  Businesses  are  dependent  on  availability  of  mutually  compatible 
telecommunications  inputs  and  find  it  difficult  to  cope  with  regulatory  differences  across 
Member  States.  Several  interviewed  companies  point  out  that  access  products  are  more 
consistent in the US than in Europe. A wide variety of implementation of access regulation 
reduces  the  ability  to  implement  seamless  pan-European  ICT  systems.  It  also  restricts  the 
ability of SMEs to benefit from these systems.  

For example, respondents from the oil industry suggest that “fragmentation of regulation and 
service  providers  does  not  allow  the  oil  industry  to  operate  at  the  same  per  unit  ICT 
infrastructure  costs  as  in  the  US,  and  within  a  few  years  will  compare  unfavourably  with 
China, Russia and India”167. This will hamper the EU's competitiveness. 

7.1.3.  Barriers  to  provision  of  services  with  pan-European  potential,  particularly  those 

needing numbers and/or frequencies 

The  importance  of  a  coordinated  European  approach  to  enhance  EU  competitiveness  and 
scale  economies  for  these  services  for  services  with  a  pan  European  potential  or  with  a 
cross-border dimension was highlighted in the ERG's response to the letter of Commissioner 
Reding168:  

"We  anticipate  an  increase  in  services  with  a  pan-European  potential  (which  can  in 
principle be provided remotely to the customer  from any physical location, such as VoIP), 
whose  full  potential  cannot  be  realised  without  a  common  regulatory  approach  across 
Europe. We also anticipate an increase in services with a significant cross-border dimension 
(such  as  international  roaming),  where  a  coordinated  European  approach  is  required  to 
overcome  differentiated  incentives  across  Member  States  resulting  from  regulatory 
differences. Indeed, regulatory coordination will be critical to ensuring that the scale of the 
European  market  can  be  fully  exploited  by  European  businesses,  enabling  Europe  to 
compete effectively in the global economy." 

166 

167 

168 

The  Economic  Benefits  from  Providing  Businesses  with  Competitive  Electronic  Communications  (the 
document  comprises  a  number  of  reports  written  by  several  authors),  5  June  2007,  available  at: 
http://www.btplc.com/Thegroup/Regulatoryinformation/Consultativeresponses/BTdiscussionpapers/Ele
ctronic/index.htm 
The  Economic  Benefits  from  Providing  Businesses  with  Competitive  Electronic  Communications 
Services, BT Global Services, EVUA & INTUG, June 2007. 
ERG response from the 27th February 2007: ERG advice in the context of the Review of the Regulatory 
Framework for Electronic Communications Networks and Services. 

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Under  the  current  framework,  authorisation  for  these  services  is  complex  and  based 
essentially  on  national  procedures.  Member  States  are  responsible  for  authorisation  of 
e-communications  networks  and  services,  and  the  conditions  that  apply  to  undertakings  – 
including  the  rights  of  use  for  numbers  and  radio  frequencies  –  vary  between  the  Member 
States.  Examples  of  such  services  today  are  mobile  satellite  services,  or  mobile  phones  on 
board  the  aircraft,  in  both  cases  crucially  dependent  on  harmonised  allocation  of  scarce 
resources such as radio spectrum. 

The  current  fragmented  approach  exerts  a  particularly  heavy  cost  on  innovation  and 
development in the area of allocating spectrum rights. The regulatory framework does require 
Member States to use general authorisations where possible, however the current practice in 
many Member States is still predominantly based on individual rights of use or the attachment 
of  conditions  to  general  authorisations,  accompanied  by  administrative  burdens  and  fees 
which  differ  widely  between  States.  Divergent  and  inconsistent  administrative  practices 
undermine or reduce legal certainty and raise the cost of doing business across the EU. 

In  concrete  terms,  there  are  different  ways  of  obtaining  licences  for  operating  services  with 
pan-European  potential  under  the  current  regulatory  framework,  depending  on  the  type  of 
service.  For  some  services,  such  as  mobile  satellite,  the  Commission  has  already  issued  a 
decision  designating  certain  frequencies  for  deployment  of  these  services,  which  facilitates 
the  process  of  applying  to  national  administrations.  Nevertheless,  even  in  this  case  the 
selection  and  authorisation  is  slow,  the  process  which  concerns  to  small  segments  of  the 
2GHz radio bands, was launched in 2005 is not expected to be completed before mid-2008. 

In  other  cases,  the  harmonisation  of  frequencies  (or  numbers)  does  not  exist  at  all  and 
operators  must  apply  to  each  of  the  27  national  administrations  separately  for  a  licence  in 
non-harmonised  spectrum  bands  (or  number  ranges),  which  is  even  more  burdensome.  It  is 
important to note that in both cases it is the national regulators who set the terms of award and 
conditions of use – these still vary from country to country. 

If frequencies are not harmonised for a particular type of services, it could be very difficult for 
an  operator  to  obtain  the  desired  frequency  in  all  Member  States  to  be  able  to  launch  its 
service. For example, one Member State launches auctioning for a certain frequency band for 
which  terrestrial  and  satellite  operators  are  competing.  Awarding  the  frequency  band  to  the 
terrestrial  operator  seeking  to  launch  a  purely  national  service  actually  means  that  the 
competing satellite offer’s chances to provide an international service across the continent are 
hampered169.  It  is  obvious  that  for  services  with  pan-European  potential  or  significant 
cross-border dimension, the risk of market fragmentation is very real and significant in terms 
of lost market opportunities, barriers to entry and competitive conditions.  

Voice  over  IP  is  a  service  with  considerable  market  potential,  and  a  direct  competitor  of 
traditional fixed and mobile services170. The 2006 ERG document171 explains the significant 
number  of  issues  where  regulatory  approach  to  VoIP  differs  across  the  EU.  Apart  from  the 
differences in market definition, caller location and other issues which are partly discussed in 
other parts of this Impact Assessment (Chapter 8), the lack of common numbering policies in 
Member  States  is  a  problem  that  creates  a  significant  barrier  to  deployment  of  VoIP  on  a 

169 
170 
171 

See more in the report The satellite industry: Growth paths for the medium term, IDATE, 2006. 
VoIP is discussed in the box under Chapter 4.2. 
See the ERG Report on VoIP and Consumer Issues: 
http://www.erg.eu.int/doc/publications/erg_06_39_report_voip_cons_aspects.pdf 

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pan-European  basis.  VoIP  is  a  typical  example  of  a  service  which  can  be  provided  to  a 
customer  remotely  from  any  physical  location  and  differences  in  national  procedures  for 
obtaining numbers mean in practical terms significant administrative burdens and time delays 
for operators.  

Moreover  the  absence  of  a  mechanism  for  guaranteeing  pan-European  wholesale  offers  for 
IP-based  services,  of  which  VOIP  is  a  forerunner,  can  be  expected  to  become  a  significant 
barrier to the European information economy as the switchover to full IP-based services takes 
shape.  

These  limitations  are  likely  to  create  a  significant  barrier  to  deployment  of  existing 
cross-border  services  and  hinder  the  development  of  pan-European  or  cross-border  services 
that may emerge in the next five to ten years172.  

7.1.4.  Diverging approaches in National appeal procedures 

The lack of consistency in the way that NRAs use the discretion available to them under the 
framework  is  compounded  by  delays  and  diverging  approaches  in  the  national  treatment  of 
appeals against NRA decisions. 

The  Framework  Directive  requires  that  an  effective  mechanism  be  available  for  appeals 
against  the  national  regulatory  authorities’  decisions.  Some  Member  States  have  specialised 
appeal bodies; others use national courts. The main concerns voiced by different stakeholder 
groups relate to:  

– 

– 

– 

length of the appeal procedure; 

legal standards for suspension of NRAs Decisions; and 

standard of review. 

The  length  of  appeal  procedures  is  of  particular  concern  for  alternative  operators  and  for 
NRAs.  Long  appeal  procedures  do  not  facilitate  effective  decision-making  and  do  not 
promote legal certainty. Proceedings in countries such as Italy or Portugal can last from four 
to  six  years.  In  Greece,  the  highest  administrative  court  has  not  yet  issued  any  decision, 
despite the fact that some cases have been pending since 2001173.  

In addition, in some jurisdictions (Belgium, Cyprus, Hungary, the Netherlands, Slovakia and 
Sweden), market review decisions are suspended systematically174, in spite of the wording of 
the Framework Directive that the decision of the NRA shall stand during the appeal unless the 
appeal  body  decides  otherwise.  In  other  Member  States,  the  legal  standards  that  need  to  be 
satisfied before an order with suspensory effect is granted are very high. For market players 
these problems mean that uncertainty over what are the applicable regulatory conditions in the 
market can persist until the judicial process is completed. This, in its turn, clearly dampens the 
drive  for  new  investments.  The  Commission  has  already  initiated  infringement  proceedings 

172 

173 
174 

As indicated by the study Preparing the next steps of eCommunications - a contribution to the Review 
of the eCommunications regulatory framework, Hogan & Hartson LLP and Analysys Consulting, 2006 
(section 8.2.5, p. 226), pan-European authorisations for the services provided by satellite space stations 
or for ground base terminals could produce substantial benefit to the satellite sector and its consumers, 
by avoiding the need to satisfy diverse licensing procedures within the footprint of the satellite. 
The 12th annual implementation report 2007. 
Idem. 

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against those Member States where suspension of NRAs decisions was practically automatic. 
However, no action has been taken to harmonise the conditions for suspension.  

According  to  Article  4  of  the  Framework  Directive,  “Member  States  shall  ensure  that  the 
merits of the case are duly taken into account”. However, the standards of review vary across 
the  EU.  Some  Member  States  maintain  traditional  standards  of  judicial  review  while  others 
have  introduced  full  review  on  the  merits.  Nevertheless,  many  operators  and  NRAs  share  a 
general concern that problems with the current appeal system may lead to a ‘litigation culture’ 
where significant resources are spent on litigation and regulatory decisions are paralysed to a 
certain extent. 

7.1.5. 

Summarising the problem: the internal market is not yet a reality in the sector  

Despite the general acknowledgement of the potential benefit of a single European market for 
e-communications,  problems  of  consistency,  efficiency  and  speed  of  regulation  threaten  to 
become a considerable obstacle for the development of a competitive internal market.  

As  the  e-communication  markets  are  becoming  more  competitive,  there  are  markets  where 
regulation  is  not  needed  any  more.  On  the  other  hand  there  is  a  need  to  concentrate  on  the 
bottlenecks  which  are  likely  to  persist  (e.g.  mobile  termination,  local  loop  unbundling, 
wholesale  broadband  access).  To  tackle  the  remaining  bottlenecks,  a  more  consistent 
European  approach  is  needed.  Operators  need  to  be  assured  that  their  investments  can  be 
planned in a regulatory environment that is stable, consistent and predictable throughout the 
EU’s  single  market.  Such  a  regime  allows  companies  to  operate  on  a  scale  which  only  a 
Europe-wide market can provide.  

7.2. 

The Objective 

The general objective is - in the light of the prevailing political and institutional context - to 
find  the  best  regulatory  model  delivering  a  single  market  in  e-communications  through 
consistent  and  effective  regulation  while  respecting  the  principles  of  subsidiarity  and 
proportionality.  

In order to fulfil the general objective, the following specific objectives have been identified: 

– 

– 

– 

to remove persisting inconsistencies in implementation of the regulatory framework 
in Member States, in particular with respect to application of regulatory remedies; 

to encourage development of cross-border services and services with pan-European 
potential: and 

to improve effectiveness of the national appeals procedures. 

7.3. 

Policy options 

The  debate  on  consolidation  of  the  single  market  is  necessarily  a  debate  on  the  degree  of 
harmonisation  the  EU  would  like  to  achieve.  The  options  outlined  below  represent  three 
possible alternatives. They focus on possible institutional arrangements, regulatory processes 
and division of competencies between national authorities and the EU. The substance of the 
policies  to  be  implemented  through  the  different  procedures  discussed  below  is  analysed  in 
the remaining four chapters.  

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7.3.1.  Option 1: Single European Regulatory Authority with discretionary decision-making 
powers in market reviews and in charge of managing EU aspects of spectrum  

The option of creating a single European Regulator was already debated in the context of the 
earlier regulatory reviews in the 1990s175 and in the June 2006 Impact Assessment176. Option 
1  considers  a  regulatory  Authority  with  centralised  decision-making  involving  discretionary 
powers  which  would  be  in  charge  of  both  the  market  review  process  and  spectrum 
management.  It  would  have  strong  implications  for  the  current  institutional  balance  in  the 
sense that it effectively transfers most regulatory powers to the centralised level. 

Option  1  envisages  centralised  decision-making  in  market  reviews  whereby  NRAs  would 
either cease to exist or would become national offices of the European Authority responsible 
for  data  collection  and  implementation  of  the  centralised  decisions.  This  would  effectively 
mean that the current procedures based on Article 7 would have to change. Markets would be 
analysed directly by the European Authority which would also impose regulatory remedies. 

As  decisions  concerning  market  reviews  would  be  taken  at  the  European  level,  appeals 
against these decisions would be dealt with by the European Court of Justice. 

Under this model, the European Authority would in principle also be in charge of spectrum 
management,  with  a  few  exceptions  such  as  spectrum  used  for  national  defence.  It  would 
pursue  a  policy  reform  towards  more  flexible  use  of  spectrum,  including  use  of  general 
authorisations,  introduction  of  market-based  approach  and  technology  and  service  neutrality 
(as outlined in Chapter 6). 

7.3.2.  Option  2:  European  Regulatory  Authority  without  discretionary  decision-making 
powers assisting in the implementation of reinforced Community procedures 

Option 2 aims at achieving more regulatory consistency and a more harmonised approach to 
the  market  review  procedures  and  to  services  with  pan-European  potential  in  particular, 
through  more  effective  coordination  mechanisms  at  the  EU  level  but  without  upsetting  the 
institutional balance. Some additional powers would be conferred on the Commission and an 
independent  European  Authority  would  be  created  to  provide  primarily  technical  expertise 
and advice in  market  review  procedures and in authorisation of  services with  pan-European 
potential.  The  European  Authority  would  bring  together  the  existing  national  regulatory 
authorities in its decision-making structure, thereby capitalising on the expert knowledge and 
regulatory  experience  of  the  NRAs.  At  the  same  time,  the  political  independence  of  NRAs 
would  be  strengthened.  The  Authority  would  have  the  status  of  an  independent  body,  and 
would subsume the role of the ERG, which is currently established an advisory group to the 
Commission.  

In concrete terms, this option would envisage:  

175 

176 

The  European  Parliament  favoured  the  creation  of  a  European  regulator  (Opinion  of  the  European 
Parliament  of 14  February 1996,  OJ  No  C  65, 4. 3.  1996, p. 69.),  and  therefore  the Article  22 of  the 
Interconnection  Directive  97/33/EC  (which  has  been  repealed  by  the  current  rules)  stated  that  "The 
Commission  shall  also  investigate…the  added  value  of  the  setting  up  of  a  European  Regulatory 
Authority to carry out those tasks which would prove to be better undertaken at Community level". 
The  following  variants  of  the  European  regulator  were  mentioned  in  the  IA:  a)  a  decision  central 
authority  replacing  the  NRAs;  b)  a  centrally-managed  but  geographically-dispersed  authority,  c)  a 
‘European Central Bank’ model and d) a European regulator that acted as an appeals body for decisions 
taken by national regulators, but without power to instruct an individual NRA in advance. 

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– 

– 

– 

– 

– 

Commission  oversight  of  remedies  and  advisory  role  of  the  European  Authority  in 
Article 7 procedures; 

improved procedures for analysis of trans-national markets with advisory role of the 
European Authority; 

stronger powers for the Commission to act when an NRA does not carry out a market 
analysis within a given time limit;  

involvement of the European Authority in new EU level procedures for authorisation 
and regulation of services with pan-European potential; and  

more consistency in the criteria that justify suspension of NRA decisions by national 
appeal bodies.  

Apart from these areas, the European Authority could play a role in co-ordinating policy on 
issues  such  as  transparency  for  consumers,  emergency  services,  eAccessibility,  privacy  and 
security,  etc,  as  well  as  in  advising  the  Commission  on  the  exercise  of  its  enhanced 
implementing powers177. 

Commission oversight of remedies and advisory role of the European Authority 

These  measures  aim  at  addressing  the  issues  of  regulatory  inconsistency  and  delays  in 
conducting market analyses as explained in Section 7.2.1.  

This option proposes strengthening of the Commission oversight of remedies, as a solution to 
the problem of regulatory inconsistency. The discretionary power of NRAs over remedies is 
an important one: NRAs can choose from a list of remedies defined in the Access directive 
and the potential impact of those remedies on market players concerned varies a great deal. 
As described in Section 7.1.2, the Commission may, under the current regulatory framework, 
require  the  notifying  NRA  to  withdraw  a  draft  regulatory  measure  concerning  market 
definition and/or designation of SMP. Under Option 2, the Commission would be empowered 
to require the notifying NRA to withdraw also the draft regulatory remedies and furthermore, 
to suggest which remedies should be applied instead. Market analysis and Article 7 procedure 
with Commission oversight of remedies would have to be undertaken also in the case when 
NRAs impose obligations on non-SMP undertakings, as described currently in Article 5(1) of 
the Access directive. In keeping with the principle of subsidiarity, the Commission would use 
its power whenever the remedies proposed by national regulators were not consistent and led 
to significant differences in regulatory approach of the Member States. In its assessment, the 
Commission  would  still  take  into  account  differing  circumstances  and  market  conditions  in 
Member  States.  In  order  to  tackle  the  problem  of  late  implementation  of  the  regulatory 
framework,  a  firm  time  limit  could  be  set  for  NRAs  to  conduct  their  market  analyses.  The 
Commission could have the power to conduct a market review in the event that an NRA did 
not commence it within a specified timeframe. 

The  newly  created  European  Authority  would  play  an  important  role  in  the  market  review 
procedures. It would provide technical expertise and advice to the Commission, in particular 
as regards the consistent application of regulatory remedies. The Commission would have to 
take the utmost account of the Authority’s advice before any withdrawal of draft remedies is 

177 

For more information on these issues, refer to Chapters 8 and 9. 

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required. The advisory role of the Authority will not replace the Commission’s role in cases 
where it carries out the market reviews, for which the Commission will be fully accountable. 
The  Authority  would  also  assist  the  Commission  with  identifying  trans-national  markets 
susceptible to regulation at the EU level, and would coordinate the analysis of trans-national 
markets  and  the  application  of  appropriate  remedies  by  NRAs.  As  markets  become 
competitive and less regulation is required, routine notifications to the Commission could be 
relaxed somewhat.  

Involvement  of  the  European  Authority  in  new  EU  level  procedures  for  authorisation  and 
regulation of services with pan-European potential using spectrum and/or numbers  

This option would establish improved EU level procedure for authorisation and regulation of 
services  with  pan-European  potential.  It  would  envisage  amendments  of  the  current 
provisions of the regulatory framework so as to allow coordination of the following aspects of 
service authorisation at EU level: 

•  qualifying  services  as  having  pan-European  potential  or  an  internal  market  dimension, 
which  would  be  a  pre-condition  for  using  the  EU  procedure  for  the  coordination  of 
authorisations; 

•  defining  authorisations  and  selection  methods  for  services  with  pan-European  potential; 

and 

•  defining  conditions  attached  to  the  rights  of  use  for  scarce  resources  (frequency  bands 
and/or  numbers)  where  appropriate  (e.g.,  maximum  duration  of  the  rights  of  use, 
technological  and  operational  conditions,  etc),  to  be  commonly  applied  by  all  Member 
States. 

In view of the difficulty of establishing rights of use of spectrum and numbers at the European 
level, the role of the European Authority would provide advice and co-ordinate the procedures 
related  to  identifying  services,  defining  common  authorisations  and  selection  methods  and 
defining  the  conditions  attached  to  the  rights  of  use.  Member  States  would  still  retain  the 
power to issue the rights of use for pan-European services under a harmonised procedure and 
harmonised set of conditions laid down in a Commission Decision based on comitology. 

If the Authority existed today, it would be dealing with services like mobile satellite services 
and  mobile  communications  on  board  aircraft.  By  2010  when  the  authority  could  become 
operational, there will be other - but similar - issues to be addressed178. The number of such 
services  is  relatively  limited  at  the  moment.  However,  based  on  the  recent  technological 
developments, it can be expected that the number of services with pan-European potential or 
cross-border characteristics will increase in the future. 

ENISA 

Under  Option  2,  considerations  should  be  also  given  to  the  potential  operational  and 
administrative  synergies  incorporating  the  existing  European  Network  and  Information 
Security Agency (ENISA) into a new European Authority.  

178 

In the future there could be other usages of spectrum that would justify a pan-European authorisation. 
See  Preparing  the  next  steps  of  eCommunications  -  a  contribution  to  the  Review  of  the 
eCommunications regulatory framework, Hogan & Hartson LLP and Analysys Consulting, 2006. 

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ENISA was established in 2004 for a period of five years, with the goal of ensuring a high and 
effective level of network and information security within the Community, in order to develop 
a  culture  of  network  and  information  security  for  the  benefit  of  the  citizens,  consumers, 
enterprises  and  public  sector  organisations  of  the  EU,  thus  contributing  to  the  smooth 
functioning  of  the  internal  market179.  Based  in  Heraklion,  Crete  (Greece),  ENISA  became 
operational in September 2004. Its activities consist of giving advice and recommendations, 
data analysis, as well as supporting awareness raising and cooperation by the EU bodies and 
Member States. Its budget for the year 2007 is € 8 million, having a staff of about 50 people.  

The Commission Communication of 1 June 2007 on the evaluation of ENISA, presented an 
appraisal  of  an  external  expert  report180  evaluating  the  performance  of  the  Agency  since  its 
establishment  and  the  recommendations  of  the  ENISA  Management  Board  regarding  the 
ENISA Regulation and launched a public consultation.  

The key findings of that expert report confirmed the validity of the policy behind the creation 
of ENISA and its original goals, and in particular its contribution to achieving a truly internal 
market in electronic communications. The report recommended extending ENISA's mandate 
beyond its current duration of 2009. At the same time, a number of problems were identified 
which  affect  the  ability  of  ENISA  to  fulfil  its  role,  including  issues  relating  to  its 
organisational  structure,  the  skills  mix  and  the  size  of  its  operational  staff,  and  logistical 
difficulties.  

In  particular,  the  external  evaluation  highlighted  that  ENISA  lacks  a  critical  mass  of 
operational staff to work effectively. The report concluded that:  

"The  Agency’s  size  and  resources  should  be  increased  to  reach  the  critical  mass 
necessary  to  act  effectively  and  allow  for  an  appropriate  mix  of  skills  and 
competences.  […]  Looking  at  the  range  of  EU  Agencies,  it  seems  that  a  minimum 
size for effective action in the European Union could be at about 100 staff, with the 
administrative and support personnel representing about 25-30% of the total"181. 

Therefore,  from  the  pure  cost-effectiveness  point  of  view,  Option  2  would  provide  the 
possibility  of  integrating  ENISA  into  the  new  European  Regulatory  Authority,  resulting  in 
cost savings from the synergy of the two. The combined entity would benefit from economies 
of scale for administrative tasks, so that the relative share of resources for these tasks would 
be  considerably  lower  than  in  ENISA's  current  organisational  set-up.  This  would  allow 
rebalancing of staff in favour of those working on network and information security issues. In 
this way ENISA could achieve the critical mass that it currently lacks. For further discussion 
on costs and benefits of a European Authority, see Annex III.  

More  strategically,  there  is  a  natural  synergy  between  the  ENISA  and  the  new  European 
Authority given that both fall under the provisions of the regulatory framework. In particular, 
Article  8  §  4(f)  of  the  Framework  Directive  sets  the  requirement  that  regulatory  authorities 

179 

180 

181 

Regulation  (EC)  No  460/2004  of  the  European  Parliament  and  of  the  Council  of  10  March  2004 
establishing the European Network and Information Security Agency. More information on ENISA can 
be found at the Agency's web-site: http://www.enisa.europa.eu/ 
Evaluation of the European Network and Information Security Agency, Final Report by the Experts 
Panel, IDC EMEA, 8.1.2007: 
http://ec.europa.eu/dgs/information_society/evaluation/studies/s2006_enisa/docs/final_report.pdf 
See the above-mentioned Report by IDC (Chapter 6.2, p. 74). 

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have the task of ensuring that the integrity and security of public communications networks 
are  maintained.  Second,  in  its  judgement  of  2  May  2006182,  the  European  Court  of  Justice 
highlighted the close connection between the work of ENISA and the regulatory framework 
stating,  inter  alia,  that:  "[…]  the  tasks  conferred  on  the  Agency  [under  Article  3  of  the 
regulation] are closely linked to the objectives pursued by the Framework Directive and the 
specific directives in the area of network and information security."  

These  synergies  can  be  exploited  through  a  sharing  of  operational  tasks  such  information 
gathering  and  dissemination,  cooperation  and  networking  not  to  mention  the  upgrading  of 
ENISA through its association with a larger regulatory entity. The new regulatory entity in a 
streamlined form could - together with a clearer identification of tasks - ensure that objectives 
and  tasks  associated  with  ENISA  can  be  fulfilled  in  a  more  efficient,  focused  and  cost 
effective manner.  

National appeals 

As  pointed  out  earlier  in  the  text,  the  length  and  differing  standards  of  national  appeal 
procedures are generally perceived as a problem which could negatively affect legal certainty 
and implementation of the regulatory framework. However, the powers of the Commission or 
any central body to influence the length and effectiveness of national appeal procedures are 
limited. An amendment of Article 4 of the Framework Directive would be proposed in order 
to  ensure  that  the  NRA  decisions  adopted  under  the  Framework  can  be  overturned  on  an 
interim basis only in very limited circumstances.  

Insofar as the regulation of trans-national markets and certain national markets is dealt with 
by the Commission acting on advice of the European Authority, its decisions would be subject 
to review by the European Courts in accordance with the EC Treaty.  

7.3.3.  Option 3 – Better co-ordination between the Member States  

This option would constitute a modified ‘status quo’ in the sense that no legislative changes to 
the regulatory framework would be required. In order to solve the problems outlined above, it 
would  rely  on  voluntary  co-ordination  without  any  transfer  of  power  to  a  central  authority. 
The  existing  institutional  mechanisms  would  be  preserved  and  the  co-ordinating  role  of  the 
current institutions including the ERG could be formalised and enhanced.  

In concrete terms, this option would envisage:  

•  Co-ordination  role  of  the  ERG  in  the  Article  7  procedures  and  co-ordination  of  NRA’s 

remedies policy through a Commission Recommendation on remedies;  

•  Co-ordinated introduction of services with pan-European potential; and  

•  Better co-ordination between national courts in national appeals matters. 

Co-ordination  role  of  the  ERG  in  the  Article  7  procedures,  guidance  to  NRAs  through  a 
Commission Recommendation on remedies 

182 

Case C-217/04, United Kingdom v Parliament and Council, available at: www.curia.europa.eu. In this 
judgement the ECJ confirmed that ENISA was correctly established on the basis of the single market 
clause in Article 95 of the EC Treaty.  

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In order to improve consistency in application of the regulatory framework across all Member 
states,  particularly  as  regards  the  application  of  remedies,  the  role  of  the  ERG  would  be 
enhanced  and  formalised.  The  ERG  could  play  a  more  formal  advisory  role  to  the 
Commission in the Article 7 procedures (especially in Phase II when the Commission issues 
so  called  “serious  doubts  letters”).  The  Commission  would  take  due  account  of  the  ERG’s 
position. In this respect, this option would propose a kind of self-regulatory framework among 
national regulators rather than an increased regulatory oversight of the Commission. The ERG 
has taken steps towards promoting a more co-ordinated approach to regulation183. 

Under  this  option,  the  Commission  would  seek  to  improve  regulatory  consistency  by 
providing  more  guidance  on  remedies,  including  through  a  recommendation  on  remedies 
based  on  Article  19  Framework  Directive.  The  aim  would  be  to  clarify  best  practice  in  this 
area  and  to  give  guidance  to  NRAs  on  how  best  to  shape  remedies.  This  would  improve 
national  regulation  and  facilitate  Article  7  procedures  without  introducing  Commission 
oversight  of  remedies  or  new  institutional  structures  and  is  likely  to  lead  to  more 
harmonisation:  pursuant  to  Article  19(1),  NRAs  will  have  to  give  reasons  why  they  do  not 
follow the recommendation if they wish to pursue a diverging approach.  

Apart from enhancing the ERG role in the market review procedures, this option would also 
imply further streamlining such as the planned reduction in the number of markets outlined in 
the Recommendation on relevant markets, relaxing requirements for compulsory notifications 
to  the  Commission  after  the  third  round  of  market  reviews,  setting  minimum  standards  for 
notifications,  etc.  These  streamlining  measures  were  proposed  already  in  the  Commission 
Communication  on  the  Review  in  June  2006  and  could  be  envisaged  also  in  Option  2.  The 
impact of these measures on administrative costs is analysed in the Annex II.  

Co-ordinated approach to services with pan-European potential  

The  current  regulatory  framework  makes  it  cumbersome  to  harmonise  authorisation  and 
selection procedures for services with pan-European potential and to define a common set of 
conditions  attached  to  the  rights  of  use.  Harmonised  selection  and  authorisation  of  a 
pan-European  services  is  possible  only  if  a  specific  Council and  Parliament  Decision  under 
Article 95 of the Treaty is adopted. This in practice means that it is necessary to first adopt a 
Commission  Decision  harmonising  a  specified  frequency  band  for  the  service  and  then 
proceed with a co-decision procedure to define common selection and authorisation methods 
and common conditions of use184. This option would leave this procedure unchanged. 

Better co-ordination between national courts in national appeals matters 

The  Commission  would  encourage  co-operation  between  national  courts,  provide  regular 
information  on  the  recent  developments  and  specificities  of  the  electronic  communications 
sector and foster exchange of good practice and information between national courts. It would 
also  encourage  national  courts  to  follow  a  common  approach  to  suspension  of  NRAs 

183 

184 

See the ERG Plenary Meeting conclusions of October 2006: 
http://erg.ec.europa.eu/doc/meeting/erg_06_52_erg18_conclusions.pdf 
This procedure is currently envisaged for the systems providing mobile satellite services. For more 
information, refer to: 
http://ec.europa.eu/information_society/policy/ecomm/current/radio_spectrum/by_topics/mss/index_en.
htm 

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decisions,  i.e.  the  legal  standards  to  be  satisfied  before  a  suspension  is  granted  should  be 
relatively high.  

7.4. 

Results of the public consultation 

In the public consultation, the lack of a true internal market was criticised both by the industry 
(UNICE,  now  BusinessEurope)  and  consumer  organisations  (such  as  BEUC).  Europe's 
potential in the ICT sector – which is crucial for growth and jobs in Europe – appears to be 
seriously undermined by these regulatory deficiencies of the internal market. 

In  general,  respondents  to  the  public  consultation,  from  industry  (UNICE)  to  consumer 
organisation (BEUC), from new market entrants to telecom incumbents with international and 
cross-border  business  and  Internet  Service  and  Voice  over  IP  providers,  argued  that  having 
different regulatory approaches in different countries adds substantially to the costs of firms 
operating across multiple countries.  

National  regulators  and  the  ERG,  generally  agree  that  a  more  harmonised  approach  to 
services  with  pan-European  potential  is  needed,  however  most  NRAs  are  opposed  to  the 
stronger Commission oversight of remedies.  

7.5. 

Comparison of options and impacts 

Option  1:  Single  European  Regulatory  Authority  with  discretionary  decision-making 
powers in market reviews and in charge of managing EU aspects of spectrum 

The most relevant arguments in favour of the single European regulator focus on the potential 
economic  benefits  of  the  single  market.  A  European  regulator  acting  outside  the  domestic 
politics of all Member States would remove national influences that colour many decisions of 
NRAs,  and  would  promote  consistent  regulation  across  the  EU.  It  represents  a  significant 
change in the institutional arrangements and would undoubtedly have a significant impact on 
the European electronic communications markets.  

international  competition  among  operators,  rather 

Centralised  regulation  may  contribute  to  encouraging  faster  deployment  of  services  with 
pan-European  potential  and 
than 
fragmented competition in local/national markets. Operators active in several Member States 
would have a one-stop regulator system instead of having to deal with each different national 
authority  and  differences 
their 
administrative burden and compliance costs. Mobile and wireless markets would also undergo 
a significant transformation towards a European spectrum market with a greater emphasis on 
international competition185. Nevertheless, it can be expected that regulatory consistency and 
market consolidation would be the key features of this model.  

implementation.  This  would  significantly 

lower 

in 

Concerning  the  disadvantages  of  this  regulatory  model,  the  key  constraints  are  based  on 
subsidiarity  and  legal  considerations.  A  European  regulator  as  described  above  would 
effectively  entail  transfer  of  powers  over  electronic  communications  regulation  to  a 
supra-national body. This body would regulate not only markets with significant cross-border 
dimension but also all  national  markets.  As long as electronic communications  markets and 
services  remain  predominantly  national,  the  scope  of  powers  of  the  European  Regulator  in 

185 

For example, the current mobile markets with 3-4 mobile operators per country could be transformed in 
a European mobile market with 7-10 big operators competing on a Europe-wide scale. 

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79 

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Option  1  would  raise  subsidiarity  issues.  The  problem  definition  of  this  Chapter  has 
demonstrated  that  a  number  of  issues  affecting  cross-border  services  are  not  satisfactorily 
regulated  by  Member  States.  However,  a  policy  response  consisting  of  transfer  of  all  the 
regulatory powers to an EU Authority would not be proportionate to achieve the objective of 
more  consistent  and  effective  regulation.  Some  stakeholders  fear  that  a  European  regulator 
would be too far from the markets and would not be as effective as a national level authority 
which  has  the  specialised  expertise  and  all  the  detailed  information  about  local  market 
developments186. 

From  the  legal  point  of  view,  creation  of  a  European  regulatory  authority  with  strong 
decision-making powers involving discretion would raise institutional concerns. 

In summary, while this option could have positive economic impacts and has the potential to 
deliver  a  single  market,  there  are  significant  subsidiarity  and  legal  constraints  which  render 
this option unrealistic. 

Option  2:  European  Regulatory  Authority  without  discretionary  decision-making 
powers assisting in the implementation of reinforced Community procedures  

Commission oversight of remedies and advisory role of the European Authority in Article 7 
procedures 

A  European  Authority  with  an  advisory  role  combined  with  the  Commission  oversight  of 
remedies  has  the  potential  to  deliver  an  efficient  outcome  in  the  sense  of  more  regulatory 
consistency and a level playing field for operators and service providers across the EU. The 
role  of  the  European  Authority  in  this  model  is  essential  as  it  would  provide  technical 
expertise and advice with respect to regulatory consistency before a Commission decision is 
reached. The Commission will take the utmost account of the opinion of the Authority, while 
the  discretionary  decision-making  power  will  remain  with  the  Commission.  The  impact  of 
more consistent application of remedies would be positive particularly for big operators and 
providers  of  services  in  multiple  jurisdictions  (including  specialised  SMEs).  They  would 
benefit  from  a  reduction  of  the  cost  of  doing  business  across  Europe  and  availability  of 
consistent wholesale products facilitating provision of services for business clients operating 
in  several  Member  States  and  for  emerging  IP-based  services.  The  threat  of  Commission's 
requirement to withdraw draft remedies could create incentives for the NRAs to choose more 
effective remedies and ultimately create a level playing field for operators with less divergent 
regulatory  environment  in  each  Member  State.  If  this  outcome  is  reached,  incentives  for 
operators to invest outside their domestic territories would be expected to increase.  

It  has  to  be  noted  that  this  measure  would  probably  lead  to  more  harmonisation  but  by  no 
means  to  full  harmonisation  of  regulatory  outcomes.  The  Commission  oversight  of  national 
regulation would be strengthened but no significant shift of regulatory balance would occur. 
This  however  might  change  in  the  future  if  more  markets  are  identified  as  trans-national 
markets and consequently analysed and regulated at the EU level with the advisory role of the 
European  Authority.  This  role  will  gain  in  importance  as  pan-European  services  such  as 
mobile data roaming or VoIP become more widespread. 

186 

See e.g. a stakeholder consultation carried out within the study Preparing the next steps in regulation of 
e-Communications,  Hogan&Hartson  LLP  and  Analysys  Consulting,  2006,  or  refer  to  responses  from 
the October 2006 public consultation: 
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/review_2/index_en.htm  

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terms  of  resources, 

the  additional  power  of 

In 
the  Commission  over  remedies 
(i.e. Commission power to require NRA to withdraw the draft remedy and to suggest which 
remedies  should  be  applied  instead)  would  require  more  time  and  resources  devoted  to  the 
analysis  of  remedies.  Independent  opinion/advice  of  the  European  Authority  prior  to  the 
Commission decision would also demand resources. It would be possible to party offset the 
resources  needed  for  a  more  detailed  analysis  of  remedies  against  gains  from  the  reduced 
number  of  markets  subject  to  market  reviews  and  a  general  streamlining  of  the  Article  7 
procedures187.  

Option 2 has budgetary implications as the European Authority would be financed from the 
Community  budget.  An  independent  cost-benefit  study  undertaken  to  examine  the  cost-
effectiveness of such an agency reported that, under a conservative scenario, the Authority has 
the  potential  of  bringing  economic  benefits  exceeding  its  budgetary  costs  by  a  factor  of 
around 10-30 times (i.e. € 250 – 800 million). The major source of benefit is the reduction in 
the regulatory risk, reducing the cost of capital for industry. Additional gains particularly in 
wireless  services  would  come  for  example  from  speeding  up  the  process  of  assigning 
spectrum  for  pan-European  services  where  one  year  saved  can  yield  benefits  of  several 
hundred  millions  of  euros.  Creating  a  pan-European  reference  point  for  information  on 
tradable user rights could save the satellite industry € 0.5 - 6 million per annum, and reduce 
the  regulatory  risks  of  R&D  projects  in  the  field  of  eCommunications,  which  must  achieve 
EU economies of scale to enter the market and which currently face considerable uncertainties 
in the availability of spectrum (see Annex III).  

Changes in the institutional set up should also feed through to benefit consumers. Impact on 
consumer  choice,  prices  and  availability  of  new  innovative  products  and  services  would 
benefit  from  more  rapid  and  effective  regulation  of  markets  –  in  particular  wholesale  –  in 
order  to  stimulate  competition.  This  has  been  the  main  tool  that  has  consistently  brought 
consumer  gains  in  terms  of  lower  prices  and  increased  choice  over  the  past  20  years  of 
liberalisation.  It  should  also  allow  some  catch-up  of  service  provision  in  Member  States 
where market opening has been consistently behind that of the leading countries. 

Emphasis  on  strengthening  the  internal  market  dimension  of  electronic  communications 
networks and services would also be expected to lead to consolidation through mergers and 
acquisitions.  The  rising  efficiency  of  the  resulting  larger  trans-European  operators  would, 
however, be to the detriment of some small operators whose activities are limited to national 
markets.  

Involvement  of  the  European  Authority  in  new  EU  level  procedures  for  authorisation  and 
regulation of services with pan-European potential  

Providers of services with pan-European potential would benefit most from a more centralised 
institutional  system,  in  particular  from  the  coordinated  regulation  and  authorisation  of 
services. The clear advantage of a common authorisation procedure assisted by the European 
Authority means direct savings of administrative costs, compliance costs and reduction in the 
overall regulatory burden.  

187 

Reduction  in  the  number  of  markets  subject  to  market  reviews  is  foreseen  in  the  reviewed 
Recommendation on relevant markets to be published together with the reviewed regulatory package. 

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81 

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Administrative  burdens  related  to  different  authorisation,  licensing  regimes  and  user 
conditions  in  Member  States  would  be  significantly  reduced  with  the  introduction  of  a 
common authorisation system with harmonised conditions. This approach could lead to faster 
deployment of existing services with pan-European potential, such as VoIP or mobile satellite 
services,  and  foster  investment  in  future  cross-border  services  by  reducing  the  uncertainty 
deriving from the application of diverging regulatory conditions. Another advantage related to 
the reduction of regulatory burdens is the speed and efficiency of the authorisation process. In 
fast-developing 
time-to-market  plays  a  crucial  role  for 
introduction of any new technology or service. Coordinating authorisations to operate services 
with pan-European potential across the EU would speed up the development of new services. 
This would go some way towards levelling the playing field for European business vis-à-vis 
the  US  where  the  problem  of  internal  market  fragmentation  and  differences  in  regulatory 
approaches does not exist.  

technological  environments, 

The  system  outlined  in  Option  2,  i.e.  co-ordinated  procedures  based  on  comitology  with 
advisory  powers  of  the  European  Authority,  does  not  imply  one  single  pan-European 
authorisation at the EU level, as the authorisation of services would remain at the MS level 
but using the same harmonised procedure. While a single pan-European authorisation issued 
by the European Authority would be economically the most efficient solution, there are legal 
concerns as to whether such authorisation can be issued. Indeed, it might be argued that such 
an  approach  falls  under  the  earlier  discussion  of  an  Authority  exercising  discretionary 
decision-making  powers  (see  above).  Co-ordination  through  comitology  combined  with 
advice from the European Authority would therefore be more legally secure.  

Possible risks and uncertainties of this Option relate also to the question which services would 
be  identified  as  services  with  pan-European  potential  and  be  subject  to  common 
authorisations  under  the  coordinated  system.  At  present,  there  are  few  examples  of  services 
with  truly  pan-European  footprint  as  most  electronic  communications  services  remain 
national.  However,  as  explained  above,  there  is  a  significant  potential  for  these  services  to 
develop in the future. A clear pre-requisite for this system to function properly is that Member 
States  should  agree  which  services  shall  be  qualified  as  having  pan-European  potential  or 
significant  cross-border  dimension.  There  is  a  risk  that  some  Member  States  will  not  be 
willing  to  give  up  their  discretionary  power  over  regulating  certain  services  at  the  national 
level.  Additionally,  the  procedure  whereby  Member  States  decide  –  through  a  comitology 
procedure  –  to  reserve  certain  spectrum  bands  or  number  ranges  for  cross-Community  use 
could result in some delays in practice, if there is not sufficient commitment and consensus 
among Member States.  

Social  benefits  stemming  from  a  harmonised  regulatory  environment  for  services  with 
pan-European  potential  are  based  on  the  assumption  that  more  and  more  services  will  have 
pan-European  potential  or  cross-border  characteristics  and  the  emergence  of  these  services 
will  benefit  from  simplified  and  harmonised  regulatory  procedures.  Social  impacts  are 
directly  linked  to  consumer  impacts:  with  more  competition  and  wider  presence  of  pan-
European  services,  consumers  gain  in  terms  of  choice  and  the  trickle  down  of  productivity 
gains from economies of scale and scope from operating at a pan-EU level. Lower barriers to 
entry and a lower regulatory burden would, in a competitive market, lead to lower prices for 
consumers and a positive economic and social impact in terms of increased availability and 
affordability of services. 

Option 3 – Better co-ordination between the Member States  

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Option  3  has  some  similarities  to  Option  2  but  relies  more  on  voluntary  co-operation  and 
co-ordination between Member States rather than on binding regulation regulatory measures 
at the EU level. The intended objectives, i.e. positive impacts resulting from more consistency 
and harmonised approach to regulation of certain services, remain the same. 

Co-ordinated approach to market reviews 

Again,  the  outcomes  of  this  approach  compared  to  Option  2  depend  on  the  effectiveness  of 
co-ordination among NRAs. If NRAs have the incentive to co-ordinate and take into account 
the  element  of  consistency  when  analysing  markets  and  drafting  remedies,  then  the  final 
outcome could be similar to Option 2. So far, there is no clear evidence that this has been the 
case. The current ERG serves as a useful meeting point for national regulators and a platform 
for  exchange  of  experiences.  However,  individual  NRAs  are  not  bound  to  follow  the  ERG 
common  line  in  their  market  reviews  and  their  first  priority  is  to  analyse  and  remedy  a 
particular  situation  in  their  Member  State,  rather  than  ensure  consistency  across  the  EU. 
Under current rules, there is no requirement for NRAs to be independent of government. 

Whereas the commitment of NRAs to more co-ordination in the application of remedies could 
improve the current situation, this would depend on there not being significant differences of 
opinion  within  the  ERG.  It  is  also  possible  that  the  Commission  could  in  some  cases  view 
consistency of remedies from a different perspective than the NRAs assembled in the ERG. A 
consensus position would have to be achieved before the Commission issued its comments on 
remedies. In any case, even if the Commission’s comments are taken into account, the NRA’s 
decision  can  still  be  overturned  in  a  national  appeal  procedure.  From  this  point  of  view,  it 
would be more difficult to guarantee the consistency of all NRA’s decisions over remedies, 
especially since the Commission comments do not have the legal status of a Decision. 

A  Commission  Recommendation  on  remedies  would  give  NRAs  ex-ante  guidance  on  the 
shape  of  appropriate  remedies.  An  NRA  that  did  not  follow  such  a  recommendation  would 
have to inform the Commission and give reasons for its position. 

Regulation of services with pan-European potential 

The  current  procedure  for  authorisation  of  services  with  pan-European  potential  would  not 
change.  Services  would  be  authorised  on  a  case  by  case  basis  whereby  a  co-ordinated 
procedure  will  be  possible  only  if  an  individual  Council  and  Parliament  decision  under 
Article 95  is  adopted.  With  a  growing  number  of  services  with  pan-European  potential  or 
cross-border  dimension,  the  length  and  complexity  of  such  a  procedure  could  become 
unsustainable.  Better  co-ordination  could  affect  the  speed  of  comitology  procedures  and 
Commission  decisions  but  would  have  probably  little  impact  on  the  more  time  consuming 
co-decision procedure in the Council and Parliament. Operators would either have to wait for 
a co-ordinated mechanism to be put in place or seek individual national authorisations in all 
Member States where they want to operate. This implies significant time delays and poses a 
risk of underinvestment in, and slow development of, such services. 

The  table  below  provides  a  summary  on  main  likely  impacts  and  risks  arising  from  policy 
Options  2  and  3  with  respect  to  the  different  economic  and  social  dimensions.  Impacts  of 
Option 2 are compared to the “no change” option 3, which provides a baseline scenario for the 
assessment.  The  signs  represent  a  scale  of  possible  impacts  vis-à-vis  the  “no  change 
scenario”: (cid:172) positive impact, O neutral impact, − negative impact.  

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Table 3. Summary on the main impacts and risks of the options  

IMPACTS 
AND RISKS  

Investment and 
innovation 

Competition 

Option 2 – European Authority, stronger 
Community powers 

Option 3 – Better co-ordination between 
Member States 

ECONOMIC  

(cid:172)/O  Facilitates  launching  of  cross  border  services 
and  services  with  pan-European  potential  →  more 
investment.  Concerning  approval  of  remedies,  more 
regulatory  consistency  should  facilitate  investment 
across national border.  

In  principle  Option  3  could  improve  consistency  in 
market reviews, but uncertainty as to whether voluntary 
co-ordination  will  lead  to  more  consistency.  Does  not 
facilitate  cross-border  investment  and  deployment  of 
new innovative cross-border services. 

(cid:172)/O  Level  playing 
for  operators  where 
field 
competition  can  develop.  Facilitates  cross-border 
competition  and  encourages  competition  from  new 
on 
cross-border 
services.  Outcome 
national 
implementation 
appeals and remedies).  

concerning 

(especially 

depends 

Internal market, 
regulatory 
consistency 

Improvements 

(cid:172)/− 
in  regulatory  consistency  of 
remedies, more efficient,  harmonised procedures and 
conditions  for  services  with  pan-European  potential, 
less differences in national appeals. Implies more co-
ordination  and  transfer  of  some  powers  to  the  EU 
level;  

EU 
competitiveness  

(cid:172)  Could  enhance  competitiveness  by  facilitating 
deployment of new cross-border services and creating 
favourable environment for investment.  

Economic 
operators' costs 
and benefits 

(cid:172)  Positive  impact  on  service  providers  operating  in 
several  MS,  or  those  offering  services  with  pan-
European  potential, 
regulatory 
environment, more legal certainty. 

less  divergent 

Administrative 
costs, 
simplification 

Consumer 
benefits 

(cid:172)/O  Overall  reduction  due  to  streamlining  measures, 
fewer markets in the Recommendation and a common 
authorisation  conditions 
for  services  with  pan-
European potential. More time and resources needed 
for  Commission  approval  of  remedies  and  for  setting 
up  the  European  authority,  but  strongly  positive  cost-
benefit  assessment.  Integrating  ENISA  to  the  new 
entity  would  provide  operational  efficiencies  and 
reduce overall admin costs 

Indirect 

impact  on  consumers. 

(cid:173)/O 
Increased 
availability  of  new  innovative  products  and  services 
across  the  EU,  positive  impact  on  consumer  choice. 
Better  and  cheaper  connectivity 
for  business 
customers across borders.  

Uncertainty  as  to  whether  voluntary  co-ordination  will 
lead  to  more  consistency.  Competition  would  continue 
to  develop  predominantly  in  national  markets,  limited 
cross-border  competition  and  difficulties  for  services 
with pan-European potential to compete across the EU. 

No  material  changes  to  institutional  balance.  Lower 
probability  of  achieving  regulatory  consistency;  lengthy 
for  authorisation  of 
and  cumbersome  procedures 
services with pan-European potential. 

fragmented 

regulatory  approach  and 
Risk  of 
cumbersome  procedures 
for  services  with  pan-
European  potential  put  Europe  in  a  disadvantaged 
position vis-à-vis third countries. A Recommendation on 
remedies  would  guide  NRAs  and  inform  them  of  best 
practice in the area 

Some  improvements  in  legal  certainty  and  the  overall 
regulatory  environment  for  operators  due  to  better  co-
ordination of market reviews. Providers of services with 
pan-European  potential  could  not  benefit  from  a  more 
consistent regulatory environment. 

Overall  reduction  due  to  streamlining  measures  and 
fewer  relevant  markets  in  the  Recommendation.  No 
major  simplification  for  providers  of  services  with  pan-
European potential 

Indirect impact on consumers. Outcome depends on the 
efficiency  of  voluntary  co-ordination.  Slow  up-take  of 
cross-border  services  and  services  with  pan-European 
potential.  

 SOCIAL 

Social and 
digital inclusion 

(cid:173)/O Impact will depend on accompanying measures, 
such as the upcoming review of the universal service 
concept. Positive impact of co-ordination on regulatory 
consistency  should  have  positive  effect  on  digital 
inclusion  across  the  EU.  Increased  effectiveness  of 
ENISA in the interests of citizens. 

the  upcoming  review  of 

Impact  will  depend  on  accompanying  measures,  such 
as 
the  universal  service 
concept.  Digital  divide  may  persist  in  some  countries  if 
voluntary co-ordination is not effective. 

Employment 
and labour 
market 

(cid:173)/O Difficult to determine. Stronger EU powers could 
lead  to  some  consolidation  of  the  market  but  positive 
spill-over  effects  on  other  sectors  can  be  expected 
due  to  innovation  and  deployment  of  cross-border 
services. 

No  significant  change  on  labour  markets,  positive  spill-
over effects rather limited.  

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7.6. 

Conclusion 

The key questions of this section are: how to achieve more regulatory consistency across the 
EU  and  whether  the  current  institutional  model  can  deliver  optimal  results  in  terms  of 
progress towards internal market in electronic communications. 

Three  main  problem  areas  or  barriers  were  identified.  NRAs  apply  different  regulatory 
measures in similar circumstances and the effectiveness of implementation is undermined by 
significant  delays  in  market  review  procedures.  Providers  of  pan-European  services  using 
spectrum  or  numbers  are  obliged  to  comply  with  27  different  selection  and  authorisation 
procedures and different operating conditions. Finally, the current system of national appeals 
can cause significant delays in implementation. 

The options in this section offer different institutional arrangements with different balances of 
power  between  national  authorities  and  the  EU  Authorities.  Option  1  –  creation  of  a  single 
European Regulatory Authority with decision-making discretionary powers – is an option that 
could deliver a single market in electronic communications but was rejected on the grounds of 
subsidiarity and legal constraints. 

With  regard  to  the  problem  of  inconsistency  in  remedies,  Option  2  provides  sufficient 
guarantee of regulatory consistency while preserving the decentralised system of regulation. It 
combines  stronger  Community  powers  with  an  advisory  role  of  a  European  Authority.  The 
co-ordination mechanism suggested in Option 3 could be effective only if all NRAs commit 
themselves to follow common guidelines and voluntarily agreed on pursuing the objective of 
more consistent application of remedies. This however has not been the case within the ERG 
to date, and there are insufficient guarantees that the voluntary co-ordination would work in 
practice.  Moreover,  the  current  system  of  Commission  approval  of  market  definitions  and 
SMP  assessment  has  shown  positive  results  and  could  be  effective  also  in  the  case  of 
remedies. 

Regarding  the  problem  of  existing  barriers  to  provision  of  services  with  pan-European 
potential, Option 2 would provide for a more efficient outcome than Option 3. In Option 2, 
the  European  Authority  would  be  involved  in  selection  and  authorisation  of  services  with 
pan-European  potential  and  in  harmonising  the  conditions  attached  to  the  rights  of  use  of 
frequencies/numbers. From the perspective of administrative and compliance costs, Option 2 
is clearly  the more advantageous  for service providers, as it establishes one single selection 
and  authorisation  procedure  for  services  with  pan-European  potential.  However,  legal 
uncertainties  related  to  transferring  the  right  to  issue  pan-European  authorisations  to  the 
European  Authority  lead  the  Commission  services  to  the  conclusion  that  a  co-ordinated 
approach with advisory role of the European Authority would represent the optimal solution. 
This would effectively mean one single selection procedure and harmonised conditions of use, 
based on Commission decisions using comitology, but with authorisations still being issued at 
national level . 

Network  and  information  security  is  seen  to  be  a  rising  threat  that  has  been  shown  by 
evaluation  and  public  consultation  to  require  greater  efficiency.  Thus,  under  Option  2,  the 
functions of the European Network and Information Security (ENISA) would be merged into 
the European Regulatory Authority. This upgrading of ENISA to become an integral part of 
the European Regulatory Authority would provide gains in terms of operational performance 
and administrative efficiency.  

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The issue of differences in national appeal procedures is difficult to tackle at the EU level, as 
it  touches  upon  Member  States  competencies  and  national  judicial  systems.  Strong 
harmonisation  measures  are  therefore  not  possible.  At  the  same  time,  this  issue  is  very 
important  because  problems  caused  by  delays  in  appeal  procedures  can  significantly  hinder 
effective implementation of the regulatory framework. Upholding NRAs measures until they 
are overturned by the courts (proposed in Option 2) would be the best way forward188. 

Finally,  an  independent  cost  benefit  analysis  found  that,  even  by  applying  conservative 
scenarios, the establishment of an Authority could generate net gains of 10 to 30 times of its 
costs  due  to  reduction  in  regulatory  risk,  speeding  up  procedures  and  search  costs.  It  is 
therefore an approach that would be cost-effective and fully justifiable from the EU budgetary 
perspective.  

IV 

CONNECTING WITH CITIZENS 

Introduction 

A central goal of the regulatory framework is to provide substantial consumer benefits, and to 
do  this  in  the  context  of  an  inclusive  Information  Society.  To  this  aim,  the  EU  rules  rely 
largely  on  enhanced  competition  –  as  described  in  Chapters  4  and  5  -  while  it  is  also 
recognised that competition alone may not always satisfy the needs of all citizens and protect 
consumer  rights.  The  competition-based  approach  of 
therefore 
complemented by specific provisions safeguarding universal service and users' rights as well 
as security and privacy in eCommunications. The horizontal provisions of the EU's consumer 
protection policy are equally applicable to this sector.  

the  framework 

is 

8. 

USERS' RIGHTS AND CONSUMER PROTECTION  

8.1. 

Identifying the problem 

Genuine competition combined with technological progress has delivered more choice, lower 
prices and innovation for consumers. At the same time, the bigger choice and complexity of 
offers are also bringing some difficulties for the users.  

There are four main areas where the review has identified a need to update and future-proof 
specific provisions and/or problems with the implementation of the current rules. These are:  

i) 

ii) 

iii) 

iv) 

188 

Transparency and publication of information for users; 

Users with disabilities; 

Emergency service (access to '112' and caller location); and 

Basic connectivity and quality of service ('Network neutrality and freedoms'). 

At  the  same  time,  the  Commission  would  continue  to  run  seminars  for  judges  involved  in  Article  7 
appeals cases. 

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The  individual  legislative  proposals  comprise  also  other  changes  with  less  anticipated 
impacts, such as clarification the rights of subscribers to access all non-geographic numbers 
(e.g. freephone, directory services, and individual end-users). 

The concept and general provision of universal service as such are not covered by this review. 
The results of the call for input on the review as well as the contributions received in response 
to  the  consultation  on  a  number  of  long-term  issues  put  forward  by  the  Commission  on  the 
review  of  the  scope  of  universal  service189,  acknowledged  the  need  for  a  fundamental 
reflection  on  current  universal  service  arrangements.  The  Commission  intends  to  publish  a 
Communication on universal service in 2008 to fulfil its duty to review the scope of universal 
service periodically, and to express the Commission's position on the future of the universal 
service as regards electronic communications in Europe. 

8.1.1.  Transparency and publication of information 

As  the  market  is  increasingly  providing  more  communications  products  and  services,  users 
are calling for more transparency to make informed choices. The widening range of possible 
customer  usage  patterns,  the  variations  in  price  levels  and  structures  and  the  number  of 
possible  discounts  and  bundling  schemes  available  on  the  market  represent  a  challenge  in 
providing price comparison services.  

The  latest  EU-wide  Eurobarometer  survey  found  that  on  average,  38%  of  the  mobile  users, 
34% of the fixed telephone users and 30% of the internet users in the EU25 found it difficult 
to compare the offers available. Consequently, consumers in countries with a high degree of 
competition find it most difficult to compare information across offers of multiple operators 
(53%-63%  of  the  users  find  it  "very  difficult"  or  "difficult"  to  compare  mobile  telephone 
offers  in  Belgium,  Denmark,  France,  Germany,  the  Netherlands  and  Sweden)190.  In 
economics, it is generally considered that information asymmetry (i.e. different parties in an 
economic  relationship  having  different  amounts  of  price  or  other  information)191  leads 
particular to market inefficiencies or failures.  

Two  main  problems  can  be  identified  in  relation  to  transparency  and  publication  of 
information.  Firstly,  callers  are  often  unable  to  find  out,  or  are  not  aware  of,  which  tariff 
applies to their services (for example, international calls or mobile calls to a number that is 
advertised as “freephone”). Secondly, making price comparisons is difficult for a significant 
number of consumers, in particular in cases of service bundling.  

Furthermore, the current text in the Universal Service Directive concerning transparency and 
publication of information refers only to information on the applicable tariffs and conditions 
of public telephone services, and not to all communications services (and operators), although 
consumers do not make or do not know such a distinction 

189 

190 

191 

regarding 

the  outcome  of 

See  the  responses  to  the  public  consultation  on  the  Communication  COM(2005)  203  and  the 
Communication 
the  Review  COM(2006)  163,  available  at: 
http://ec.europa.eu/information_society/policy/ecomm/library/index_en.htm 
July  2007,  available  at: 
Special  Eurobarometer  260  –  Services  of  General 
http://ec.europa.eu/consumers/cons_int/serv_gen/cons_satisf/eb260_report_en.pdf.  The  survey  found 
also that 34% of the respondents consider it difficult to compare banking offers. 
In his well-known analysis, Akerlof called this the market for “lemons”, demonstrating how asymmetric 
information can cause certain markets to become nonexistent or lead to lowest quality production. The 
Market  for ‘Lemons’: Quality  Uncertainty and  the  Market  Mechanism, George  A.  Akerlof,  Quarterly 
Journal of Economics 84 (1970), pp 488-500. 

Interest, 

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8.1.2.  Users with disabilities 

In  its  Communication  on  e-Accessibility  of  2005192,  the  Commission  highlighted  the 
existence  of  significant  barriers  to  achieve  electronic  accessibility  for  all  citizens.  In 
particular,  many  people  with  disabilities  –  who  constitute  about  15%  of  the  European 
population  -  encounter  barriers  when  using  ICT  products  and  services.  To  overcome  the 
problems and challenges, the Communication identified three approaches, one of which is the 
use of legal measures. While some measures to aid users with disabilities are clearly relevant 
to the regulatory framework, others are of a more horizontal nature193.  

The  aim  of  the  framework  is  to  guarantee  that  users  with  disabilities  have  access  to 
eCommunications  services  equivalent  to  those  enjoyed  by  other  end-users.  As  part  of  the 
provision on universal service, the framework includes special rules as for disabled users and 
people with special needs. Members States have a duty to take specific measures in order to 
guarantee access to and affordability of all publicly available telephone services194. Some of 
these  measures  could  include,  for  instance,  making  public  pay  telephones  accessible  to  the 
disabled,  providing  public  text  telephones  for  deaf  or  speech-impaired  people,  providing 
directory enquiry services (or an equivalent) free of charge for blind people, etc. 

In  this  context,  it  should  be  pointed  out  that  the  EU  Member  States  have  also  signed  the 
United Nations Convention on the Rights of Disabled People195, which elaborates in detail the 
rights  of  persons  with  disabilities  and  set  out  a  code  of  implementation.  Article  9  of  the 
Convention requires countries to identify and eliminate obstacles and barriers and ensure that 
persons  with  disabilities  can  access  their  environment,  transportation,  public  facilities  and 
services, and information and communications technologies. 

Member States have wide discretion with regard to the specific measures identified in the EU 
framework, and although the provisions are generally transposed, the experience shows that 
the  specific  rules  are  implemented  and  interpreted  in  different  ways  in  different  Member 
States196. As a result, there is a European patchwork of national measures for disabled users as 
has  particularly  highlighted  by  the  reports  of  the  INCOM  ("Inclusive  Communication") 
sub-group  of  the  Communications  Committee197,  which  has  investigated  and  analysed  these 
issues across the EU since 2003198. 

This  situation  does  not  correspond  to  the  needs  of  the  users  with  disabilities  in  the 
increasingly convergent environment. Instead, it leads to a lack of access for disabled users in 

192 

193 

194 

195 
196 
197 
198 

COM(2005) 425, available at: 
http://ec.europa.eu/information_society/activities/einclusion/policy/accessibility/com_ea_2005/index_e
n.htm 
E-Inclusion is also an important topic in the Seventh Framework Programme (FP7), which bundles all 
research-related  EU  initiatives.  On  the  development  in  the  area  of  e-Inclusion  in  general,  see: 
http://ec.europa.eu/information_society/einclusion 
Some of these measures could include, by way of example, making public pay telephones accessible to 
the disabled, providing public text telephones for deaf or speech-impaired people, providing directory 
enquiry services (or an equivalent) free of charge for blind people, etc. 
See: http://www.un.org/disabilities/convention/index.shtml. 
See especially the 11th and 12th Commission implementation reports on the regulatory package. 
INCOM is a sub-group of the "Communication Committee" (COCOM). 
See the latest, 2006 report by INCOM, available at: 
http://forum.europa.eu.int/Public/irc/infso/cocom1/library?l=/public_documents_2006/cocom06-
16_incom_1/_EN_1.0_&a=d. 

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some cases, and to fragmented markets for accessibility solutions in other cases, thereby also 
hindering the development of economies of scale necessary for the production of equipment 
for disabled users at an affordable price.  

Furthermore,  access  to  European  emergency  number  112  is  not  always  guaranteed  for  the 
disabled users, notably deaf persons, who have to deal with different emergency numbers (see 
also the section on emergency services below). 

8.1.3.  Emergency services: access to 112 and caller location  

Access to emergency services is extremely important for the safety of all citizens – whether 
users of telephone services or non-voice services such as text communication for hearing and 
speech  impaired  users  -  who  expect  to  be  able  to  initiate  a  request  for  help  in  case  of  an 
emergency  by  using  the  European  emergency  call  number  112  or  other  national  emergency 
numbers. 

Currently  the  framework  requires  that  all  end-users  of  publicly  available  telephone  services 
(PATS), including users of public pay telephones, are able to call the emergency services free 
of charge, by using 112. The Member States are obliged to ensure that "undertakings which 
operate public telephone networks" make caller location information available to authorities 
handling  emergencies  when  this  is  "technically  feasible"199.  Member  States  also  have  the 
duty, where appropriate, to take specific measures for disabled users in order to ensure access 
to emergency services.  

In 2006, the number 112 was operational in all 25 Member States, and users of both fixed and 
mobile networks everywhere within the EU were able benefit from this service.  

Emergency calls to 112 are transported over the network to a response unit known as a Public 
Safety Answering Point (PSAP), and a variety of technical requirements must be fulfilled in 
order  to  provide  full  access  to  emergency  service200.  While  several  Member  States  are 
currently  in  the  process  of  upgrading  their  emergency  response  systems,  implementation  of 
caller location information remains a problem in some Member States201.  

In  most  of  the  Member  States  location  data  is  currently  provided  only  on  request  of  the 
emergency service ("pull" method), instead of being automatically forwarded by the network 
to public safety answering points each time an emergency call is initiated ("push" method).  

Nonetheless,  the  main  problem  shared  across  the  EU  is  that  the  existing  mechanisms  to 
support  emergency  calls  that  have  evolved  within  the  PSTN  are  not  appropriate  to  handle 
IP-based  voice,  text  and  real-time  multimedia  communications.  In  particular,  nomadic  IP 

199 

200 

201 

According to information received from the Member States (through the Communications Committee), 
a  number  of  Member  States  are  currently  in  the  process  of  thoroughly  upgrading  their  emergency 
response  system.  These  upgrades  are  closely  related  to  the  integration,  either  physical  or  virtual,  of 
different  emergency  services  within  a  single  response  unit,  otherwise  known  as  Public  Safety 
Answering Points (PSAPs). 
These  technical  requirements  are  described  in  detail  in  a  draft  document  of  the  Internet  Engineering 
Task Force (IETF) at: http://www.ietf.org/internet-drafts/draft-ietf-ecrit-requirements-13.txt. 
12th  Implementation  Report  2006.  A  number  of  Member  States  are  currently  in  the  process  of 
thoroughly  upgrading  their  emergency  response  system.  These  upgrades  are  closely  related  to  the 
integration,  either  physical  or  virtual,  of  different  emergency  services  within  a  single  response  unit, 
PSAP. 

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terminals  make  it  more  difficult  to  know  the  location  of  the  caller.  This  information  is 
required:  (1)  to  route  the  emergency  call  to  the  appropriate  PSAP;  and  (2)  to  display  the 
location of the caller to help in dispatching emergency assistance to the right location. 

8.1.4.  Basic connectivity and quality of service ('network neutrality and freedoms') 

Issue in the USA 

The concepts of 'network neutrality' (or 'net neutrality') and 'net freedoms' are closely linked 
to the on-going debate on the telecommunications reform in the United States that concerns 
the "openness" of the internet. This debate has extended internationally, particularly due to the 
global nature of many US internet services.  

The  issue  of  network  neutrality  contains  many  complex  overlapping  topics  involving  many 
competing interests. Nevertheless, the underlying dilemma is that whereas the Internet is very 
efficient  for  quickly  routing  large  amounts  of  data,  it  was  not  designed  to  provide  the 
guaranteed  quality  of  service  or  security  that  many  applications  now  increasingly  require. 
Network providers have powerful tools that allow them to control, prioritise or block specific 
data  transmissions.  For  example,  traffic  prioritisation  can  be  used  to  improve  quality  of 
service on the network as well as potentially be employed in an anti-competitive manner to 
block or disadvantage competing services202.  

The US debate on 'network neutrality' concerns essentially the question whether the network 
should  be  non  discriminatory  or  "neutral"  to  the  content  flowing  through  it,  or  whether  a 
network  provider  could  offer  different  levels  of  quality-of-service  for  this  content.  For  the 
end-user  (who  has  purchased  broadband  access)  the  latter  would  mean  that  he  or  she  could 
experience  differing  response  times  in  interacting  with  various  content  providers,  some  of 
whom paid the carrier a "premium" and some who did not. Some US operators argue that they 
have  the  right  to  charge  for  prioritised  content,  and  in  doing  so,  would  be  able  to  build  out 
their networks to ensure prompt delivery of certain online services and content203.  

While  there  is  a  bulk  of  study  on  net  neutrality  in  the  US204,  only  one  instance  concerning 
discrimination  among  suppliers  of  content  has  been  publicly  cited.  In  2005,  a  regional 
telephone company (Madison River Communications) refused to carry internet phone traffic 
of  the  leading  US  VoIP  provider  (Vonage),  which  complained  to  the  FCC.  After  the  FCC's 
investigation  under  the  US  Communications  Act,  the  FCC  and  Madison  River  reached  a 

202 

203 

204 

For a general overview on this subject, see Internet Traffic Prioritisation: An Overview, OECD, Note 
by TIPS, 2007 (DSTI/ICCP/TISP(2006)): http://www.oecd.org/dataoecd/43/63/38405781.pdf. 
On  the  literature  on  regulatory  issues  related  to  net  neutrality,  see  e.g.  publications  by  the  AEI-
Brookings Joint Center for Regulatory Studies: 
http://www.aei.brookings.org/publications/index.php?menuid=3, including. 
See the footnotes below that provide some links to the literature with references for further reading. See 
also,  e.g.  Scenarios  for  the  Network  Neutrality  Arms,  William  Lehr,  Jon  M.  Peha,  Marvin  A.  Sirbu, 
Sharon  Gillett,  Proceedings  of  34th  Telecommunications  Policy  Research  Conference  (TPRC), 
September 2006:   
http://web.si.umich.edu/tprc/papers/2006/561/TPRC2006_Lehr%20Sirbu%20Peha%20Gillett%20Net%
20Neutrality%20Arms%20Race.pdf. 

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'consent  decree',  in  which  the  company  agreed  that  it  "shall  not  block  ports  used  for  VoIP 
applications or otherwise prevent customers from using VoIP applications"205. 

'Net  freedoms'  is  a  term  used  by  the  U.S.  Federal  Communications  Commission  (FCC)  to 
identify four principles "to encourage broadband deployment and preserve and promote the 
open  and  interconnected  nature  of  public  Internet."  These  freedoms  published  in  2005  are: 
1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers 
are  entitled  to  run  applications  and  services  of  their  choice,  subject  to  the  needs  of  law 
enforcement;  3)  consumers  are  entitled  to  connect  their  choice  of  legal  devices  that  do  not 
harm  the  network;  and  4)  consumers  are  entitled  to  competition  among  network  providers, 
application  and  service  providers,  and  content  providers  the  right  for  users  to  access  and 
distribute (lawful) content, to run applications and connect devices of their choice206. 

Relevance of the problem in the EU context 

In  the  context  of  the  EU  regulatory  framework  and  i2010  Initiative,  the  debate  on  net 
neutrality  and  freedoms  translates  into  the  general  concern  that  the  potential  of  the  Internet 
would  be  threatened  if  network  or  services  providers  and  not  users  were  to  decide  which 
content, services, and applications can respectively be accessed or distributed and run. 

In  the  US  discussion,  much  of  the  advocacy  to legislatively  mandated  network  neutrality  is 
based  on  the  assumption  that  differing  charges  to  suppliers  of  content  to  the  Internet  for 
correspondingly differing speeds of delivery are inherently discriminatory207. 

However,  product  differentiation  is  generally  considered  to  be  beneficial  for  the  market 
(particularly  in  industries  with  large  fixed  and  sunk  costs)  so  long  as  users  have  choice  to 
access the transmission capabilities and the services they want. Allowing broadband operators 
to  differentiate  their  products  may  make  market  entry  of  content  providers  more  likely, 
thereby leading to a less concentrated industry structure and more consumer choice208. 

Consequently,  the  current  EU  rules  allow  operators  to  offer  different  services  to  different 
customer groups (and price such  services  accordingly), but do not allow those who are in a 
dominant position to discriminate in an anti-competitive manner between customers in similar 
circumstances.  

205 

206 

207 

208 

Madison  River  also  agreed  "to  make  a  voluntary  payment  to  the  United  States  Treasury"  of  15.000 
dollars.  See  the  consent  decree  between  the  FCC  and  Madison  River  Communications,  FCC  05-543: 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-05-543A2.doc. 
See the FCC policy statement of 5 August 2005 at: 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-260435A1.pdf. 
There are a number of US studies that – based on the experience on telecoms regulation and economic 
analysis  -  warn  against  regulation  mandating  net  neutrality  as  it  would  be  very  likely  inefficient  and 
harmful  to  the  market  and  consumers.  See  e.g. Network Neutrality  and  Industry  Structure,  George S. 
Ford,  Thomas  M.  Koutsky,  Lawrence  J.  Spiwak,  Phoenix  Center  Policy  Paper  Number  24,  2006: 
http://www.phoenix-center.org/pcpp/PCPP24Final.pdf;,  Telecommunications, 
from 
Regulation  to  Antitrust,  Alfred  E.  Kahn,  AEI-Brookings  Related  Publication  06-21,  2006;  The 
Economics  of  Product-Line  Restrictions  With  an  Application  to  the  Network  Neutrality  Debate, 
Benjamin E. Hermalin, Michael Katz, AEI-Brookings Working Paper 07-02, 2007. The Net Neutrality 
Debate:  Twenty  Five  Years  after  United  States  v.  AT&T  and  120  Years  after  the  Act  to  Regulate 
Commerce, Bruce M. Owen, AEI-Brookings Working Paper 07-03, 2007, available at: http://www.aei-
brookings.org/publications/index.php?menuid=3. 
On the economic theory, see e.g. Theory of Industrial Organization, Jean Tirole, MIT Press, 1988 and 
The  Economic  Theory  of  Product  Differentiation,  John  Beath  and  Yannis  Katsoulacos,  Cambridge 
University Press, 2002. 

the  Transition 

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Where  there  is  genuine  competition  in  broadband  access  services,  the  EU  consumer  has  a 
choice  between  alternative  broadband  access  suppliers.  If  one  supplier  seeks  to  restrict  user 
rights, the affected consumer can in principle switch to an alternative broadband provider. 

In case a certain national broadband access market is not competitive (i.e. there would not be 
service-based  competition),  the  national  regulator  can  under  the  EU  framework  impose  ex 
ante access obligations on the dominant operator so that alternative market players are given a 
chance  to  provide  their  own  broadband  access  services209.  In  comparison,  in  the  US  (as 
discussed  in  Chapter  5),  the  consumer  does  not  always  have  this  choice  (or  there  is  only  a 
choice between the ‘duopoly’ of telecom and cable providers), and ex ante access obligations 
are not usually applied.  

From  the  point  of  this  review,  it  can  be  concluded  that  the  sector-specific  regulatory  issues 
raised  in  the  net  neutrality  debate  concern  essentially  barriers  for  competition  that  can  be 
effectively  addressed  by  the  NRAs  under  the  regulatory  framework  where  appropriate, 
allowing  pricing  flexibility,  and  fostering  more  efficient  use  of  spectrum  to  facilitate  entry 
into the broadband market (see Chapter 6). The competitive markets together with the current 
provisions  on  access  and  interconnection,  should  therefore  be  sufficient  to  protect  "net 
freedoms” and to offer a suitably open environment for both European consumers and service 
providers210.  This  could  be  further  enhanced  by  the  measures  on  efficient  use  of  spectrum 
(that  should  facilitate  easier  entry  into  the  broadband  market,  see  Chapter  5)  as  well  as  on 
functional separation as an ex ante remedy by the NRAs (see Chapter 4)211.  

However,  while  the  "net  freedoms"  are  already  embedded  in  the  design  of  the  framework, 
they are expressed as obligations on the undertakings and corresponding powers of the NRA, 
and not in relation to users' rights to ensure connectivity.  

As for "net neutrality", the problem also remains that the current regulatory framework does 
not provide NRAs with the means to intervene were the quality of service for transmission in 
an IP-based communications environment to be degraded to unacceptably low levels, thereby 
frustrating  the  delivery  of  services  from  third  parties212.  In  such  an  event,  end-users' 
connectivity  to  services  provided  on  the  internet  (TV,  telephony,  Internet,  etc.)  could  be  at 
risk. The impact of prioritisation or of systematic degradation of connectivity could be larger 

209 

210 

211 

212 

The Access Directive sets access and interconnection rights and obligations for the undertakings and the 
corresponding  powers  and  responsibilities  of  the  NRAs.  As  described  in  Chapter  4,  operators  with 
significant  market  power  (SMP)  are  obliged  to  unbundle  network  elements  and  provide  bit  stream 
access so that other suppliers can provide local (broadband) services. If needed, the NRAs can impose 
obligations  on  the  operators  with  SMP,  and  address  access  and  interconnection  issues  to  prevent  any 
blocking  of  information  society  services,  or  degradation  in  the  quality  of  transmission  of 
eCommunications services to third parties, and to impose appropriate interoperability. 
A  recent  OECD  study  notes  that  "Open  access  networks  that  separate  the  provision  of  physical 
infrastructure  from  service  delivery  could  significantly  reduce  anti-competitive  traffic  shaping 
incentives by allowing a variety of providers to offer video, voice and data services in the same market 
over  the  same  physical  infrastructure."  Internet  Traffic  Prioritisation:  An  Overview,  OECD,  Note  by 
TIPS, 2007 (DSTI/ICCP/TISP(2006)): http://www.oecd.org/dataoecd/43/63/38405781.pdf 
The above OECD study also notes that "The debate over traffic prioritisation should focus on whether 
competitive  market  forces  provide  sufficient  consumer  safeguards  on  network  operator  behaviour. 
There are several factors that will affect network operators’ incentives and behaviours. Market analysis 
should  examine  if  these  incentives  and  behaviours  are  likely  to  affect  consumers  adversely.  These 
factors  include  the  level  of  competition  in  the  broadband  access  market,  the  capabilities  of  traffic 
prioritisation technology and the range of service offerings from providers in the market". 
Currently this is only possible when this is done by an SMP operator subject to a non discrimination 
obligation. 

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on services needing real-time communications (e.g. IPTV, VoIP, in which latency is critical) 
and ultimately affect end-user choice. 

8.2. 

The Objective 

The general objective is to provide sufficient safeguards for users' rights, consumer protection 
and  public  interest  in  a  technologically  convergent  environment  in  line  with  the  i2010 
objectives of information society for all. 

In order to reach the general objective, the following specific objectives have been identified: 

– 

– 

– 

– 

Facilitate better information provisions so that consumers are able to make informed 
choices regarding providers and services of eCommunications; 

Remove  barriers  hindering  disabled  users  to  access  and  use  eCommunications 
services; 

Ensure that quality of emergency services can be maintained in all cases; and 

Ensure that users enjoy good quality of service. 

8.3. 

Policy options and assessment of impacts 

Three policy options to achieve the above objective can be identified 

8.3.1.  Option 1 – Encourage more industry self-regulation 

Generally,  self-regulation  is  defined  as  the  possibility  for  economic  operators,  the  social 
partners, non-governmental organisations or associations to adopt amongst themselves and for 
themselves  common  guidelines  at  European  level  (particularly  codes  of  practice  or  sectoral 
agreements)213.  

The  option  of  introducing  self-regulation  by  the  industry  in  the  area  of  user  rights  and 
consumer protection in eCommunications would mean less intrusive intervention than setting 
regulatory  obligations  at  the  EU  level.  It  would  be  the  responsibility  of  the  Commission  to 
scrutinise self-regulatory practices in order to verify that they comply with the provisions of 
the EC Treaty214.  

Assessment of impacts of option 1 

The  results  of  the  public  consultation  show  that  industry  is  generally  in  favour  of 
self-regulatory  approach.  On  the  other  hand,  consumer  groups  and  associations  of  disabled 
generally consider this approach as ineffective. 

213 
214 

EN 

See point 17 of the Interinstitutional Agreement on better lawmaking, OJ C 321, 31.12.2003, p. 1. 
Another  variation  of  less  intrusive  regulation  would  be  the  co-regulation  approach,  which  implies  a 
regulatory  framework 
the  deadlines  and  mechanisms  for 
implementation, the methods of monitoring the application of the legislation and any sanctions are set 
out. It would also determine to what extent defining and implementing the measures can be left to the 
concerned parties. 

the  overall  objectives, 

in  which 

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In the context of transparency and publication of information for users, the self-regulation 
option  would  mean  that  operators  would  agree  on  common  commitments  to  increase 
transparency and information for consumers215. 

Evidence  presented  above  and  responses  from  the  public  consultation  suggest  that 
transparency remains to be a problem and that not all operators wish to take any actions in this 
respect.  Operators  often  argue  that  mandatory  transparency  measures  can  affect  negatively 
their  ability  to  innovate  and  propose  innovative  pricing  schemes  to  consumers.  However, 
firms generally do not have sufficient economic incentives to compare their prices with those 
of  their  competitors  or  inform  customers  beforehand  about  the  cost  of  phone  calls.  For  this 
reason, voluntary self- and co-regulatory measures have been so far rather exceptional. 

It should be noted, however, that several Member States have begun taking a more proactive 
approach  to  tariff  transparency  through  web-based  price  comparisons  or  listings,  and  some 
NRAs have extended the scope of their internet based tariff comparison sites to cover fixed, 
mobile  and  broadband  services.  In  some  Member  States  these  public  services  are 
supplemented by market players' own transparency initiatives216. 

As for facilitating use and access of eCommunications by disabled users, this option would 
require  operators  to  agree  on  a  voluntary  basis  to  provide  concrete  solutions  to  the  specific 
problems of disabled users. 

In this context, a self-regulatory approach has already been proposed by the Commission in its 
Communication  on  eAccessibility  of  September  2005217,  which  provided  a  time  limited 
opportunity for non-legislative initiatives by promoting a consistent approach in the Member 
States  through  voluntary  actions  and  fostered  industry  self-regulation218.  However,  this  has 
not materialised in any significant scale since the publication of the Communication. Against 
this background, it is therefore very likely that self-regulation would fail again due to a lack of 
incentives  and  involvement  of  the  industry  (for  example  to  improve  access  to  112  for  the 
disabled).  

As  for  emergency  services  and  access  to  112,  some  stakeholders  favoured  self-  and 
co-regulatory approaches in the public consultation that could, for instance, include measure 
to inform consumers on the lack of availability of caller location information.  

It can be observed that in some Member States,  availability  of  caller location has improved 
considerably due to good cooperation between emergency authorities and operators219. 

215 

216 
217 

218 

219 

In  the  public  consultation,  some  contributions  from  the  industry  representatives  also  suggested  a  co-
regulatory approach, and France and Japan were cited as an example of how co-regulation can work in 
practice to improve transparency. 
See the 12th Implementation Report 2006. 
COM (2005) 425, see also the associated Impact Assessment, SEC (2005) 1095, which identifies co-
ordination and concerted effort of stakeholders as the preferred option to “fully explore the possibilities 
available in current legislation". 
The  Communication  suggests  to  first,  making  better  use  of  the  existing  measures  including  self-
regulation, after which the Commission is to evaluate the situation. If these measures are not effective, 
new legislation could be imposed after 2 years. 
The 12th Implementation Report 2006 gives the examples of Czech Republic and Finland. 

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8.3.2.  Option 2 – Update and strengthen the current provisions  

This options aims at updating and strengthening the provisions on users' rights and consumer 
protection  in  the  identified  four  main  areas.  To  this  end,  the  Commission  put  forward  the 
following  proposals  in  June  2006  (as  outlined  in  the  Review  Communication  and  Staff 
Working Document), in short: 

1) 

i) 

ii) 

iii) 

2) 

i) 

Improving the transparency and publication of information for end-users by:  

giving NRAs powers to require from operators better transparency of tariff and other 
information  (with  the  possibility  to  agree  technical  implementing  measures  at  EU 
level) to ensure that consumers are fully informed of the prices and conditions before 
they purchase the service; 

ensuring that third parties have the right to use without charge or hindrance publicly 
available tariffs published by undertakings providing e-communication services, for 
the purpose of selling or making available comparative price guides; and 

empowering  NRAs  to  make  price  guides  available  where  the  market  has  not 
provided them. 

Facilitating the use of and access to eCommunications by disabled consumers by: 

Introducing  a  Community  mechanism  to  address  eAccessibility  issues.  This  would 
mean  establishing  a  group  consisting  of  all  interested  parties  (such  as  the 
Commission,  Member  States,  industry  and  associations  of  disabled  users),  which 
would  provide  advice  to  the  Commission  on  matters  relating  to  access  and  use  of 
eCommunications services and terminal equipment by disabled users; subsequently, 
the Commission could take necessary technical implementing measures, following a 
public consultation; and 

ii) 

Strengthening  the  right  of  disabled  user'  right  to  access  emergency  services  via  the 
number ‘112’. 

3) 

Improving caller location obligations related to emergency services:  

Caller  location  information  should  be  provided  to  the  emergency  authorities  in  all 
cases and the cost of this transmission should be borne by the network operator. 

4) 

Ensuring that regulators can impose minimum quality of service requirements:  

The  NRAs  would  have  powers  to  prevent  degradation  of  quality  of  service  by 
allowing  them  to  set  minimum  quality  levels  for  network  transmission  services  for 
end-users,  with  the  Commission  having  powers  to  adopt  technical  harmonising 
measures. 

Assessment of impacts of Option 2 

Information  is  generally  considered  as  a  key  factor  for  consumer  choice  and  satisfaction. 
More available and transparent information on prices and tariffs and conditions of service 
provides for users to choose wisely among the diverse choice of communications services. In 

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particular, aged people who find it most difficult to compare the offers, would benefit from 
better transparency.  

Transparency of tariffs prices and conditions is likely to lead fairer competition and stimulate 
innovation and the development of services, applications and end-user devices from a variety 
of providers. NRAs might also want to publish price guides even if such guides are already 
available  on  the  market,  simply  because  the  commercially  provided  guides  might  lack 
credibility.  Transparency  would  also  force  operator  to  disclose  any  access  restrictions  that 
they  imposed;  this  will  bring  the  forces  to  competition  to  bear  on  any  restrictive  practices. 
Combined with this will be a general principle for NRAs to safeguard users’ ability to access 
legitimate content of their choice (‘net freedom’). 

Strengthening of provisions under this option in favour of disabled users, elderly and people 
with  special  social  needs  should  generally  ensure  that  this  significant  part  of  the  population 
would better benefit from using and accessing eCommunications services. This, in turn, is a 
key  factor  to  address  employability  or  social  participation  deficits  in  these  population 
segments. Increasing employment rates would facilitate the development of a virtuous circle 
towards autonomy and less reliance on social security.  

Setting  up  a  Community  mechanism  involving  all  stakeholders  should  foster  dialogue  and 
increase  the  transparency  and  efficiency  of  possible  accompanying  measures.  It  is  likely  to 
provide  a  more  flexible  mechanism  that  allows  regulation  to  be  adjusted  more  quickly  to 
market, social and technological developments, which should ensure that the views and needs 
of  disabled  are  better  taken  into  account,  leading  to  a  more  consistent  and  comprehensive 
response to their needs.  

Having  a  pan-European  scope  in  the  area  of  eAccessibility  is  likely  to  increase  the  scale 
advantages,  potentially  leading  to  reduced  cost  and  better  leveraging  of  investment. 
Moreover, new services, ease of use and simplification can also benefit mainstream users.  

This  option  would  also  imply  specific  measures  from  the  Member  States  to  ensure  that 
emergency services are accessible to disabled end-users, and that they can make use of special 
devices  (such  as  devices  for  hearing-impaired  users,  text  relay  services,  or  other  specific 
equipment)  enabling  them  to  make  an  emergency  call  to  112  number  (see  section  on 
emergency services below).  

For manufactures of goods and service providers, this option should also provide incentives to 
invest in new markets, including the growing and promising market of goods and services for 
the  elderly.  By  2020  25%  of  the  EU's  population  will  be  over  65.  However,  severe  vision, 
hearing  or  dexterity  problems  frustrate  many  older  peoples'  efforts  to  engage  in  the 
information society220. 

Having  clearly  defined  pan-European  requirements  will  reduce  the  compliance  cost  for 
operators and terminal equipment manufacturers in the long term. Nevertheless, for operators, 
the new requirements under this option would bring also some additional cost, e.g. to adapt 
services to improve eAccessibility.  

220 

EN 

See  Aging  well  in  the  Information  Society  -  An  i2010  Initiative  -  Action  Plan  on  Information  and 
Communication 
at: 
available 
Ageing, 
http://ec.europa.eu/information_society/activities/einclusion/policy/ageing/launch/index_en.htm 

Technologies 

COM(2007) 

332, 

and 

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As  for  emergency  services,  strengthening  the  requirement  to  provide  caller  location 
information  for  calls  made  to  112  -  irrespectively  of  the  technology  (fixed,  mobile  or 
IP-based)  -  will  ensure  that  the  facility  is  available  throughout  the  EU.  At  present  the 
provision  of  this  facility  is  subject  to  its  technical  feasibility.  However  the  Commission 
considers  that  it  is  technically  feasible  to  provide  this  facility  most  of  the  time  and  has 
launched  infringement  proceedings  against  Member  States  that  have  not  implemented  the 
facility. 

This  option  would  address  "network  neutrality"  and  basic  connectivity  by  establishing  a 
safety  net  for  quality  of  transmission:  in  case  the  elements  of  the  basic  connectivity  would 
become  seriously  under  threat,  the  NRAs  could  intervene  by  setting  common  minimum 
quality levels for network transmission services for end-users, based on standards agreed at 
EU  level.  This  would  guarantee  minimal  level  of  connectivity  and  greater  choice  for 
consumers  ensuring  the  delivery  of  third  party  services  at  suitably  high  quality  levels 
appropriate to their needs. Provisions in the area of ‘net freedoms’ would also be made more 
explicit. 

It  furthermore  appears  that  in  most  of  the  analysed  areas,  there  is  a  general  need  for  better 
coordination and exchange of information and dissemination of best practice at the EU level 
(between the Member States, the NRAs and the Commission). This holds particularly true for 
the fragmented approach concerning issues of disabled users and eAccessability. 

In  all  these  areas,  a  European  Authority  (as  discussed  in  Chapter  7  above)  could  play  an 
important  role,  by  providing  technical  advice  and  Opinions  to  the  Commission  prior  to  the 
adoption of any technical implementing measures. 

8.3.3.  Option 3 – No change to the regulatory framework 

The  current  provisions  provide  already  for  the  basic  level  of  users'  rights  and  consumer 
protection. The 'do nothing' option implies not taking legislative measure, but the NRAs could 
continue  to  take  actions  under  the  existing  legislation  to  address  (at  least  some  of)  the 
identified  problems.  The  EU’s  role  would  provide  guidance,  supported  potentially  by 
coordination by the ERG among the national authorities.  

Assessment of impacts of Option 3 

This  option  would  continue  to  rely  on  the  existing  provisions  in  the  current  regulatory 
framework  and  on  initiatives  carried  out  by  private  undertakings,  industry  associations  and 
organisations  representing  consumers  and  disabled.  There  would  be  differences  between 
Member States in interpretation of the rights of users. The question would remain whether the 
current provision can effectively provide sufficient consumer protection and adequate rights 
and  benefits  to  disabled  users  across  the  EU.  Non-transparent  tariffs  are  likely  to  reduce 
competition as consumers are less sensitive to prices and thus less likely to change providers. 
As  for  quality  of  service,  there  would  be  also  a  risk  of  blocking  or  deliberately  slowing 
internet traffic from third party service providers. This could hamper service provisions from 
innovative players and reduce consumer choice. 

In  particular  for  disabled  users,  this  option  would  mean  an  increasing  risk  that  issues 
concerning them and other people with special social needs would be left behind, even though 
new technologies have been developed which could facilitate their communications to the rest 
of society. The fragmented response to disabled needs would be likely to continue, leading to 

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an increase in proprietary national solutions. Manufactures and service providers would also 
have to deal with fragmented markets. On the other hand, for the operators this option would 
mean less uncertainty concerning possible future eAccessibility measures at the EU level. 

Under  this  option,  access  to  emergency  services  would  not  be  brought  in  line  with  new 
technological  solutions.  As  the  market  for  communications  services  is  very  competitive, 
providers  would  be  tempted  to  keep  their  costs  as  low  as  possible.  In  the  absence  of 
intervention,  network  providers  and  service  providers  are  unlikely  to  make  sufficient 
investments. In the absence of those investments, the number of people who can successfully 
place emergency calls, and who can be located swiftly in case of emergency, will go down, 
which will result in a decrease of quality of emergency service.  

8.4. 

Results of the public consultation 

Improving transparency and publication of information for users  

Some operators expressed the view that there is no case for additional harmonisation at EU 
level  since  tariffs  must  reflect  national  competitive  conditions.  New  entrants  generally 
regarded  that  a  co-regulation  solution  would  be  equally  effective.  It  was  noted  that  the 
proposed  measures  should  not  affect  undertakings'  ability  to  innovate,  including  pricing 
schemes.  ERG  and  consumers  associations  welcomed  the  proposal.  Several  Member  States 
supported the proposal while some were more critical, for example, regarding the imposition 
of mandatory solutions (such as price information appearing on terminals on a per-call basis) 
as the issue would be costly and complex to implement. 

Facilitating the use and access to eCommunications by disabled users 

Most stakeholders favoured the Commission's proposal to introduce a Community mechanism 
to  address  eAccessibility  issues.  While  some  service  operators  preferred  voluntary 
industry-led  and  self-regulatory  solutions,  others  did  not  object  to  the  proposal,  although 
pointed  out  that  the  needs  of  disabled  users  vary  greatly.  The  associations  of  equipment 
manufacturers,  consumers  and  disabled  associations  welcomed  both  the  Community 
mechanism  as  well  as  the  proposal  to  strengthen  access  to  112.  The  latter  called,  among 
others,  for  empowering  the  eAccessibility  group  to  make  swift  decisions  and  ensure  that 
action is taken on them. It was also pointed out that the split between the directives governing 
eCommunications and the RTTE directive (that governs the terminals) makes it more difficult 
to effectively address the issues of disabled stakeholders. 

As for the proposal to strengthen access of disabled users to 112, operators preferred to solve 
the issue via the Public Safety and Emergency Communications Forum, or to have a separate 
dedicated  number  for  text  telephones.  Several  Member  States  supported  the  Commission's 
proposal  (some  also  arguing,  for  example,  that  any  solution  should  insure  real-time 
transmission) while others had more mixed views (for example, in relation to question to the 
costs and who would bear them). One Member State also opposed the proposal. 

Improving caller location obligations related to emergency services 

Some incumbent operators argued that caller location information for emergency calls should 
be limited to a "pull" mode as this less costly solution is sufficient and proportional. Mobile 
operators objected the proposal to provide caller location information using the "push" mode 
(if  operators  are  required  to  meet  the  cost  of  migration)  and  considered  it  unjustified  and 

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disproportionate  as  it  requires  significant  data  traffic  thereby  causing  network  investments. 
They considered location info necessary only in a fraction of such calls, which could be easily 
obtained  from  the  mobile  operators  (pull  mode).  Also  a  network  dependent  VoIP  provider 
was critical on Commission's proposal. 

Consumer  organisations  and  ERG  supported  the  proposal,  and  the  latter  considered  that 
"push"  mode  should  be  used  (although  it  expressed  concerns  whether  the  cost  of  caller 
location information should be borne by the operators). New entrants considered that it would 
be premature to impose a "push" obligation, while the cost - as related to a social obligation - 
should  be  compensated  as  a  public  service  obligation.  Several  Member  States  expressed 
concerns  regarding  the  proposals'  impact  on  operators,  and  some  favoured  co-regulatory 
measures and alternative means (such as providing information for consumers on the lack of 
availability  of  Caller  Location  Information),  while  some  considered  that  in  certain  cases 
technical  difficulties  will  persist  (VoIP,  SIM-free  calls).  Member  States  had  different  views 
whether the costs should be borne by the industry or the state.  

Basic access and quality of service ('net neutrality and freedoms') 

In  the  public  consultation,  most  Member  States,  ISPs,  consumer  organisations  and  some 
software  companies  were  in  favour  of  the  proposed  change  to  set  quality  standards.  On  the 
other hand, most operators were against the proposal arguing, among others, that any quality 
of  service  should  be  regarded  as  a  result  of  market  competition,  or  that  the  proposal  would 
lead  to  an  increase  of  price  for  end-users  if  it  concerns  all  services  at  all  times.  The  ERG 
noted  that  there  is  some  uncertainty  about  whether  the  current  provisions  of  the  Access 
Directive are sufficient to deal with the blocking of information society services (which would 
be  outside  the  scope  of  the  framework).  Consumers  were  concerned  whether  the  process  of 
setting standards at EU level would involve a sufficient level of consumer representation. 

Only  a  small  number  of  stakeholders  commented  "net  freedoms"  arguing  that  it  is  not 
necessary  to  change  the  framework  in  this  respect.  Some  ISPs  urged  the  Commission  and 
national regulators to monitor the situation carefully and, if necessary, to review this stance at 
a  later  stage.  On  the  other  hand,  some  software  companies  wanted  to  see  e.g.  more  legal 
clarity to resolve connectivity issues especially for the benefit of end-users, setting regulatory 
objectives of universal “net freedom” and granting NRAs carefully defined powers. 

8.5. 

Comparison of options and impacts 

The  effectiveness  of  option  1  (encourage  industry  self-regulation)  depends  highly  on  the 
consensus  of  all  stakeholders  involved  (industry,  consumers  and  regulatory  authorities)  and 
especially  on  the  willingness  of  the  industry  to  commit  itself  to  concrete  solutions  and 
timetable,  preferably  at  the  EU  level.  However,  in  this  respect  there  are  big  differences 
between the 27 EU Member States. At the present time it would be not feasible to expect that 
a voluntary self-regulation would guarantee a coherent solution to safeguard users' rights and 
public interest across the Union. 

Option  2  (update  and  strengthen  the  current  provisions),  takes  into  account  technological 
advances  and  market  developments  in  relation  to  provisions  concerning  users'  rights  and 
consumer protection in the framework. It provides more legal certainty to consumers, so that 
consumer  issues  would  be  guaranteed  by  law  and  not  simply  enshrined  in  industry 
agreements.  The  public  consultation  revealed  a  need  to  refine  the  initial  Commission 
proposals, but with such adjustments, Option 2 would seem to have broad political support. 

EN 

99 

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The  biggest  costs  under  this  option  would  relate  to  investments  in  new  technologies  to 
provide caller location for emergency services. However, neither technology nor cost should 
any  longer  be  an  obstacle  to  pass  caller  location  information  to  emergency  authorities  with 
most  technologies  at  the  expected  period  for  implementation  of  the  revised  regulatory 
framework (2010/211).  

Option  3  (no  change)  could  not  address  the  identified  problems  relating  to  consumer 
protection and users' rights in eCommunications and would therefore not be in line with the 
i2010 objectives.  

The table below provides a summary on main likely impacts and risks arising from the each 
of  the  three  policy  options  with  respect  to  the  different  economic  and  social  dimensions. 
Impacts  of  Options  1  and  2  are  compared  to  the  “no  change”  option  3,  which  provides  a 
baseline scenario for the assessment. The signs represent a scale of possible impacts vis-à-vis 
the “no change scenario”: (cid:172) positive impact, O neutral impact, − negative impact.  

EN 

100 

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Table 4. Summary on the main impacts and risks of the options  

Option 1 – Encourage more 
industry self-regulation 

Option 2 – Update and 
strengthen current provisions 

Option 3 - No change 

IMPACTS 
AND 
RISKS  

and 

Social 
digital 
inclusion 

Employment 
and 
labour 
market 

(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and  3.  High  risk  that  industry  could  not 
agree  at  EU  level,  due  to  different 
national  circumstances  and 
lack  of 
economic incentive. 

(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and  3.  High  risk  that  industry  could  not 
agree at EU level (see above). 

Public safety  (cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could range between those of Options 2 
and  3.  High  risk  that  industry  could  not 
agree at EU level (see above). 

Consumer 
benefits 

Investment 
and 
innovation 

(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could range between those of Options 2 
and  3.  High  risk  that  industry  could  not 
agree  at  EU  level  due  to  different 
national  circumstances  and 
lack  of 
economic incentive. 
(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and 3.  

Competition  (cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and 3.  

Internal 
market 

(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and 3.  

SOCIAL  

(cid:172)  Increased  use  and  easier  access  to 
eCommunications services is likely to lead 
to  higher  social  participation  for  disabled, 
people with special needs and elderly.  

High  risk  that  due  to  technological 
advance,  current  users'  rights  and 
consumer  protection  provisions 
become  outdated,  thus  widening 
the 
the  digital  divide  between 
"Haves" and the "Have nots".  

(cid:172)  Higher  social  participation  would 
facilitate  higher  employability  in  general 
and  particularly  in  case  of  disabled  and 
users  with  special  needs  and  thus  ease 
their reliance on social security. 

Risk 
that  digital  exclusion  of 
disabled  and  users  with  special 
need  hinders  employability  and 
increases  their  reliance  on  social 
security. 

(cid:172)  Improving  caller  location  would  lead  to 
better quality of emergency services. 

risk 

High 
increasing 
that  an 
number  of  people  could  not 
emergency 
place 
successfully 
calls. 

 ECONOMIC 

(cid:172)  Provides  better  (legal)  certainty 
in 
general  incl.  safety  net  for  quality  of 
transmission.  Consumers  benefit 
from 
more  informed  markets  through  better 
prices  and  service  and  a  wider  range  of 
products.  

High  risk  that  due  to  technological 
provisions 
advance, 
current 
thus 
become 
undermining  users' 
rights  and 
consumer protection in the sector. 

outdated, 

(cid:172)/−  A  common  EU  approach  is  likely  to 
create  economics  of  scale  e.g. 
in 
equipment markets for disabled and caller 
impact  on 
location  with  concomitant 
investment  and 
that 
operators less inclined to invest/innovate. 

innovation.  Risk 

(cid:172)  Enhanced  tariff  transparency  in  the 
market  place  is  likely  to  lead  to  fairer 
competition in eCommunications services. 

though  better 

(cid:172)  Promotes  generally  more  efficient 
internal  market 
tariff 
transparency  and  particularly  creation  of 
'eAccessibility 
single 
equipments' 
location 
applications.  

market 

caller 

and 

for 

market 

Fragmented 
for 
'eAccessability  equipments'  and 
applications 
caller 
by 
discourage 
to 
manufactures.  No 
operator's investment incentives. 

investment 

location 

effect 

to 

Non-transparent tariffs are likely to 
reduce competition (as consumers 
are  less  sensitive  to  prices  and 
thus 
change 
likely 
less 
providers).  
Lack  of  tariff  transparency  has 
potential to inhibit the development 
of  a  more  efficient  market. 
Fragmented 
for 
'eAccessibility  equipments'  and 
caller location applications remain. 

markets 

EU  compe-
titiveness  

(vis-à-vis 3rd 
countries) 

Economic 
operators' 
costs 
benefits 

and 

Public sector 
costs 

(cid:172)/−  Outcome  depends  on  the  range 
and  extent  of  self-regulation.  Impacts 
could  vary  between  those  of  Options  2 
and 3.  

(cid:172)  Enhanced  economics  of  scale  imply 
strengthened  competitiveness 
the 
European  manufactures  of  goods  and 
services in this area. 

for 

Fragmented  markets  (see  above) 
have 
for 
competitiveness  of  the  European 
manufactures. 

negative 

impact 

(cid:172)/− 
Implies  development  on  a 
commercial  basis,  thus  no  regulatory 
compliance  costs.  Other  impacts  could 
vary between those of Options 2 and 3.  

(cid:172)  No  need 
associated regulatory costs. 

for 

legislation  and 

its 

−/(cid:172)  Imposes  generally  more  compliance 
costs,  while  harmonisation  also  reduces 
costs  for  firms  operating  across  the  EU. 
Enhanced  caller  location  implies  a  rise  in 
operating  costs 
in  new 
technology, adjusting processes). 
(cid:172)/− Increasing NRAs powers might entail 
more resources in some cases. Reduction 
of  admin  burden  as 
the  number  of 
consumer complaints should decline. 

(investments 

Current compliance costs remain.  

Current 
remains.  

administrative 

burden 

EN 

101 

   EN 

 
 
8.6. 

Conclusion 

The Commission considers that option 2 is the most appropriate one, while not ruling out the 
possibility  of  self-regulatory  developments  within  the  legal  framework  that  Option  2  would 
create where these would effectively achieve the results sought. 

9. 

PRIVACY AND SECURITY 

This chapter builds on the problem and options analysis from the previous impact assessment. 
It  focuses  on  the  most  important  changes  covered  mainly  in  the  current  e-Privacy  and 
Universal  Service  Directives,  assessing  their  impact  in  comparison  with  the  “no  change” 
policy scenario.  

9.1. 

Identifying the problem 

9.1.1.  Main issues and challenges 

One of the central goals of the regulatory framework is to promote the interests of the citizens 
of the European Union through, inter alia, ensuring a high level of protection of personal data 
and privacy and ensuring that the integrity and security of public communications networks 
are maintained. 

Change of the threat landscape 

According  to  reports  from  specialised  entities,  recent  years  have  witnessed  an  important  shift  in  the 
network and information security landscape. While in the past most attacks were motivated by search 
for  certain  notoriety,  recognition  of  technical  mastery,  or  causing  disruption  for  its  own  sake, 
nowadays attacks are increasingly motivated by financial gain. Moreover, the number of variants and 
the  rate  of  evolution  of  viruses  and  other  forms  of  unwanted  software  code,  often  installed  and 
executed  remotely  (using  Internet  connections)  is  increasing  rapidly221.  This  is  witnessed  by 
neologisms like botnets, adware, spyware etc. This category of computer programs is usually referred 
to  as  "malware",  which  reflects  the  main  feature  of  such  code,  i.e.  unwanted  (or  even  illegal) 
behaviour,  most  often  performed  without  the  consent  or  even  knowledge  of  the  computer  system's 
owner or administrator (user).  

In  addition,  evidence  suggests  that  attackers  are  shifting  their  activities  away  from  network 
infrastructures and operating system services towards attacks that focus on the end-user as the weakest 
link  in  the  security  chain.  As  an  example,  between  July  1  and  December  31,  2006,  the  home  user 
sector was by far the most highly targeted sector in Europe, the Middle East and Africa, accounting for 
99.4 percent of all targeted attacks222. 

Another worrying development is the fact that the telecommunications companies and Internet Service 
Providers  (ISPs)  are  increasingly  becoming  targets  of  attacks  alongside  other  sectors  which 
traditionally have been appealing for attackers (such as the financial services and banking sector). For 
instance,  the  ISP  sector  was  the  most  frequently  targeted  by  denial-of-service  (DoS))  attacks  during 
the first half of 2006. In the same period, the ISP and telecommunications sectors together accounted 
for a large portion (46 %) of all DoS attacks. A possible explanation of this would be that a successful 
attack on an ISP can produce effects similar to multiple DoS attacks against a large number of users 

221 
222 

COM(2006) 251. 
Symantec Internet Security Threat Report, Volume XI: March 2007, available at: 
http://www.symantec.com/enterprise/theme.jsp?themeid=threatreport. 

EN 

102 

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that depend on the services of that ISP. Secondly, ISPs provide Internet access to other organisations; 
rather than attacking such an organisation directly, attackers may instead target the ISP223. 

Cyber crime 

The  vulnerability  of  modern  communications  infrastructures  to  malicious  or  even  criminal  acts  has 
been highlighted by recent cyber attacks against one of the Member States. The attacks, mainly in the 
form of Distributed Denial of Service (DDoS) attacks, primarily targeted government and police web 
sites,  but  private  sector  banking  and  on-line  media  were  also  targeted.  The  attacks  affected  the 
functioning of the rest of the country's network infrastructure rendering the targeted sites inaccessible 
for extended periods of time. 

The  fight  against  cyber  crime  has  since  long  been  high  on  the  European  policy  agenda.  The 
Commission has defined its global policy on the fight against cyber crime in a communication adopted 
in May 2007224. The main short term objectives include: improving and facilitating coordination and 
cooperation  between  cyber  crime  units,  other  relevant  authorities  and  other  experts  in  the  European 
Union;  developing  a  coherent  EU  policy  framework  on  the  fight  against  cyber  crime  and  raising 
awareness of costs and dangers posed by cyber crime. 

Spam 

Unsolicited  e-mail  messages  (spam)  remain  a  problem.  From  a  mere  nuisance  it  evolved  into  a 
fraudulent  and  criminal  activity  (e.g.  phishing)  and  a  true  security  threat.  Spam  is  increasingly  a 
vehicle for viruses, spyware and other forms of malware which are surreptitiously installed on users' 
computers. Such malicious code can in turn take over control of a computer and turn it into a part of a 
"botnet", i.e. a remotely operated network of computers that, unbeknownst to their owners, are used to 
send out more spam, carry out DoS attacks, spread spyware and infect other machines.  

The  complex  relationship  between  combating  spam  and  other  security  threats  has  recently  been 
analysed in a Commission Communication that, among other things, highlighted the importance of an 
adequate  legal  framework,  accompanied  by  technical  means  as  well  as  effective  enforcement  and 
sufficient resources at Member State level in the fight against spam. 

The Commission identified improving security as one of the main challenges for the present 
review  of  the  Regulatory  Framework.  This  is  in  line  with  the  "i2010"  initiative225  which 
recalled  an  urgent  need  to  coordinate  efforts  in  order  to  develop  policies,  regulations, 
technology  and  awareness,  in  order  to  increase  trust  and  confidence  in  electronic 
communications and services among businesses and citizens. In May 2006, the Commission 
announced  a  comprehensive  Strategy  for  a  secure  Information  Society  –  "Dialogue, 
partnership  and  empowerment"226  which  emphasized  the  importance  of  network  and 
information security as a key enabler for the further development of the Information Society 
in  Europe  and  beyond.  This  general  policy  for  network  and  information  security  is 
complemented by the European fight against cyber crime.227. 

223 
224 

225 

226 
227 

Idem. 
Towards a general policy on the fight against cyber crime, Commission Communication COM (2007) 
267): http://eur-lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0267en01.pdf 
i2010 – A European Information Society for growth and employment, Communication COM(2005)229, 
listed security as one of the main challenges for the creation of the European Information Space, next to 
speed (faster broadband), rich content and interoperability. 
COM(2006) 251. 
As  most  recently  defined  in  Towards  a  general  policy  on  the  fight  against  cyber  crime,  Commission 
Communication COM(2007) 267:   
http://eur-lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0267en01.pdf 

EN 

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In recognition of the importance of the regulatory approach which complements technological 
solutions, various forms of stakeholder partnerships and awareness raising, it also announced 
that  the  review  of  the  regulatory  framework  for  electronic  communications  "will  consider 
elements  to  improve  network  and  information  security,  such  as  technical  and  organisational 
measures to be taken by service providers, provisions dealing with the notification of security 
breaches,  and  specific  remedies  and  penalties  regarding  breaches  of  obligations".  Indeed, 
reliable electronic communications networks and services have gained an enormous economic 
and  societal  importance  as  they  underpin  more  and  more  many  critical  aspects  of  our 
economy and society228. 

Trust and confidence 

The  importance  of  trust  on  behalf  of  users  (both  businesses  and  consumers)  for  the  success  of  the 
electronic communications sector and the Information Society as a whole cannot be understated. This 
is why security (in the sense of "making the Internet safer from  […] technology failures to increase 
trust amongst investors and consumers") has been singled out as one of the challenges addressed by 
the i2010 initiative229.  

Although  concepts  like  confidence  and  trust  are  not  easily  definable  or  measurable,  available  data 
suggests  that  attitudes  of  consumers  in  particular  can  be  negatively  affected  by  experiences  such  as 
viruses,  phishing,  network  down-time  etc.  For  example,  28%  of  European  Internet  users  declared 
recently  that  spam  and  viruses  caused  "significant  problems"  for  them230.  According  to  the  same 
survey, a large majority of Europeans have installed on their computer antivirus software (EU27: 81%) 
and antispam software (60%).  

While EU27 citizens seem in general satisfied with the quality of their Internet services, at the same 
time, a full 35% of respondents to the recent Eurobarometer survey disagreed with the statement that 
their  Internet  connection  never  breaks  down231  and  42%  stated  that  their  ISP  usually  does  not 
pre-announce its network connection cuts (while 20% were unable to answer that question)232.  

RFID 

RFID  -  also  called  smart  radio  tags  –  is  a  communications  technology  which  involves  tags  that 
respond  to  radio  signals,  and  reading  devices  that  read  and  identify  the  tags.  This  process  does  not 
require direct contact or line-of-sight scanning between the tag and the reader. RFID tags can be used 
to  give  a  unique  identity  to  goods  and  devices,  to  store  data  on  items  and  persons.  Potential 
applications include logistics, retail, health care, access control, travel and security233. 

228 
229 
230 

231 

232 
233 

SEC(2006) 656. 
Note 1 above, p. 5. 
Special  Eurobarometer  –  eCommunications  household  survey,  April  2007,  p.  89.  According  to  the 
report,  "the  perceived  levels  of  problems  caused  by  spam,  viruses  or  spyware  varies  widely  between 
countries and can be attributed to many factors, such as the frequency of Internet use or the level of 
security and protection measures taken in order to prevent this from happening". 
On this issue, differences among Member States are clearly visible. For example, a high proportion of 
Austrians (76%), Swedes and Croats (both 71%) said that their Internet connections are reliable in the 
sense that they do not break down. However, the situation in Romania and France is somewhat different 
with 61% and 52%, respectively, disagreeing with the statement (source: Special Eurobarometer, April 
2007, p. 93). 
Idem, p. 92. 
See Radio Frequency Identification (RFID) in Europe: steps towards a policy framework, Commission 
Communication COM(2007)96, available at:  
http://ec.europa.eu/information_society/policy/rfid/doc/rfid_en.pdf 

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Participants in the Commission's public consultation234 on RFID in 2006 raised serious concerns that 
this technology might endanger fundamental values, privacy and lead to more surveillance. Adequate 
privacy safeguards are called for as a condition for wide public acceptance of RFID. 

The  principles  of  data  protection  are  defined  by  the  Data  Protection  Directive  95/46/EC  and  apply 
regardless  of  the  technology  used  for  data  processing.  The  ePrivacy  Directive  2002/58/EC 
complements the Data Protection Directive and translates the data protection principles into specific 
rules for electronic communications. An explicit reference to RFID in the ePrivacy Directive allows 
for appropriate measures with respect to applications of this communications technology. 

The  market  data  (see  above)  provides  strong  evidence  that  competition  on  EU  electronic 
communications markets - combined with technological progress - has delivered more choice, 
lower  prices  and  innovation  for  consumers.  At  the  same  time,  however,  the  resulting 
multiplication  of  actors  involved  and  the  technological  development  (to  mention  but  two 
major  elements)  have  rendered  the  management  of  networks  a  very  complex  tasks  and  the 
division  of  responsibilities  of  various  actors  involved  rather  is  unclear.  The  main 
developments are summarised in the following:  

Convergence: new services and products 

Liberalisation  of  the  telecommunications  markets  combined  with  convergence  between  technologies 
and networks ("traditional" telephony, broadcasting, cable, Internet…) brought about a variety of new 
products and services and opened up new opportunities, both for businesses and consumers. They also 
resulted in a multiplication of heterogeneous operators on the market, operating increasingly complex 
networks  and  services  according  to  various  different  business  models.  In  addition,  while  in  the  past 
ensuring  security  and  integrity  of  networks  was  based  on  a  (explicit  or  implicit)  understanding 
between the incumbent operator and competent national authorities, investing in security and integrity 
has  become  just  one  element  of  a  business  strategy,  subject  to  forces  of  fierce  competition  and  the 
"return  on  investment"  imperative.  This  complexity,  in  turn,  resulted  in  unclear  division  of 
responsibilities at national and EU level concerning the security of networks and services. 

Mobile and IP networks gain importance 

Communications  networks  and  services  based  on  IP  (Internet  Protocol),  such  as  the  Internet,  gain 
growing importance in all walks of life. As an example, "traditional" telephony providers have been 
switching  their  operations  to  VoIP  or  have  planned  such  moves  as  part  of  their  Next  Generation 
Networks strategies. Similarly, end-users and businesses alike increasingly rely on mobile telephony 
for  their  professional  and  private  communications  alike.  A  number  of  Member  States  enjoy  higher 
mobile than fixed line penetration; while mobile penetration rates remain relatively stable, there is a 
clear  tendency  of  decreasing  fixed  telephone  penetration  (at  EU  level,  a  decrease  of  5  percentage 
points  over  one  year)235.  In  addition  to  the  more  common  and  familiar  forms  of  communication, 
upcoming services and new business models (e.g. mobile payments) also require reliable and available 
underlying infrastructure. Security and availability of IP and mobile networks is also a pre-condition 
for the roll-out of reliable and successful e-government services.  

Ensuring  adequate  network  and  information  security  remains  an  important  challenge  for  all 
stakeholders, including regulators, both at national and European level. In particular, trust and 
confidence of European citizens in electronic communications is a conditio sine qua non of a 
dynamic and thriving Information Society. The important question in this context is, whether 

234 

235 

Results  of  the  public  online  consultation  on  future  Radio  Frequency  Identification  Technology  Policy 
"The RFID Revolution: Your voice on the Challenges, Opportunities and Threats", Commission Staff 
Working Document SEC (2007) 312, available at: 
http://ec.europa.eu/information_society/policy/rfid/doc/rfidswp_en.pdf 
Special Eurobarometer – eCommunications household survey, April 2007, p. 35. 

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the current rules are sufficiently future-proof to protect consumers in the light of the current 
and anticipated trends and evolutions. 

The June 2006 consultation document identified three problems with the current rules: 

– 

– 

– 

divergence  of  national  approaches  to  network  and  information  security,  and 
notification of risk; 

need to update the requirements on network integrity; and 

lack of adequate enforcement mechanisms under the ePrivacy Directive. 

9.1.2.  Divergence of national approaches to network and information security 

Electronic communications service providers and network operators are currently obliged to 
take appropriate technical and organisational measures to safeguard security of their services 
and  networks.  However,  these  general  requirements  are  interpreted  and  implemented  in 
different  ways  in  different  Member  States.  As  a  result,  Europe  resembles  a  patchwork  of 
national  measures,  with  hardly  any  evidence  of  a  common  approach  among  European 
operators and service providers, as illustrated by a study conducted by the European Network 
and  Information  Security  Agency  ENISA  in  2006236.  Such  a  divergence  of  approaches  to 
network and information security could result in obstacles to the internal market through, for 
instance, increased compliance costs for businesses operating in more than one Member State.  

9.1.3.  Notification of security breaches by network operators and ISPs 

Article  4  of  the  ePrivacy  Directive  currently  requires  service  providers  to  inform  their 
customers about existing security risks. In the June consultation document, the Commission 
indicated a need to extend this notification to also cover situations where customers' personal 
data was compromised as a result of a security incident which had actually happened. 

In  US  law,  the  issue  of  mandatory  disclosure  of  security  breaches  involving  personally 
identifiable  information  has  been  a  heavily  discussed  topic  since  the  first  state  (California) 
mandated  such  disclosure  in  2003.  At  present,  at  least  30  states  have  enacted  similar 
legislation.  There  are  also  several  proposals  pending  at  federal  level.  Generally,  such  laws 
require  that  any  business  (e.g.  a  bank)  in  possession  of  personal  information  about  an 
individual  must  disclose  any  breach  of  security  affecting  that  information  to  the  person 
affected. Details vary from state to state. The rationale behind such regulation is that, on the 
one hand, breach disclosure requirements enable individuals to react and thus prevent possible 
cases  of  fraud  (or  identity  theft)  and,  on  the  other  hand,  provide  additional  incentives  to 
operators  to  ensure  adequate  levels  of  security  of  their  services  and  networks  –  or  receive 
complaints from the end-users affected or, at the very least, face adverse consequences of bad 
publicity in case of a breach. 

236 

Security  and  Anti-Spam  Measures  of  Electronic  Communication  Service  Providers  -  Status  and 
Outlook, deliverable ENISA/TD/SP/06/118, June 2006, available at: 
http://www.enisa.europa.eu/pages/05_01.htm 

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9.1.4.  Future-proof network integrity requirements 

As society becomes increasingly dependent on its information and communications networks 
and  services  for  everyday  life,  security,  availability  and  integrity  of  these  networks  are  not 
only  important  for  the  eCommunications  sector  itself,  but  also  for  all  other  sectors  of  the 
economy and for the society as a whole. In the electronic communications sector, the impact 
of  the  EU  competition  driven  policy  and  technological  developments  have  produced 
substantial  benefits  for  consumers  in  terms  of  both  choice  and  innovation  including  in  the 
development of security products and services. However, the market appears to have failed so 
far to provide sufficient incentives to address security problems, which was also confirmed by 
several contributions to the public consultation. 

While  network  integrity  has  been  a  requirement  of  "classical"  telecommunication  networks 
(PATS) for many years, it is no longer sufficient to rely on these networks for the availability 
of communications services. On the one hand, Internet-based, mobile and other new services 
are  becoming  more  and  more  important  and  are  often  the  main  technology  used  for  some 
areas of application. On the other hand, even in the "classical" telecommunications networks 
the traditional switching technology is replaced more and more by IP-based components. Due 
to  this  convergence,  the  distinction  between  PATS  and  other  types  of  networks  no  longer 
properly reflects the reality of the networks. 

9.1.5.  Enforcement mechanisms under the ePrivacy Directive 

At present, the ePrivacy Directive only contains a general clause stating the applicability of 
the  provisions  of  the  general  Data  Protection  Directive  95/46/EC  in  so  far  as  judicial 
remedies, liability and sanctions are concerned. A survey of the situation in various Member 
States  demonstrated  that  light  sanctions  and  uneven  enforcement  have  in  some  cases  led  to 
ineffective or insufficient protection of consumer rights in the areas covered by the ePrivacy 
Directive.  In  the  June  consultation  document,  the  Commission  indicated  an  intention  to 
introduce new rules concerning the implementation and enforcement of the Directive and thus 
provide better incentives for regulated entities to comply with its provisions. 

9.2. 

The objective 

The  objective  is  to  contribute  to  an  enhanced  level  of  security  and  network  integrity  of 
electronic communications networks in Europe, which would provide tangible benefits for all 
citizens and the society as a whole, in line with the i2010 objectives. 

In order to reach the general objective, the following specific objectives have been identified: 

– 

– 

Future-proof  the  security  provisions  in  a  way  that  is  flexible  enough  to  stimulate 
operators  to  invest  in  security  and  integrity  in  a  competitive  and  fast  changing 
technological environment; and  

Ensure  that  regulatory  intervention  is  possible  in  situations  where  discrepancies 
between requirements at Member States level threaten to undermine the functioning 
of  the  internal  market  and/or  in  situations  where  market  forces  alone  fail  to  ensure 
the security, stability and integrity of eCommunications networks and services. 

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9.3. 

Policy options 

The first Impact Assessment of June 2006 assessed three policy options: 

9.3.1.  Option 1 - No change to the regulatory framework 

The "do nothing" option implies not taking further legislative measures at this stage, but the 
competent  authorities  could  continue  to  take  action  under  the  existing  legislation  to  address 
some of the identified problems. 

While it is true that self-regulation by the industry would mean less intrusive intervention than 
setting regulatory obligations at the EU level, it is not clear in what respect this option would 
be  different  from  the  "do  nothing"  option.  Indeed,  as  numerous  contributions  to  the  public 
consultation pointed out, self-regulatory initiatives already exist in the broad area of network 
and information security.  

However, there is so far no evidence to support the assertion that the market forces provide 
sufficient  incentives  for  operators  to  address  security  matters  in  an  adequate  manner, 
including  through  self-regulation.  Also,  with  respect  to  the  specific  area  of  protection  of 
personal data and privacy, EU legislation contains provisions encouraging the drawing up of 
codes  of  conduct  which  would  contribute  to  the  proper  implementation  of  the  national  data 
protection 
impact  assessment, 
the  purposes  of 
self-regulation as a "stand-alone" solution cannot be considered as a realistic option as far as 
network and information security and privacy are concerned. 

laws237.  Therefore,  for 

the  present 

9.3.2.  Option 2 - Update and strengthen the current provisions 

This  option  would  aim  at  improving  security  by  specifying  general  security  and  integrity 
requirements at EU level and setting out a flexible framework enabling competent authorities 
at Member States level to implement and enforce them. 

It  builds  upon  the  basic  approach  of  the  framework  as  it  stand  but  aims  to  clarify  some 
provisions,  where  it  has  been  observed  that  the  current  text  of  the  Directives  has  allowed  a 
wide  margin  of  interpretation  and  implementation,  leading  to  considerable  differences 
between  markets.  It  grants  the  Commission  power  to  adopt  appropriate  instruments  under 
comitology procedure to provide a common set of guidelines to the Member States to achieve 
greater  harmonisation.  When  preparing  such  a  measure,  the  Commission  would  take  into 
account the administrative burden among other factors. 

9.3.3.  Option 3 – Introduce a new, detailed instrument dealing with security and integrity 

In  this  option  security  and  integrity  issues  would  be  regulated  in  detail  by  means  of  a  new 
legislative  instrument,  a  specific  "security  and  integrity  directive"  or  even  a  regulation.  The 
Commission would propose EU-wide, detailed technical and organisational requirements on 
market  players,  including  specific  security  standards  which  providers  of  electronic 
communications networks and services would have to respect. 

237 

Article 27 of the general Data Protection Directive 95/46/EC. 

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9.4. 

Results of the public consultation 

In  June  2006,  the  Commission  put  forward  the  proposals  in  the  following  areas  (see  the 
Review Communication and the Staff Working Document for a more detailed description of 
these proposals238): 

1) 

2) 

3) 

4) 

Obligation  to  take  security  measures  and  grant  powers  to  NRAs  to  determine  and 
monitor technical implementation; 

Notification of security breaches by network operators and ISPs; 

Future-proof network integrity requirements; and 

Improving enforcement mechanisms under the ePrivacy Directive. 

The  results  of  the  public  consultation  showed  overall  support  for  the  security-related 
proposals. However, concerns were often expressed as to how the review of the Regulatory 
Framework is positioned vis-à-vis the overall Strategy for network and information security, 
as set out in the Strategy Communication COM(2006) 251. Such concerns may result from a 
misinterpretation  of  the  overall  Commission  approach.  As  mentioned  above,  the  2006 
Communication  indicated  some  of  the  areas  in  which  changes  to  the  regulatory  framework 
could  be  considered.  In  addition,  the  current  proposals  would  not  come  into  force  before 
2009-2010,  which  would  allow  any  results  of  the  broad  multi-stakeholder  dialogue  taking 
place in the follow-up of the 2006 Communication to be fed into the implementation process 
at Member States level. There is, therefore, no contradiction between the general strategy and 
the proposals currently under consideration. 

Generally  speaking,  Member  States  are  cautiously  supportive  of  the  Commission  proposals. 
Consumer organisations are also in favour and Data Protection Authorities even consider that 
the  Commission  proposals  often  do  not  go  far  enough.  Among  the  industry,  software 
manufactures  and  security  solutions  providers  were  in  favour  of  the  proposals  whereas 
operators generally opposed them. 

Obligation  to  take  security  measures  and  grant  powers  to  NRAs  to  determine  and  monitor 
technical implementation 

In  the  public  consultation  stakeholders  appeared  particularly  divided  on  this  issue.  Several 
Member  States  favoured  the  Commission's  proposal  to  set  out  in  greater  detail  at  EU  level 
what is meant by "technical and organisational [security] measures", while other disagreed or 
expressed  certain  reservations.  Data  Protection  Authorities  and  consumer  associations 
considered even that the proposals do not go far enough. On the other hand, the majority of 
operators  opposed  the  proposals,  stressing  that  voluntary  industry-led  and  self-regulatory 
solutions would be more appropriate, as they offer more flexibility to address new issues in 
the  fast-changing  technological  landscape  and  are  more  likely  to  be  technology  neutral. 
Others  had  more  mixed  views,  stressing  that  the  proposals  might  be  going  in  the  right 
direction, but more details would be needed before they can be properly assessed. 

238 

See footnote 4 for URL. 

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Notification of security breaches by network operators and ISPs 

The  majority  of  Member  States,  as  well  as  consumer  organisations  and  Data  Protection 
Authorities generally supported the proposals. Some operators, along with representatives of 
the  security  industry  were  also  in  favour,  recognising  that  a  requirement  to  notify  security 
breaches  could  indeed  provide  the  missing  incentive  for  market  players  to  invest  more  in 
security  (as  it  has  arguably  been  the  case  in  the  United  States  following  the  adoption  of 
similar  legislation  at  state  level).  On  the  other  hand,  and  not  surprisingly,  the  majority  of 
electronic communications industry opposed the Commission's proposals. 

Future-proof network integrity requirements  

The  majority  of  Member  States  supported  the  proposals,  although  some  expressed  concerns 
regarding  the  proposals'  impact  on  operators  (mainly  in  terms  of  costs).  Some  industry 
associations  and  several  operators  expressed  the  view  that  there  is  no  case  for  extension  of 
integrity requirements beyond PSTN and expressed concerns that such extended requirements 
would be costly and complex to implement. Other industry players welcomed the proposals in 
principle, but stressed the need for a proper assessment of the technical characteristics of the 
various networks and a thorough cost-benefit analysis of any legislative proposals.  

Improving enforcement mechanisms under the ePrivacy Directive 

The  majority  of  the  Member  States,  consumer  organisations  and  part  of  the  industry 
welcomed  the  Commission's  proposals  in  general,  but  there  were  many  reservations  with 
respect  to  the  proposal  to  introduce  a  liability  clause  for  those  not  in  compliance  with  the 
provisions  of  the  Directives.  In  particular,  it  was  pointed  out  that  this  would  mean  putting 
unfair and unnecessary burden on ISPs and network operators who would in essence be held 
responsible  for  the  whole  security  chain,  while  only  a  small  fraction  of  it  is  actually  under 
their  control.  That  could  in  turn  dramatically  increase  their  costs  of  doing  business  which 
would ultimately  have  to be passed on  to consumers, but could also  stifle  innovation  in  the 
otherwise dynamic sector. 

In turn, there was a broad support (including the Internet Service Providers community) for 
the  proposal  to  allow  operators  to  take  direct  court  or  administrative  action,  for  instance 
against spammers, on behalf of their customers 

9.5. 

Assessment of impacts 

The  results  of  the  public  consultation  indicate  that  the  third  option  for  a  specific  legal 
instrument on security as set out in the first impact assessment does not enjoy general support 
by the stakeholders at the moment. In effect therefore, the two options considered for further 
analysis are: 

1. 

2. 

Option  1:  “Do  nothing”  as  in  the  original  Option  1  (and  possibly  rely  on 
self-regulation by the industry); or 

Option 2: Update and strengthen the current provisions in specific areas. 

Option  2  builds  upon  the  basic  approach  of  the  framework  as  it  stand  but  aims  to 
clarify  some  provisions,  where  it  has  been  observed  that  the  current  text  of  the 
Directives has allowed a wide margin of interpretation and implementation, leading 
to  considerable  differences  between  markets.  It  grants  the  Commission  power  to 

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adopt appropriate instruments under comitology procedure to provide a common set 
of  guidelines  to  the  Member  States  to  achieve  greater  harmonisation.  When 
preparing  such  a  measure, 
the 
administrative burden among other factors. 

the  Commission  would 

into  account 

take 

Under Option 2, considerations can be also given to the potential synergies between 
the  existing  European  Network  and  Information  Security  Agency  (ENISA)  and  the 
new European Regulatory Authority discussed in Chapter 7.  

Assessment of Option 1 - No change to the regulatory framework 

Under  this  option,  the  Commission  would  continue  to  rely  on  the  existing  provisions  in  the 
current regulatory framework and on initiatives carried out by private undertakings, industry 
associations and (other stakeholders). There would be differences between Member States in 
the  interpretation  of  the  existing  provisions  of  the  Directives.  The  question  would  remain 
whether  the  current  provision  can  effectively  provide  sufficient  incentive  to  operators  to 
address security and integrity in an adequate manner across the EU.  

In the context of introducing an obligation to take security measures and granting powers to 
NRAs  to  determine  and  monitor  technical  implementation,  the  results  of  the  public 
consultation  show  that  industry  is  generally  in  favour  of  self-regulatory  approach.  On  the 
other hand, consumer groups and some national authorities generally consider this approach 
as  not  far-going  enough.  Arguably,  including  such  explicit  provisions  in  the  regulatory 
framework  would  codify  what  de  facto  should  already  be  reasonable  regulatory  practice  in 
any  Member  State.  Moreover,  evidence  presented  in  the  problem  definition  section  and 
responses from the public consultation suggest that security remains a problem and that many 
operators are not prepared to take any action in order to improve the situation. Operators often 
argue  that  mandatory  security  measures  can  affect  negatively  their  ability  to  innovate  and 
propose innovative pricing schemes to consumers. However, from an economic point of view, 
firms generally do not have sufficient economic incentives to spend adequate percentages of 
their  investment  budgets  on  security  measures  Also  for  this  reason,  voluntary  self-  and 
co-regulatory measures have been so far rather exceptional and there is no evidence to support 
the view that the situation would dramatically change in the near future. 

In  the  context  of  notification  requirements,  the  disclosure  of  breaches  in  which  personal 
data are compromised would remain regulated by article 4 of the ePrivacy Directive. Member 
State regulation may be more specific where it concerns the nature of “particular risks” and 
the legal definition of a “breach of security”. The mandatory disclosure of security breaches 
resulting in interruptions in the continuity of service would remain covered by Article 22 of 
the  Universal  Service  Directive,  leaving  it  up  to  NRAs  to  specify  QoS  parameters  and  the 
contents  and  methods  of  disclosure.  At  the  same  time,  the  Commission  could  use  various 
methods  of  communication,  coordination  and  collaboration,  for  example,  to  encourage 
Member  States  to  develop  national  mandatory  disclosure  requirements,  or  to  encourage 
effective self-regulation by service providers and data controllers. 

Leaving  initiative  to  the  industry  (e.g.,  through  self-regulation  initiatives)  seems  unlikely  to 
result  in  breach  notification  arrangements  for  the  simple  reason  that  businesses  in  general 
have  a  disincentive  to  voluntarily  disclose  information  related  to  security  breaches,  fearing 
damage  to  their  reputation.  Also,  there  is  a  strong  negative  externality  to  every  individual 
decision to disclose such information: if a company notifies its customers of every (risk of) 
security  breach  and  its  competitors  do  not  do  so  or  do  so  less  frequently,  the  company's 

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reputation  will  be  damaged  more  severely.  On  the  other  hand,  while  certain  Member  States 
(e.g. Finland) have already introduced such measures based on legislation currently in force, 
other Member  States  have not  followed  suit, which suggests that the "do nothing" option is 
not  likely  to  result  in  more  uniform  standards  for  breach  notification  across  Europe  in  the 
foreseeable future. 

As  for  future-proof  network  integrity  requirements,  option  1  would  include  leaving 
legislation  as  is  (i.e.  integrity  requirements  applicable  to  PSTN  only),  but  pursuing 
the  May  2006  Commission 
coordination/cooperation  activities  as  a  follow-up 
Communication on a  Strategy for a secure Information Society239. This approach would not 
ensure  a  uniform  or  synchronous  application  of  rules  across  the  EU.  Success  would  largely 
depend  on  the  initiative,  resources  and  competence  of  the  MS  authorities  and  industry.  It 
could  result  in  diverging  requirements,  implemented  according  to  different  timescales. 
Network  integrity  across  technologies  and  integrity  of  cross  border  services  would  not  be 
guaranteed and the risk of market fragmentation would not be addressed. 

to 

The  importance  of  putting  in  place  effective  enforcement  mechanisms  under  the  ePrivacy 
Directive,  in  particular  in  the  context  of  the  fight  against  spam,  spyware  and  malicious 
software,  has  been  highlighted  by  a  Commission  Communication  on  that  topic240.  It  seems 
that, at least in some Member States, the responsibilities to deal with infringements have not 
been  allocated  clearly  enough  and  are  often  not  accompanied  by  sufficient  resources.  In 
addition, enforcement before national courts has not been uniformly successful across the EU. 
The  difficulties  related  to  that  are  best  illustrated  by  anti-spam  cases.  In  such  cases,  ISPs 
suffer  measurable  damages  due  to  increased  load  of  traffic  on  their  networks  (and  the 
necessity to deploy additional equipment), costs of filtering software, additional maintenance 
etc. However, it is very difficult (if not impossible) to prove which part of such additional cost 
is related to activities of a given "spammer", which makes obtaining damages in a civil law 
suit all but impossible. This situation clearly is not satisfactory and there seems to be room for 
more enabling provisions at EU level. 

Assessment of Option 2 – Update and strengthen the current provisions in specific areas 

The  impact  of  regulation  on  the  overall  levels  of  network  and  information  security  (and, 
indirectly, of trust) is difficult to quantify. In addition, not only eCommunications providers, 
but  also  other  industry  groups  and  stakeholders  (equipment  manufacturers,  producers  of 
software  and  end-users  themselves,  to  name  but  a  few)  have  their  responsibilities  in  that 
respect  which  lie  beyond  the  scope  of  the  present  proposals.  Consequently,  regulatory 
intervention within one sector could never be a "silver bullet" solution for all security-related 
problems. It should also be kept in mind that only a fraction of the problems mentioned in this 
chapter  could  be  remedied  by  electronic  communications  sector  operators.  Nevertheless, 
service providers and network operators have an important role to play as the first "point of 
contact"  and  a  gateway  through  which  end-users  access  the  converging  world  of  electronic 
communications. 

Concerning  the  obligation  to  take  security  measures  and  grant  powers  to  NRAs  to 
determine and monitor technical implementation, option 2 would mean the introduction of a 
high-level, general requirements to secure networks and services in the Framework Directive 

239 
240 

COM(2006) 251. 
COM(2006) 688. 

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(while  maintaining  the  existing  obligation  to  adopt  security  measures  in  Article  4  of  the 
ePrivacy Directive). The implementation and enforcement at national level would be for the 
competent authorities and a comitology procedure would be in place to ensure a certain level 
of harmonisation among the Member States. 

This  option  would  in  particular  address  the  current  problem  related  to  different  definitions 
given  by  Member  States  to  terms  such  as  "appropriate  technical  and  organisational 
measures"241.  It  would  also  provide  for  the  flexibility  necessary  to  adapt  the  measures  to 
changes in technology and developments in the area of security. 

Concerning  the  proposal  to  introduce  breach  notification  requirements,  two  possibilities 
should be considered, separately or jointly: 

1) 

2) 

a  notification  required  for  security  breaches  which  result  in  personal  data  being 
compromised; and/or 

a  notification  required  for  security  breaches  which  result  in  a  "downtime"  or 
interruption in the continuity of service. 

The  first  type  of  breach  disclosure  obligation  could  be  seen  as  a  logical  extension  of  the 
current obligation to disclose security risks in Article 4 of ePrivacy Directive 2002/58/EC. A 
similar  approach  can  be  found  in  numerous  US  state  laws,  as  well  as  draft  bills  pending  at 
federal level (see box below). Concerning the second type of breach disclosure, similar rules 
are already in force in the Unites States242, as well as in Finland243. At EU level, it would be a 
new  provision  to  be  introduced  in  the  Framework244.  The  basic  justification  would  be  to 
provide  the  NRAs  with  enough  information  about  the  actual  level  of  (in)security  of  the 
networks under their jurisdiction so as to enable them to make informed policy choices.  

Mandatory disclosure of security breaches – discussions in the USA 

In  US  law,  the  issue  of  mandatory  disclosure  of  security  breaches  involving  personally  identifiable 
information has been a "hot topic" since the first state (California) mandated such disclosure in 2003. 
At present, at least 30 states have enacted similar legislation. There are also several proposals pending 
at federal level. 

Generally,  such  laws  require  that  any  business  (e.g.  a  bank)  in  possession  of  personal  information 
about  an  individual  must  disclose  any  breach  of  security  affecting  that  information  to  the  person 
affected. Details vary from state to state.  

The  proposed  security  breach  notification  at  EU  level  would  be  fundamentally  different  in  that  it 
would only apply to a limited group of undertakings, namely providers of electronic communications 
services  and  networks.  The  justification  for  this  "special  treatment"  is  that,  as  "gateways"  through 

241 
242 

243 

244 

Preparing the next steps in regulation of electronic communications, Analysis et al., June 2006. 
See  Federal  Communications  Commission  document,  New  Part  4  of  the  Commission's  Rules 
Concerning Disruptions to Communications, FCC 04-188, August 19, 2004. 
Finnish  telecom  operators  are  obliged  to  report  information  security  violations  and  threats,  faults  and 
disturbances. In the event of a significant incident, the operator has to report the source and extent of the 
violation or threat, how it was caused and the measures taken to address it or prevent future incidents. 
In addition, customers must be informed about measures they have to take, as well as on the effects the 
breach might have on them (recommendation FICORA 9 B/2004 M). 
Although  an  amendment  to  Article  22  of  the  Universal  Service  Directive  could  be  considered  as  an 
option. 

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which  users  can  access  the  Internet,  ISPs  and  network  operators  carry  a  special  responsibility  with 
respect to their customers' privacy. 

Both possibilities would require a number of decisions to be made, in particular with respect 
to the following issues: 

Notification to whom: Breaches can be disclosed to the customers involved, to all customers 
of a service provider or data controller, to the NRA in the country where the breach occurred, 
to  the  NRA  in  the  country  where  the  service  provider's  headquarters  are  located  or  to  the 
NRAs in all EU markets in which a service provider is active. 

Clear definition of the risks warranting disclosure: Types of risk that may warrant disclosure 
are  (i)  significant  harm  to  an  individual,  (ii)  significant  financial  loss  to  a  customer, 
(iii) significant  loss  to  a  subcontractor  or  other  party  with  whom  the  service  provider  has  a 
contractual  relationship,  (iv)  significant  damage  to  critical  (information)  infrastructures245. 
Notification  may  include  third-party  risks,  concerning  breaches  that  occur  under  the 
responsibility  of  subcontractors  or  intermediaries  with  whom  the  service  provider  has  a 
contractual relationship and that form an integral part of the provision of services by a service 
provider or data controller. 

a) 

b) 

c) 

245 

246 

Legal time limit for notification: The Commission can include a legal time limit for 
notification,  essentially  defining  the  longest  delay  allowed  in  all  MS  for  the 
disclosure  of  breaches  to  NRAs,  customers,  and  third  parties.  There  will  be 
exceptions  to  this  delay,  for  example  to  give  law  enforcement  the  opportunity  to 
capture  cybercriminals.  “A  standard  time  should  be  set  that  is  long  enough  for  an 
organization to clearly determine the mechanism and extent of the compromise and 
also  short  enough  so  affected  individuals  can  be  warned  in  enough  time  to  protect 
themselves from increased identity theft risk”246. 

Instruments for compliance and enforcement: The Commission could provide NRAs 
with the possibility of imposing a financial sanction for failure to disclose and link 
this  sanction  to  the  number  of  customers  whose  personal  data  have  been 
compromised or the duration of an interruption in service. 

Information  to  be  disclosed:  The  information  that  may  be  disclosed  to  NRAs, 
customers,  and  other  parties  includes  the  number  of  compromised  records  or 
accounts  and  the  number  of  customers  affected,  the  type  of  private  information 
involved, the mechanism of the security breach, the estimated costs of the damage to 
the  company  and  to  customers  and  others  affected,  steps  taken  by  the  company  to 
prevent  the  breach  from  recurring,  and  recommendations  to  and  support  for  the 
affected  customers  to  help  them  protect  themselves  from  the  increased  risk  of 
identity theft. 

In the USA, some states leave it to companies to decide if a security breach is serious enough to warrant 
disclosure, while in other states the requirement is dependent on the number of people affected by the 
breach. See Beyond Media Hype: Empirical Analysis of Disclosed Privacy Breaches 2005-2006 and a 
DatasSet/Databse  Foundation  for  Future  Work,  R.  Hasan  and  W.  Yurcik,  October  23,  2006: 
http://www.ragibhasan.com/publications/papers/rhasan-wesii2006.pdf 
Idem. 

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Under option 2, the Directives would be revised to include a general obligation on Member 
States  to  impose  disclosure  requirements,  while  the  definition  of  the  detailed  modalities 
(including, but not limited to issues listed above under a. to e.) would be left for decision at 
national  level  at  the  implementation  stage.  However,  in  order  to  avoid  possible  obstacles  to 
the  internal  market  that  could  arise  from  27  potentially  different  notification  regimes,  some 
form of a harmonisation mechanism (a "comitology" procedure) would need to be envisaged. 

Concerning  potential  economic  impacts,  the  expected  positive  side-effect  of  sorts  of  such 
requirements  would  be  an  incentive  for  operators  to  "take  security  seriously"  -  operators, 
afraid of potential negative publicity (the "shaming and blaming" effect) in case of a breach, 
would increase  their security  budgets.  Steps  need to be taken to avoid "notification fatigue" 
among  individuals,  high  compliance  cost  for  businesses  (in  particular,  the  cost  of 
notification),  e.g.  only  breaches  causing  "significant  risk  of  harm  to  an  individual"  would 
have  to  be  notified;  or  a  notification  may  be  delayed  if  it  could  otherwise  jeopardise  an 
on-going law enforcement investigation of the breach etc. There are also various possibilities 
concerning the addressees of a notification, i.e. (only) the customers affected; all customers of 
a  given  provider;  the  NRA;  a  combination  of  those.  Justification  and  impacts  would  be 
different for each of those categories. 

As far as disclosure of network outages is concerned, the experience from existing schemes 
(FCC,  FICORA)  suggests  that  such  reports  are  a  very  valuable  source  of  information, 
enabling  the  authorities  to  identify  problems  and  helping  them  with  developing  adequate 
regulatory  measures  for  outage  prevention.  Since  such  reports  are  not  public,  there  is  no 
adverse impact on a company's reputation. 

As for administrative costs, the decisions on the above parameters would be eventually taken 
by the Member States. However, to achieve harmonisation, the Commission would issue an 
appropriate  instrument  according  to  the  comitology  procedure,  to  provide  a  common  set  of 
guidelines to the Member States. When preparing the draft in that procedure, the Commission 
would  take  into  account  administrative  burden  among  other  factors.  Therefore,  given  that: 
1) no reliable quantification can be provided at the current stage247; 2) a detailed analysis of 
administrative  burden  would  be  part  of  the  implementation  process,  once  the  present 
proposals  are  adopted;  and  3)  the  actual  impact  on  administrative  burden  is  expected  to  be 
low248, a detailed analysis on administrative costs cannot be considered useful in the context 
of the current IA report. 

In terms of societal impacts, no significant changes would be expected, at least with relation 
to notification of network downtime or outages to competent authorities. On the other hand, 
notification  to  individuals  on  occasions  where  their  personal  data  had  been  compromised 

247 

248 

While quantified information is not available, it should be noted that during the public consultation no 
respondent has argued that the problem would not exist or would not be relevant. Critical respondents 
expressed concern about the effectiveness of the measure proposed, and requested more details, but did 
not dispute the issue to be addressed. 
According to the standard cost model, estimates of additional administrative burden would be based on 
the assumption that market players are 100% compliant with the current framework and would be 100% 
compliant  with  the  modified  framework.  Under  this  assumption,  the  additional  administrative  effort 
would  be  limited  to  the  actual  transfer  of  information  already  available  in  the  company  to  the 
responsible national authorities, as the current provisions require already that companies have a system 
in place that allows them to detect and analyse security incidents, and to assess the impact they have on 
privacy. The cost of transfer to the NRA could appear to be negligible in comparison to the other tasks 
to be performed in the case of an incident. 

EN 

115 

   EN 

 
                                                 
could  potentially  discourage  certain  groups  from  using  new  technologies  altogether  or  limit 
their  use  to  the  absolute  minimum.  However,  this  possible  negative  effect  could  be 
counter-balanced  by  the  experience  of  empowerment  and  "being  in  control",  at  least  with 
respect to personal data. Indeed, when asked whether they would like to be informed if their 
personal  data249  was  lost,  stolen  or  altered,  64%  of  Europeans  responded  positively  "in  all 
circumstances"  and  further  14%  "in  case  there  was  a  risk  of  a  financial  loss".  Only  12% 
indicated that they would not like to be informed250. These results can be seen as yet another 
proof that data privacy is highly valued by Europeans. 

As for future-proof network integrity requirements, this option would consist in defining 
general  objectives  at  EU  level  which  would  apply  to  a  broader  set  of  networks  than  it  is 
currently  the  case  (also  IP-based  and  mobile  networks,  not  only  PSTN).  Such  general 
objectives would in turn be implemented by the national authorities, which would explicitly 
be  granted 
their 
implementation. This approach could help to ensure an equal level of integrity across the EU, 
addressing  also  cross-border  services.  Coordination  among  national  authorities,  whether 
voluntary or through "comitology" approach, is likely to result in the creation of economies of 
scale for the technical equipment market. 

technical  requirements  and  audit 

to  define  specific 

the  powers 

Modern ICT infrastructure is essential for the successful supply of electronic communications 
services. Telecom operators have an important role to play as suppliers of ICT infrastructure 
and services to their customers; they also require an efficient network infrastructure as well as 
powerful  and  secure  Internet  connections  for  the  provision  of  their  services  and  the  use  of 
advanced  e-business  applications.  A  recent  report  states  that  in  fact  the  Internet  has  already 
become  the  main  channel  of  communication  and  the  primary  way  to  store  and  access 
information  in  the  sector.  It  would  seem,  therefore,  that  many  players  in  the  sector  (both 
mobile and IP network operators) have sufficient business incentives to invest in a robust and 
secure  infrastructure.  The  potential  economic  impact  of  the  proposal  on  those  actors  would 
normally remain limited. Costs of compliance might be higher for companies that so far have 
not  treated  security  and  integrity  as  priorities.  However,  evidence251  of  "pronounced 
awareness of security issues [in the telecommunications industry]" suggests that this group is 
likely to be limited in number. 

As for societal impacts, benefits could be expected in the long run, as the overall reliability of 
networks and services improves in a way noticeable to their users. 

Concerning  improving  the  enforcement  mechanisms,  including  specific  provisions  in  the 
ePrivacy  Directive  itself  (rather  than  a  general  reference  to  Directive  95/46/EC)  would 
encourage  Member  States  to  assign  appropriate  priority  to  enforcement  of  the  rights  of 
citizens  under  the  Directive  (in  so  far  as  this  has  not  been  the  case  up  till  now).  Moreover, 

249 

250 

251 

The question referred to personal data collected by telecom providers, such as name, address and credit 
card details. 
In every country except for Romania the majority of the respondents would like to be informed in all 
circumstances.  This  is  particularly  the  case  in  the  three  Nordic  countries  and  Malta.  A  quarter  of 
respondents  in  the  Czech  Republic  would  like  to  be  informed  if  there  was  a  risk  of  financial  harm, 
followed by 24% of Austrians. On the other hand, Hungarians and Austrians state most often that they 
would  not  like  to  be  informed,  no  matter  the  consequences  (26%  and  22%  respectively).  Special 
Eurobarometer 274, E-communications household survey, July 2006: 
http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm 
European Information Technology Observatory EITO 2007, p. 134: http://www.eito.com; see also the 
industry's contributions to the public consultation on the Review proposals. 

EN 

116 

   EN 

 
                                                 
 
empowering  ISPs  to  take  legal  action  (whether  in  a  court  of  law  or  before  a  competent 
national  authority)  in  defence  of  their  legitimate  business  interests  and  interests  of  their 
customers should facilitate actual prosecution of spammers. 

In all these areas, the new European Regulatory Authority could play an important role by 
providing  technical  advice  and  opinions  to  the  Commission  prior  to  the  adoption  of  any 
technical  implementing  measures.  Furthermore,  Under  Option  2,  operational  problems 
identified  with  the  existing  European  Network  and  Information  Security  Agency  ENISA 
could be tackled by integrating ENISA in the Authority, as discussed in Chapter 7.  

9.6. 

Comparison of options and impacts 

Option  1  (no  change  to  the  regulatory  framework)  would  mean  that  the  review  would  not 
address  the  existing  big  differences  between  the  27  EU  Member  States  with  respect  to  the 
application  of  "technical  and  organisational  [security]  measures".  Also,  requirements 
concerning  network  integrity  would  remain  applicable  to  fixed  telephony  networks  only, 
which  would  substantially  reduce  their  relevance  in  the  future,  with  networks  evolving 
towards all-IP environment. 

Self-regulatory  initiatives  or  co-regulatory  measures  in  the  Member  States  cannot  be  out 
ruled,  but  their  effectiveness  would  highly  depend  on  the  consensus  of  all  stakeholders 
involved (industry, consumers and regulatory authorities) and especially on the willingness of 
the  industry  to  commit  itself  to  concrete  solutions,  preferably  at  the  EU  level.  However,  in 
this  respect  there  are  no  indications  that  a  voluntary  self-regulation  would  take  place  at  a 
broader  scale  any  time  soon  or  that  it  could  guarantee  a  coherent  approach  to  network  and 
information security across the EU. 

At  the  same  time,  it  should  be  kept  in  mind  that  in  most  areas  discussed  in  this  section, 
self-regulation would remain possible even if the other options would be implemented.  

In  the  public  consultation,  the  Commission'  initial  proposals  received  generally  a  broad 
support,  although  it  became  apparent  that  some  adjustments  would  have  to  be  made  at  the 
stage  of  drafting  the  actual  legislative  proposals.  In  particular,  strong  opposition  from  most 
stakeholders  groups  was  voiced  against  the  proposal  to  introduce  liability  for  operators  for 
non-compliance with security and privacy requirements. In view of the arguments put forward 
(unfair  burden  on  one  group;  increased  costs  for  consumers;  potentially  significant  adverse 
impact on innovations), it has been decided not to include this item in the legislative proposal. 

Concerning  the  obligation  of  operators  to  implement  and  maintain  security  measures,  the 
main  concern  of  stakeholders,  and  in  particular  of  the  industry  was  that  more  and  detailed 
legislation could significantly increase their cost of doing business and thus adversely impact 
competition,  and  in  particular  new  entrants.  For  these  reasons,  option  3  (introduce  a  new, 
detailed instrument dealing with security and integrity) should be discarded. 

By the same token, option 2 (update and strengthen the current provisions) seems to address 
the issues at hand in a harmonised manner without running the risk of being too prescriptive. 
In all the areas where changes had been proposed, it is likely to ensure sufficient flexibility, 
necessary  to  adequately  respond  to  new  technology  developments  and  emerging  security 
trends.  At  the  same  time,  it  would  provide  for  mechanisms  to  ensure  a  sufficient  level  of 
harmonisation  across  Europe.  That  seems  to  be  particularly  important  in  the  case  of 
specifying the technical and organisational security measures to be implemented by operators 

EN 

117 

   EN 

 
and  service  providers,  but  this  approach  also seems  appropriate  for  the  issue  of  introducing 
mandatory security breach notification at EU level. 

The table below provides a summary on main likely impacts and risks arising from the two 
policy  options  with  respect  to  the  different  economic  and  social  dimensions.  Impacts  of 
Options 2 are compared to the “no change” option 1, which provides a baseline scenario for 
the  assessment.  The  signs  represent  a  scale  of  possible  impacts  vis-à-vis  the  “no  change 
scenario”: (cid:172) positive impact, O neutral impact, − negative impact  

EN 

118 

   EN 

 
Table 5. Summary on the main impacts and risks of the options 

IMPACTS 
AND RISKS  

Investment 
and innovation 

Competition 

Internal 
market, 
regulatory 
consistency 

Economic 
operators' 
costs and 
benefits 

Option 1 – No change  

Option 2 – Update and strengthen 
current provisions  

ECONOMIC  

Risk  of  underinvestment  in  security,  however,  little 
regulatory  risk  of  mandating  inefficient  investment  in 
security and integrity. Voluntary co-ordination and self-
regulatory measures may not result in more investment 
in security.  

(cid:172)/−  Positive  impact  on  investment  in  security  can  be 
expected. However, risk of lower return  on investment 
due  to  higher  compliance  costs  for  businesses  and 
impacts on reputation (in the case of mandatory breach 
final  outcome  will  depend  on 
disclosure).  The 
implementation  of 
the 
individual Member State.. 

the  general  provisions 

in 

Lower  risk  of  creating  “walled  gardens”  as  a  result  of 
too strict security measures. Less transparency on the 
market  as  regards  security  “performance”  of  service 
providers.  

(cid:172)/−  More  transparency  on  the  market,  security  and 
reliability could become a factor  of competition among 
service  providers.  However,  higher  compliance  costs 
could raise barrier to entry for new service providers. 

requirements  on  operators 

Diverging 
in  different 
Member  States,  additional  cost  of  compliance  with 
differing  regulatory  regimes,  network  integrity  across 
technologies  and  across  borders  would  not  be 
guaranteed.  Voluntary  co-ordination  between  MS  can 
improve  the  situation  but  improvements  would  be 
slower than in Option 2.  

Overall,  lower  compliance  costs  for  operators  than  in 
Option  2.  Differences  in  implementation  in  Member 
States,  therefore  differences  in  costs  for  operators  in 
different Member States. 

(cid:172)/O  More  consistent  application  of  rules  across  the 
EU,  level  playing  field  for  businesses  and  more 
regulatory  certainty.  However,  detailed  application  of 
the  general 
requirements  will  still  depend  on 
implementation in Member States,  

O/−  Higher  compliance  costs  for  operators.  Additional 
burden  will  be  probably  higher  for  SMEs  than  for  big 
operators.  Magnitude  of  the  burden  will  depend  on 
concrete  implementation  provisions  in  MS.  Thresholds 
for notification can mitigate the costs. Some operators 
fear  that  mandatory  notifications  could  create  “walled 
gardens”  and  encourage  the  industry  to  rely  more  on 
proprietary systems.  

Administrative 
costs for public 
and private 
sector 

Overall  reduction  due  to  lower  administrative  burden 
and  less  regulation  for  operators.  Less  burdensome 
general  authorisations  will  be  used  more  often  than 
more burdensome individual licenses. Some additional 
burden  related  to  transition  to  a  more  flexible  and  co-
ordinated system.  

−  Increase  in  administrative costs  associated  with  the 
legal  obligation  imposed  on  services  providers  to 
inform  customers  and  NRAs  about  security  breaches. 
Some 
in  administrative  burden  and 
enforcement costs for NRAs.  

increase 

Consumer 
benefits  

No improvement in security, risk of deterioration of the 
situation  in  the  medium  to  long  term.  Consequently, 
risk  of  low  trust  of  consumers  in  ICT,  lack  of  public 
information  on  security 
“performance”  of  service 
providers.  

(cid:172)/−  Higher  quality  and  security  of  networks  and 
services  can  be  expected.  More  information  and 
transparency  for  consumers.  However,  at  least  part  of 
the costs may be passes on to consumers which could 
lead  to  higher  prices  in  short  to  medium  term.  Risk  of 
“notification fatigue” 

 SOCIAL 

Social and 
digital inclusion 

Risk of lower trust of consumers in ICT will not benefit 
digital  inclusion  for  all  EU  citizens.  Differences  in 
approach  to  security  in  MS  would  lead  to  inequalities 
between  European  citizens  as  regards  rights 
for 
information on security breaches and guaranteed level 
of security of networks.  

(cid:172)/O  More  information  and  transparency  and  trust 
should  encourage  uptake  of  ICT.  Quality  and  security 
of  service  will  become  a  selection  criterion 
for 
consumer.  Risk  of  discouraging  certain  social  groups 
from  using  new  technologies  as  a  result  of  breach 
disclosure.  However,  evidence  suggests  that  most 
consumers prefer to be informed.  

Privacy, 
security and 
safety 

No real improvement in security, risk of deterioration as 
the number and severity of security breaches increase. 
Overall 
voluntary 
result  heavily  depends  on 
commitment  of  operators  and  co-ordination  among 
is  achieved, 
Member  States. 
differences in approach to security will persist.  

If  no  co-ordination 

(cid:172)  Overall  improvement  in  security  of  networks  and 
electronic communications services. Better information 
on  the  level  of  security  of  networks  and  services. 
Gradual  building  of  reputation  of  reliable  service 
in  e-Communications 
trust 
providers, 
networks and services. Lower risk of outages.  

increased 

EN 

119 

   EN 

 
9.7. 

 Conclusion 

The  Commission  considers  that  option  2  (update  and  strengthen  the  current  provisions  in 
specific  areas)  is  the  most  appropriate  one  offering  balance  of  harmonisation,  predictability 
and flexibility to allow future security threats to be addressed in a timely way. 

V 

OVERALL IMPACT 

10. 

OVERALL EFFECT AND SYNERGIES OF THE LEGISLATIVE PACKAGE  

This  Impact  Assessment  report  has  examined  separately  five  key  areas  of  the  regulatory 
framework for eCommunications. In each area, several options are analysed and a preferred 
option  is  identified.  This  section  looks  at  the  options  at  an  overall  level  to  examine  the 
synergies between options and the overall effect of the measures as a package. The following 
also  discusses  the  key  simplification  elements  and  the  overall  environmental  impacts  of  the 
package. 

10.1. 

Synergies between different areas of analysis 

Taken as a whole the measures proposed in the reform should support the multiple objectives 
of the regulatory framework – to create an open and competitive single market, to encourage 
innovation  and  investment  and  to  ensure  secure  and  affordable  high  speed  networks  and 
services. 

The strongest thrust of the reform is to achieve a “more competitive and open single market 
encouraging new investment and innovation.” The mix of options discussed in Chapters 5, 6 
and 7, taken both separately and together, are targeted upon specific improvements that can be 
made to the existing framework in order to make regulation more consistent and to focus it on 
areas where there are enduring barriers to competition. Spectrum reform proposed in Chapter 
6 (Option 1) and reinforced measures to counter discrimination on access markets (functional 
separation as a new exceptional remedy proposed in Chapter 5) are clearly aimed at providing 
scope for more competition and innovation, and thereby investment.  

Both  these  elements  also  have  a  deregulatory  effect  in  that  they  create  new  structures  for 
market  regulation  that  require  less  routine  interventions,  and  thus  greater  legal  certainty. 
However, taken on their own they would not necessarily reinforce the single market, i.e. the 
creation of a common playing field in the EU telecommunications markets. Both will only be 
really  effective  if  implemented  inside  a  harmonised  approach.  For  example,  functional 
separation requires a major intervention on the part of the regulator that could have distorting 
effects on neighbouring markets if not carried out according to commonly agreed guidelines. 
Spectrum  decisions  also  are  well  recognised  to  need  broad  harmonisation  efforts  so  as  to 
optimise the use of this valuable resource, and radio waves do not respect national frontiers. 
For these reasons a reinforced coordination function is needed to assist the emergence of the 
single market in Europe. An independent European Authority is considered as the best option 
to  improve  the  existing  co-ordination  mechanisms,  given  the  current  legal  conditions  and 
limitations.  A  stronger  internal  market  dimension  will  at  the  same  time  improve  the 
conditions for cross-border investment while providing more legal certainty and consistency 
throughout the EU.  

EN 

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   EN 

 
Options  in  Chapters  8  and  9  analyse  possible  ways  of  strengthening  user  rights,  consumer 
protection  and  security  of  networks.  Overall,  a  certain  balance  has  to  be  found  between  the 
level of consumer protection and the regulatory burden imposed on business. Very restrictive 
consumer  protection  and/or  security  measures  could  hamper  or  at  least  slow  down 
achievement of the objectives in the competition and investment area. Additionally, Chapters 
8 and 9 have a direct link to the institutional arrangements discussed in Chapter 7. Enhanced 
co-ordination  can  be  beneficial  in  areas  such  as  the  effective  implementation  of  the 
emergency  call  number,  eAccessibility,  transparency  and  information  for  end-users  or  co-
ordination of network integrity requirements. Here again, the European Authority would help 
realise  potential  synergies  between  the  different  areas  of  regulation  and  consistency  in 
application of the regulatory framework in different Member States.  

10.2. 

Simplification and reduction of administrative burdens  

Simplification  of  the  regulatory  environment  for  businesses  is  one  of  the  priorities  of  the 
Commission’s Better Regulation Strategy. The review of the regulatory framework is listed in 
the Commission Simplification Rolling Programme for 2007 as an initiative that should lead 
to significant simplification of the current regulatory obligations. 

The  current  regulatory  package  was  already  a  major  simplification  of  the  prior  acquis,  It  is 
also  inherently  deregulatory:  with  an  in-built  mechanism  to  roll  back  regulation  where 
competition  is  established  in  the  form  of  the  Commission  Recommendation  on  relevant 
markets  which  is  being  updated  alongside  the  reform  proposals.  The  proposed  new  list  of 
markets susceptible to ex ante regulation will not only be substantially shorter, but will focus 
regulation  on  wholesale  markets.  This  is  a  significant  simplification  that  will  reduce  the 
regulatory  burden  for  businesses  in  the  sector  and  cut  their  compliance  and  administrative 
costs. 

Moreover, the future, the key simplification proposals of the regulatory package include:  

– 

– 

– 

Simplified market review procedures: relaxation of notifications to the Commission 
will be introduced. This will bring additional cost reductions particularly for NRAs. 

Reduced  regulatory  risk  and  faster  regulatory  decisions  due  to  the  action  of  the 
proposed  Authority,  which  is  expected  to  yield  substantial  gains  for  the  sector  in 
terms of lower cost of capital and greater incentives to innovate. 

Simplifications  in  the  management  of  spectrum:  proposals  for  spectrum  reform 
represent  significant  simplification  of  administrative  procedures  for  providers  of 
spectrum-dependent  services.  General  authorisations  instead  of  individual  licences, 
service  and  technology  neutrality  principles  and  a  simplified  procedure  for 
authorisation of services with pan-European potential will reduce both administrative 
and compliance costs of operators and speed up procedures. 

On  balance,  the  regulatory  package  contributes  to  the  simplification  objective.  Where  there 
are  additional  obligations  for  businesses,  it  is  due  to  the  focusing  of  the  framework  on  the 
areas  where  there  are  persisting  or  emerging  areas  of  concern  such  as  the  new  consumer 
protection and security measures (e.g. mandatory breach disclosure requirements).  

As  regards  the  related  issue  of  administrative  burden,  the  main  areas  of  reduction  are  as 
follows: 

EN 

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– 

– 

Lighter market review procedures – current costs and future reductions are quantified 
in Annex II; and 

Streamlined spectrum management and authorisations of services with pan-European 
potential – reductions in administrative burden are related to simplification benefits. 

Benefits  from  the  reduction  in  administrative  costs  in  these  areas  must  be  compared  to 
additional costs, e.g. those related to the legal obligation of mandatory breach disclosure. As 
explained in Chapter 9, although reliable quantification of the administrative costs cannot be 
provided  at  this  stage  -  detailed  analyses  of  administrative  burdens  will  be  part  of  the 
implementation process - a net reduction of administrative burden is expected. 

10.3.  Environmental impacts  

The  key  impacts  of  the  regulatory  framework  for  electronic  communications  are  economic. 
The detailed analysis of options in each of the five areas focused mainly on the economic and 
to a lesser extent on the social dimension, bearing in mind that the environmental impact of 
certain options (in particular in the institutional area) is very indirect and therefore difficult to 
assess. The whole package of measures nevertheless has certain environmental implications. 
For this reason, the discussion on environmental impacts is presented in this section dealing 
with overall impacts and synergies.  

Firstly,  the  ICT  sector  in  general,  and  electronic  communications  networks  and  services  in 
particular,  play  an  important  role  in  the  debate  on  energy  efficiency.  eCommunications 
services contribute to more energy consumption252 (use of more devices, higher capacity and 
performance of networks and network equipment requiring more energy, computers being left 
on with broadband connections, etc.).  

Secondly,  the  sector  is  an  important  generator  of  electronic  waste.  Ubiquity  and  variety  of 
communications  services  implicitly  means  that  the  number  of  electronic  devices  increases. 
The  life  cycle  of  products  is  relatively  short  and  new  devices  appear  rapidly  as  the  pace  of 
technology  development  and  innovation  increases.  The  rapid  development  of  the  electronic 
communications  sector  could  thus  have  negative  environmental  implications.  On  the  other 
hand,  if  the  sector  has  sufficient  funds  to  invest  in  research  and  development,  new 
technologies reducing energy consumption and waste generation can be developed. The issues 
of  energy  consumption  and  electronic  waste  are  however  not  dealt  with  in  the  regulatory 
framework but in other Community legislation.  

On the positive side, eCommunications have a significant potential to accelerate the transition 
of  the  traditional,  material-based  economy  to  a  knowledge-based  society.  This  potential  has 
not yet been fully realised. Communications services can replace transport and travel (through 
teleworking and video-conferencing and internet services), help change consumption patterns 
towards  more  sustainable  ones,  and  introduce  new  working  methods  (such  as  eCommerce, 
eGovernment,  eLearning).  The  advantages  from  this  transformation  would  significantly 
outweigh  the  disadvantages  related  to  energy  consumption  and  waste  generation  of  the 
industry.  

252 

According  to  available  estimates,  ICT  consumes  around  2-4%  of  global  energy  (figures  presented  by 
Sun Microsystems at the Commission seminar Mainstreaming sustainability in the ICT agenda). 

EN 

122 

   EN 

 
                                                 
For example, a study by the RAND Corporation on future electricity requirements of the ICT 
industry  in  the  US  argues  that  “even  large  growth  in  the  deployment  and  use  of  digital 
technologies will only modestly increase electricity consumption in the United States over the 
next two decades”253. In Europe, there are already examples of voluntary industry initiatives 
aiming  at  a  more  sustainable  provision  of  products  and  services  and  minimising  negative 
environmental impacts254.  

issues  related 

The question is: How can the regulatory framework help accelerate the transition? As noted 
earlier, the impact of the framework on the environment is indirect in the sense that it does not 
regulate  environmental 
to  eCommunications  networks  and  services. 
Nevertheless,  the  framework  can  strengthen  the  positive  contribution  of  the  sector  to  the 
environment and to sustainable development through acceleration of deployment and uptake 
of  advanced  electronic  communications  services.  Only  when  these  services  become  a  mass 
market for domestic and corporate users, can their potential be realised. The high level goals 
of  the  regulatory  framework  and  of  the  i2010  strategy  (Single  European  Information  Space 
with  available  and  affordable  high  speed  networks  and  services)  are  fully  in  line  with  the 
EU’s renewed Sustainable Development Strategy and their achievement will help accelerate 
the transition to a more sustainable economy.  

10.4. 

Synthesis of the preferred options 

The following table summarises the key economic, social and environmental impacts - as well 
as risks and uncertainties – arising from the preferred options in each area examined by this 
report.  It  aims  at  showing  the  synergies  between  the  options  across  the  five  key  areas  of 
analysis and at providing an overall synthesis assessment of the proposed legislative package, 
so that the broad impacts of the review can be appreciated. 

IMPACTS 

Positive effects of proposed approach 

Risks/Uncertainties 

Internal market 
and regulatory 
consistency 

ECONOMIC IMPACTS 

Positive impact of enhanced co-ordination in 
spectrum management (i.e. co-ordinated 
introduction of spectrum trading), of harmonised 
conditions and procedures for pan-European 
services using frequencies and numbers. 
Strengthening of regulatory consistency through 
the Commission approval of remedies and 
establishment of an independent European 
electronic communications market Authority, 
which will also give advice in spectrum and 
number management for services with 
pan-European potential 

Implies more co-ordination 
and transfer of some powers 
to the EU level; but national 
control of spectrum and 
numbering resources will 
continue to result in 
inconsistencies of approach. 

Competition 

Functional separation as a new remedy could 
improve service-based competition where 
competition problems and bottlenecks persist and 
where other remedies are not effective. Spectrum 
reform introducing more flexibility in the market 

Risk of reducing access 
infrastructure competition 
where infrastructure can be 
duplicated, as new entrants 
can rely on the incumbent’s 

253 
254 

Electricity Requirements for a Digital Society, RAND Corporation, 2002. 
The  Sustainability  Charter  of  the  European  Telecommunications  Network  Operators’  Association 
(ETNO)  is  an  example  of  such  initiative.  See  the  ETNO  Sustainability  Report  2006  at: 
http://www.etno.be/Portals/34/publications/other/Sustainability_Report_2007.pdf. 

EN 

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Investment 

Speed and 
effectiveness of 
implementation 

Consumers – 
individual and 
business users 

Compliance 
cost for private 
sector 

will reinforce competition in wireless industries.  

Competition (whether arising from the market or 
supported by regulation if and when necessary) 
should drive investment in existing and new 
networks. Functional separation, appropriately 
implemented, should preserve investment 
incentives. Spectrum reform will encourage 
investment and create new investment 
opportunities particularly for new service providers 
through lower costs of entry. More regulatory 
consistency and simplified procedures for 
pan-European services should facilitate 
investment across national borders. More 
investment in security is expected as a result of 
new security measures.  

Positive impact of streamlining of market reviews, 
changes concerning national appeals and 
reduction in the number of markets in the 
Recommendation. Significant efficiency gains for 
market players from reduced regulatory 
uncertainty due to the Authority. Positive impact of 
spectrum reform – simplified procedures, general 
authorisations as a rule, harmonised conditions 
for pan-European services, contribution of 
Authority . Enhanced enforcement mechanisms 
should improve implementation of the ePrivacy 
directive.  

More choice, more services at lower cost as a 
consequence of more flexible spectrum 
management. High-speed broadband more 
available and affordable across the EU. Better 
tariff transparency and guarantee of minimum 
quality of service if NRAs use their new powers. 
More information for consumers about security 
breaches. Possibility to offer similar services 
under similar conditions to business users across 
the EU.  

An overall trend towards less regulation 
(i.e. especially reduction in the number of relevant 
markets and spectrum reform) would lead to lower 
compliance costs for companies in general. Faster 
more consistent regulation will reduce uncertainty 
and thus lower costs. 

Administrative 
cost for private 
sector and 
public sector 

Overall, lower administrative burden for operators 
and NRAs, essentially due to reduction of 
administrative costs of market reviews (see 
Annex II for details).and 'one stop shop' provided 
by Authority  

infrastructure - risk of 
dependency on regulation. 

Empirical evidence providing 
direct links between the 
regulatory framework and 
investment is still being 
accumulated (due to the 
relatively recent 
implementation of the 
framework and differences 
among MS). Ineffective 
implementation and risk of 
regulatory failure would lower 
the investment incentives.  

Implementation remains 
national issue, despite 
strengthened Commission 
oversight and co-ordination in 
some areas.  

Benefits for consumers 
across the EU depend among 
others on the quality of 
implementation. Impact of 
new approach to spectrum 
will take time to feed through 
to consumers as tangible 
benefits.  

Increased compliance costs 
for some companies, as a 
result of, mandatory 
disclosure of security 
breaches, new network 
integrity requirements, caller 
location obligations. 
Uncertainty over possible 
imposition of functional 
separation by NRAs. 

Some increase in 
administrative costs related to 
new reporting obligations for 
security breaches. 

Incumbent 
operators 

Less regulation overall, particularly for fixed 
operators (most retail regulation will be removed 
from the Recommendation). Benefits from 
regulatory consistency across the EU.  

Risk to new investment by 
incumbent operators if 
regulatory cost orientation is 
set too low to incentive 

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investment in next generation 
access. 

Risk of deterring investments 
in alternative access 
networks and  

The overall employment 
effects depend on many 
different variables and the 
influence of the regulatory 
framework is difficult to single 
out.  

Alternative 
operators 

Employment 
and labour 
market 

Positive impact, more opportunities to access 
spectrum for mobile/wireless service providers, 
access to incumbent’s networks through 
regulation where justifies, benefits from regulatory 
consistency across the EU. Will benefit from 
equivalence of access where functional 
separation is imposed.  

SOCIAL IMPACTS 

Some evidence exists about the positive impact of 
competition on employment in the sector255. The 
latest research suggests that full market opening 
of all network industries (electricity, gas, transport, 
communications and postal services) could create 
140.000 - 360.000 new jobs in the EU15. The job 
effects are expected to take place in the other 
sectors of the economy through spill-over effects, 
generated for instance by price reductions256.  

In wireless industries, increased competition 
should lead to withdrawal of inefficiencies and 
possibly reorganisation of the market with positive 
employment effect on certain wireless/mobile 
operators. This assertion is confirmed by the 
results of the quantitative model (Annex I). Apart 
from employment effects in the sector, available 
and affordable communications networks and 
services have the potential of boosting 
employment in the whole economy.  

Social/digital 
inclusion 

Disabled users 

In general, effective competition and more 
investment in networks should result in more 
affordable and available services for all social 
groups. However, complementary policies may be 
needed to tackle the demand side and provide 
public funds where private incentives are not 
sufficient (e.g. broadband coverage). New 
approach to spectrum will facilitate wireless 
broadband access in less populated areas. 

Risk of not achieving 
sufficient synergies between 
the different policy 
instruments at the EU, MS 
and regional levels (universal 
service concept, Structural 
Funds, eGovernment, 
eHealth policies, education 
and training, etc.). 

Concrete measures for disabled users will 
facilitate access to electronic communications 
services (strengthening the right of disabled users 
to access emergency services via 112, new 
Community mechanism to address eAccessibility, 
including a specific role for the Authority. 

Risk that the new 
requirements would mean 
less incentive for operators to 
innovate due to the risk of 
potential imposition of 
regulatory measures 
concerning eAccessibility. 

Privacy and 
security 

Consumers will have better information to 
providers’ security and integrity standards (due to 
mandatory disclosure of breaches). Lower 

Costs of new security 
measures could be passed 
on to consumers.  

255 

256 

For example: The Positive Effects of Competition on Employment in the Telecommunications Industry, 
Phoenix Center Policy Bulletin No 7, 2003. 
The potential economic gains from full market opening in network industries, Copenhagen Economics, 
January 2007, available at: http://www.dti.gov.uk/files/file37074.pdf. Note that the study covered only 
the 'old' EU Member States, i.e. 'EU15'. 

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Sustainable 
development 

economic risk of outages, higher reliability of 
networks.  

ENVIRONMENTAL IMPACTS 

A key element of the EU's over-arching renewed 
Sustainable Development Strategy (SDS) is to 
"reconcile environmental protection and smart 
economic growth and exploit win-win 
opportunities"257. The accelerated deployment and 
uptake of advanced e-communications services is 
recognised as the principle way in which this 
could be accomplished. Therefore, the regulatory 
framework has a clear link to the SDS, however 
the impact of individual measures on environment 
is hard to determine.  

Uncertainty as to whether the 
transition to more sustainable 
economy will happen fast 
enough even if the 
technologies and 
e-communications services 
are available on a large scale. 

Waste 
production/ 
generation, 
recycling 

A healthy eCommunications industry will have the 
funds to research new technologies that could 
reduce power consumption and cut electronic 
waste. 

The electronic waste directive currently under 
review deals with the issue of electronic waste258.  

Market growth could lead to 
an increase in the amount of 
electronic waste. Risk of 
negative environmental 
impact. 

VI 

MONITORING AND EVALUATION 

The  Commission  annual  implementation  reports  on  European  electronic  communications 
regulation  and  markets  provide  comprehensive  data  and  analysis  of  market,  regulatory  and 
consumer  developments  in  the  sector.  These  reports  cover  a  broad  set  of  indicators  such  as 
prices, number of alternative providers, investment by incumbents and new entrants, market 
shares of operators, broadband penetration, and development of new technologies. The latest 
report  of  2006  (published  in  March  2007)  was  the  12th  consecutive  report  that  for  the  third 
time covered the sector in 25 Member States259. 

The implementation reports are assembled on the basis of information received from various 
sources  in  particular  through  missions  carried  out  in  the  Member  States  by  staff  of  the 
Directorates General for Information Society and Media and for Competition, analysis of the 
notifications  of  national  transposition  and  implementing  measures  received  from  Member 
States,  market  data  received  from  national regulatory  authorities  and  surveys  commissioned 
on price developments.  

The existing collection of data appears to be sufficient to monitor the proposed changes. The 
annual  implementation  reports  will  therefore  remain  the  main  tool  for  monitoring  and 
evaluating  the  implementation  of  the  regulatory  framework  also  after  the  current  legislative 
changes to the directives have been implemented. This data collection and monitoring is also 
continuously being developed in order to better assess the effects of EU rules in the dynamic 
sector.  

257 
258 

259 

See: http://ec.europa.eu/sustainable/docs/renewed_eu_sds_en.pdf. 
Directive  2002/96/EC  of  the  European  Parliament  and  of  the  Council  of  27  January  2003  on  waste 
electrical and electronic equipment (WEEE). 
The reports are available at: 
http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/index_en.htm. 

EN 

126 

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In  addition,  the  Commission  will  continue  to  conduct  household  surveys  to  measure  the 
attitude  of  European  households  and  individuals  in  particular  towards  telephony,  Internet 
access,  TV  broadcast  services,  bundled  offers,  112  emergency  call  number,  telephone 
directories, privacy and security. 

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 ANNEX I: ECONOMETRIC MODELLING OF THE IMPACT OF SPECTRUM REFORM 

The main features of the econometric model 

The basis for the econometric model used in the study Benchmarking Impacts of EU Policy 
Options  for  Economically  Efficient  Management  of  Radio  Spectrum  (SFC  Associates, 
2006)260 is three regulatory scenarios that were discussed in Chapter 6.6.1. For each scenario, 
the predicted rational response from the individual operators to the regulatory choice is used 
to develop four predicted data sets at the microeconomic level, building on known historical 
data. The model then uses an identified historical correlation between:  

a) 

Four microeconomic parameters: 

1.  Average revenue per user of mobile telephony 

2.  Mobile subscribers above saturation per 100 people 

3. 

4. 

Range of services (in everyday use by most subscribers) 

Coverage of most advanced services; and 

b) 

Five mesoeconomic parameters: 

1.  Growth of wireless industries (as # of WiFi hotspots) 

2.  Average mobile subscribers per 100 people 

3. 

4. 

5. 

E-Readiness261 

Consumer expenditure on communications 

Consumer expenditure as % of total disposable income. 

All  of  these  micro/meso  correlations  are  weighted  and  used  in  the  model.  The  five 
meso-economic parameters are separately correlated against four macroeconomic parameters: 

1. 

2. 

3. 

4. 

EU employment in knowledge industry 

EU GDP growth rate % 

EU GDP/head 

Foreign Direct Investment – as index of opportunity 

The best of those individual meso/macro correlations is then used to estimate the effect at the 
macro level of regulation as in the figure below. 

260 

261 

The study is available at: 
http://ec.europa.eu/information_society/policy/ecomm/tomorrow/index_en.htm. 
E-readiness  is  the  “state  of  play”  of  a  country’s  ICT  infrastructure  and  the  ability  of  its  consumers, 
businesses and governments to use ICT to their benefit. It is based on over 100 separate quantitative and 
qualitative  criteria  in  six  weighted  categories:  1.  Connectivity  and  technology  infrastructure  (25%); 
2. Business  environment  (20%);  3.  Consumer  and  business  adoption  (20%);  4.  Legal  and  policy 
environment  (15%);  5.  Social  and  cultural  environment  (15%);  6.  Supporting  e-services  (5%).  
See http://graphics.eiu.com/files/ad_pdfs/2006Ereadiness_Ranking_WP.pdf. 

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The relation between micro and meso is based on weighted cross-correlation of historical data 
(and  with  varying  weighting  dependent  on  scenario)  and  as  always  the  past  is  an  uncertain 
predictor  of  the  future.  A  best-fit  correlation  as  between  meso  and  macro  should  also 
preferably be tested over time. 

Micro1 

Micro 2 

Micro 3 

Micro 4 

Choice 1 

Choice 2 

Choice 3 

Scenarios 

Meso 1 

Meso 2 

Meso 3 

Meso 4 

Meso 5 

Macro 1 

Macro 2 

Macro 3 

Macro 4 

The  consultants  have  clearly  acknowledged  the  limitations  of  the  model  and  used  three 
scenarios, which should be seen as simplified representations of different regulatory options 
and  their  projections  to  the  future.  Although  these  are  scenarios  bordering  on  the  extreme, 
they do highlight how policy choices and the regulatory environment have real effects on the 
European  economy  and  our  efforts  to  bridge  the  digital  divide.  The  scenarios  are  briefly 
discussed below: 

Scenario 1  

The  regulatory  choice,  based  on  EU  coordination,  is  to  open  up  several  important 
bands  to  unlicensed  use,  combined  with  the  introduction  of  secondary  trading  of 
spectrum usage rights and service and technology neutrality. Technology to manage 
interference  is  assumed  to  be  available.  Enforcement  of  competition  regulation  is 
limited. 

The operator at the micro level would under this scenario try to ensure market share 
by  buying  spectrum  to  prevent  new  competing  entrants.  Increasingly,  commercial 
services  based  on  unlicensed  use  of  spectrum  would  appear  as  the  prices  of  the 
necessary  technology  would  fall,  making  competition  with  traditional  licensed 
service a viable alternative. 

Scenario 2 

The  regulatory  choice,  based  on  EU  coordination,  is  to  open  up  most  spectrum  to 
secondary trading of spectrum usage rights. Enforcement of competition regulation is 
limited. 

In  this  scenario,  survival  and  expanding  market  share  become  the  drivers  for  an 
individual operator. The logic of preventing access for new competitors would lead 
to a scramble for all available spectrum. The introduction of new technologies would 
happen only where it does not upset the market balance. 

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129 

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Scenario 3  

The regulatory choice is to step back from EU coordination. Member States establish 
secondary trading of spectrum usage rights according to national criteria. Regulatory 
action aims at securing a market for local suppliers of equipment and services. 

An  operator  would  in  this  scenario  primarily  aim  at  increasing  the  market  share. 
Technology under existing European standards such as GSM or DVB would remain 
in  use  also  when  obsolescent.  New  services  would  emerge  in  "islands"  of  Member 
States  and  slowly  seep  back  to  the  others.  Member  States  without  a  manufacturing 
tradition may leapfrog those with an industry to protect. 

No  single  scenario  mirrors  exactly  the  policy  options  outlined  in  Chapter  6.5.1.  However, 
scenarios 1 and 2 can be said to inform Option 1 while scenario 3 may be seen as an extreme 
version  of  Option  2.  The  relationship  between  options  and  scenarios  is  further  discussed  in 
Annex II. 

In brief, the modelling results of the scenario approach indicate that:  

– 

– 

Scenario 1 would give a higher GDP growth and higher GDP/head development due 
to  opening  the  spectrum  and  creating  more  competition.  The  total  market  would 
quickly  separate  in  two  markets  –  with  the  traditional  established  services  being  at 
the centre of the trading markets and new technologies to share spectrum appearing 
in the unlicensed bands. 

Scenario  2  would  result  in  limited  competition  due  to  the  market  effects  such  as 
spectrum  hording.  Operators  with  ‘deep  pockets’  would  be  driven  by  not  only 
gaining  market  access  but  also  by  preventing  others  from  using  any  part  of  the 
spectrum available for a competing offer. This scenario assumes that spectrum will 
slowly become a scarcer asset as it is progressively concentrated in fewer hands by 
consolidation  because  market  transactions  naturally  favour  those  with  deepest 
pockets.  Increasingly,  market  players  would  be  bought  solely  for  being  owners  of 
spectrum assets and a trend that will progress with the degree of consolidation.  

Scenario  3  would  leave  the  NRAs  to  make  local  decisions  and  seems  to  give  less 
advantageous  results  in  the  scenarios.  Those  member  states  where  local  forces  for  national 
champions  are  seen  as  benign  and  advantageous  would  go  for  their  own  regimes.  Regional 
clustering around common regimes can be expected with advantages in product costs, services 
costs and media content sharing. 

The table below summarizes the impacts of the scenarios on different groups of stakeholders:  

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Table X. 

Summary of impacts for stakeholders by scenario 

Stakeholder 

Scenario 1 

Scenario 2 

Scenario 3 

Citizens 

Regulators 

choice 

More 
–  more 
services,  lower  cost  with 
more 
(and 
offerings 
offerers);  more  types  of  k-
society use 

More  co-ordination,  and 
move  to  more  unlicensed; 
more  market  control  of 
traded bands 

Few  changes  in  offerings 
expect  progressively 
but 
higher  charges,  to  pay  for 
spectrum 

Same  choices  as  today: 
few  changes  in  services 
and  product  pricing  and 
technologies 

More  market  control 
traded bands 

for 

Same regimes and rules 

Incumbent telcos 

More  challenges  from  new 
entrants/service 
types/technologies 

Must  move  quickly 
maintain 
spectrum acquisition 

to 
position  with 

Old rules rule 

More  opportunities  –  low 
cost entry 

SPs  must  bid  against  the 
largest  for  prime  cuts  of 
spectrum or take the crumbs 

by 

Varies 
spectrum  regime; 
difference to today 

national 
little 

New 
service 
providers  (SPs)  and 
new  radio  product 
entrants 

Media  and  content 
players 

Business  opportunities  as 
players  expand,  especially 
in mobile content 

Few changes as players are 
mainly  conservative  and 
will not have access to wide 
swathes  of  bandwidth  for 
broadband  mobile  on  a  one 
user/one  band  approach  as 
too  expensive;  limited  3G 
market could finally take-off 

to 
Must  move  quickly 
maintain 
position  with 
spectrum  acquisition.  Form 
tacit 
with 
alliances 
incumbent telcos 

Few  and  slow  changes  in 
offerings 
– 
or 
conservative  market;  prices 
and margins maintained. 

prices 

Same  rules  and  players  – 
may  slowly  change  as 
mobile  media  arrives  and 
incumbent 
follow 
media  convergence  (e.g. 
BT  in  UK);  limited  3G 
sales in some MS 

telcos 

Same rules, few changes 

the 

pricing; 

same 
Roughly 
products 
technologies, 
volume 
and 
production 
; 
national  champions  can 
flower 

limited 

Same 
opportunities 

relationships 

and 

Same  relationships  and 
opportunities 

Broadcasters, 
terrestrial & satellite 

More 
mobile media 

competition 

from 

Equipment  suppliers 
including 
networking, 
handsets, etc 

from 
Higher  competition 
new  entrants  plus  rapid 
introductions 
technology 
demands 
R&D 
efforts to keep up 

higher 

suppliers  – 
ISVs, 
system 

Other 
software 
VARs, 
integrators etc 

More  opportunities  as  new 
and 
networks, 
technologies 

services 

Relationship between options and scenarios 

As  pointed  out  in  Chapter  6.6.1.,  no  single  scenario  mirrors  exactly  the  outlined  policy 
options. However, scenarios 1 and 2 can be said to inform Option 1 while scenario 3 may be 
seen as an extreme version of Option 2. 

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Option 1 aims at more flexibility and creates the basic conditions for a concerted introduction 
of secondary trading and opening up bands to unlicensed use. The speed of this opening will 
crucially depend on the availability of technologies to manage interference. From that point of 
view, the provisions in Option 1 put in place an enabling mechanism, which can be used once 
the time for unlicensed spectrum is mature. 

Comparing scenario 1 and 2 also serves as a stark reminder of the continuing need to enforce 
competition law.  

Both  scenarios  presuppose  EU  co-ordination,  technology  and  service  neutrality,  limited 
enforcement  of  competition  law  and  a  possibility  to  trade  spectrum  on  secondary  markets. 
The basic difference is that scenario 1 assumes that technologies able to manage interference 
are  available  (which  is  not  the  case  today)  and  hence,  unlicensed  spectrum  would  be 
introduced  in  more  bands  and,  as  a  consequence,  technologies  using  this  spectrum  will 
become serious competitors of the traditional GSM and 3G technologies. On the other hand, 
scenario  2  that  companies  could  develop  a  dominant  market  position  through  spectrum 
holdings  and  thus  prevent  widespread  use  of  interference  management  technologies  in 
unlicensed bands.  

Option 1 has been developed to avoid the pitfalls that were highlighted in scenarios 1 and 2. 
The option extends competition regulation to cover spectrum holdings. Given application of 
such  regulation,  the  option  is  otherwise  close  to  scenario  2,  ensuring  strong  competition.  It 
would,  however,  over  time  move  to  approach  scenario  1,  by  being  open  to,  but  not 
pre-empting, technical means of managing interference. Option 2 aims in essence at reducing 
one  of  the  two  main  factors  impeding  competition  in  electronic  communication  services, 
namely  the  scarcity  of  spectrum.  The  other,  cost  of  infrastructure,  might  also  in  effect  be 
reduced through more intense use of it. 

However,  there  might  be  a  risk  of  inappropriate  application  of  competition  law  and  ex-ante 
regulation  in  some  Member  States  or  a  risk  of  delays  in  implementation,  which  could 
effectively result in impacts identified for scenario 2 (see below). 

Finally, Option  2  shows  a  degree of similarity with the Third  Scenario. The Third Scenario 
represents  a  “no  co-ordination”  scenario  with  a  mix  of  different  allocation  methods 
(administrative,  market-based,  and  unlicensed)  in  different  Member  States.  The  difference 
between  Option  2,  as  it  is  formulated  above  and  the  somewhat  extreme  assumptions  in  the 
Third  scenario  is  that  according  to  the  Third  Scenario,  Member  States  would  deliberately 
withdraw from co-ordination at the EU level and would focus only on their national interests. 
Option 2 on the contrary involves a significant degree of voluntary co-ordination, though not 
always effective and relatively cumbersome. Scenario 3 was deliberately chosen to show the 
added value of a co-ordinated approach to EU spectrum management.  

Outcome of the model and its interpretation  

Using the correlation coefficients at the micro-, meso- and macroeconomic level, the model is 
able to extrapolate the start values forwards to simulate possible future values for the given 
economic  parameters  to  2020.  This  method  does  not  provide  accurate  “predictions”  of  the 
future  values  of  the  parameters  but  it  does  clearly  reveal  the  likely  trends,  the  order  of 
magnitude of the possible changes and the differences between the individual scenarios.  

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Figure 1 shows the results of the simulation for the set of the five meso-economic parameters. 
Scenario  1  shows  the  most  positive  results  for  all  parameters.  Number  of  WiFi  hot-spots 
(indicating increase in the availability  of WiFi) would rise  significantly faster in Scenario 1 
than in Scenarios 2 and 3. The same holds for the parameter “average mobile subscribers per 
100  of  population”.  The  graphs  show  that  in  terms  of  the  meso-parameters,  there  is  a 
significant difference between Scenario 1 and Scenarios 2 and 3. 

Figure 1. 

Time series for Meso-economic parameters to 2020 

Meso  1  Growth  of  Wireless  industries  (as 
numbers of WiFi hot-spots) 

Meso 2 Average mobile subs per 100pop EU-25 

140000

120000

100000

80000

60000

40000

20000

0
2008

Series1

Series2

Series3

2010

2012

2014

2016

2018

2020

2022

140

135

130

125

120

115

110

2008

Series1

Series2

Series3

2010

2012

2014

2016

2018

2020

2022

Meso 3 e-Readiness 

Meso 
communications (Euros) 

Consumer 

4 

expenditure 

on 

Ser ies1

Ser ies2

Ser ies3

10

10

10

9

9

9

9

9

8

8

8
2008

Series1

Series2

Series3

2010

2012

2014

2016

2018

2020

2022

800

700

600

500

400

300

200

100

0
2008

2010

2012

2014

2016

2018

2020

2022

Meso 5 Communications expenditure as % total disposable income 

6

5

4

3

2

1

0
2008

Ser ies1

Ser ies2

Ser ies3

2010

2012

2014

2016

2018

2020

2022

  1 Radio mix 
1 Radio mix 
  1 Radio mix 
1 Radio mix 
2 Radio Bazaar 
2 Radio Bazaar 
2 Radio Bazaar 
2 Radio Bazaar 
3 Radio Dropouts 
3 Radio Dropouts 
3 Radio Dropouts 
3 Radio Dropouts 

EN 

133 

   EN 

 
 
 
 
Macro level  

Macro-economic parameters are of course in the centre of attention of this impact assessment, 
as they are very closely linked to the objectives of the Lisbon agenda for growth and jobs. It 
has  to  be  borne  in  mind  that  connecting  micro-economic  analysis  of  individual  operators’ 
behaviour through meso-economic level up to the macro-economic parameters such as GDP 
growth is a very challenging task and in many respects  an unexplored  territory. This model 
attempts to make this connection and the limitations of this approach are clearly recognised. 
The study itself suggests areas of future research and improvement of this approach, such as: 

•  use multiple parameters for correlation and for simulation of the next level of aggregation 
rather than the single parameters used in the final stage (for this, statistics and indicators 
must be readily available and reliable) 

•  non-linear  regression  using  multiple  parameters  for  each  of  the  scenarios  (this  step  is 

feasible but would require more time and resources) 

•  allowing  sufficient  weighting  for  non-linear  supplementary  effects  of  saturation,  and 

technology diffusion curves in cross variable analysis 

•  use of techniques for detecting signals in noise, both deterministic and non-deterministic 

Having  taken  these  limitations  into  account,  the  macro-economic  parameters  show  similar 
development as the meso-economic parameters. Differences between the 3 scenarios are not 
substantial  for  the  indicator  “employment  in  knowledge  industries”.  However,  in  all  the 
remaining parameters, scenario 1 scores significantly better than scenarios 2 and 3.  

For GDP growth in particular, the difference between a best case scenario (scenario 1) and the 
worst  case  scenario  (scenario  3)  would  be  0.1%  of  the  annual  GDP  growth,  which  is  a 
substantial potential contribution to the European economy, equivalent to around € 10 billion. 
This difference may is mainly due to increased competition in the sector.  

Figure 2. 

Results for macro-economic parameters for the 3 scenarios 

EU Employment in Knowledge industries,  

EU GDP Growth Rate % 

% workforce 

70

60

50

40

30

20

10

0
2008

Ser i es1

Ser i es2

Ser i es3

2

1.5

1

0.5

0

2010

2012

2014

2016

2018

2020

2022

2008

2010

2012

2014

2016

2018

2020

2022

EU GDP per head, Euros 

FDI – as index of opportunity (Mn US$) 

EN 

134 

   EN 

 
25400

25300

25200

25100

25000

24900

24800

24700

24600

800000

700000

600000

500000

400000

300000

200000

100000

2008

2010

2012

2014

2016

2018

2020

2022

0
2008

2010

2012

2014

2016

2018

2020

2022  

It is clear from the model results that lowering the barriers to access spectrum would result in 
new technology being available faster, less rigid allocation of technologies and services would 
enable a mix and match of services adapted to population density and local social conditions 
and  an  increased  uptake  of  subscriptions  to  services  such  as  mobile  communications. 
Alternative business models, such as delivering competing services over alternative technical 
platforms  or  through  unlicensed  spectrum,  ensure  that  competition  remains  healthy  to  the 
benefit of the consumers, who in turn would use more services. 

It  should  be  noted  that  it  is  the  regulatory  choices  underpinning  the  scenarios  that  are 
significantly  simplified  and  based  on  a  number  of  assumptions  (as  explained  above).  The 
predicted actions of individual operators, given these scenarios, would seem to be borne out 
by  the  experiences  of  many  other  sectors  where  competition  is  limited  by  definition,  an 
example being the airline industry. 

EN 

135 

   EN 

 
ANNEX II: ASSESSMENT OF ADMINISTRATIVE BURDENS 

In recent years the issue of administrative costs imposed on businesses and public authorities 
by legislation has gained increasing attention both at the EU level and in Member States. The 
Commission  is  therefore  increasing  its  efforts  to  measure  and  better  manage  the 
administrative  costs  incurred  European  legislation.  In  the  context  of  this  review,  the 
administrative  cost  of  the  most  important  changes  is  assessed  both  quantitatively  and 
qualitatively.  

The  regulatory  framework  contains  a  number  of  information  obligations  which  generate 
administrative  costs  for  operators  and/or  NRAs.  In  line  with  the  principle  of  proportionate 
analysis,  this  impact  assessment  focuses  on  quantitative  measurement  of  the  measures 
entailing relatively significant administrative cost – i.e. market review procedures, including 
notifications  to  the  Commission.  Administrative  costs  of  other  changes  to  the  regulatory 
framework are assessed qualitatively in the specific sections of the impact assessment.  

Security  and  privacy  is  another  potential  area  for  measurement  of  administrative  costs,  in 
particular the new mandatory breach notification obligations. However, an important obstacle 
to  useful  quantification  is  the  absence  of  reliable  and  undisputed  information  about  the 
frequency  of  breaches  to  be  notified.  It  is  indeed  one  of  the  purposes  of  the  proposed 
provisions to contribute to better knowledge of the size of the problem. As noted in Chapter 9, 
a  more  detailed  assessment  of  administrative  burden  will  therefore  be  carried  out  in  the 
implementation phase.  

Applied methodology 

The measurement and calculation of administrative costs of the market review procedures was 
done in two steps: 

1. 

2. 

Assessment  of  the  current  administrative  costs  associated  with  market  reviews 
incurred by operators and NRAs 

Estimation of the future administrative costs based on the proposed streamlining and 
simplification.  

Data for the first step was collected through an on-line survey from NRAs and operators; data 
for the second step is estimated by the Commission on the basis of the expected effects of the 
proposed  changes  –  e.g.  future  reduction  in  the  number  of  markets  analysed  by  NRAs.  The 
methodology used for collecting and processing the data is based on the standard cost model 
(SCM) and is fully in line with the Commission’s Impact Assessment Guidelines262.  

The standard reporting sheet suggested in the Guidelines was not used in this case because, in 
order to provide a realistic picture of the aggregated costs of the whole market review process 
in  all  27  Member  States,  much  more  detailed  data  would  be  needed.  The  survey  among 
operators and NRAs has shown that there are big differences in costs depending on the size of 
operators,  on  the  market  for  which  they  provide  data,  on  the  collection  methods  used  by 
NRAs, etc. In the view of this, extrapolation of the available data to all market reviews would 

262 

Annex 10 of the Commission IA Guidelines SEC(2005) 791. 

EN 

136 

   EN 

 
                                                 
be  very  imprecise  and  significantly  more  time  and  resources  would  be  needed  to  collect 
detailed data on all the 18 market reviews on a per country basis. Therefore, a sample market 
was chosen and costs for operators and NRAs were calculated on that basis.  

Step 1 – Current Administrative Costs  

Current administrative costs are related to the following stages of market review procedures: 

– 

– 

– 

collecting market information and data from operators – this stage entails costs both 
for operators and for NRAs; 

market analysis, national public consultation on draft measures organised by NRAs – 
entails  the  cost  of  data  processing  and  drafting  measures  by  NRAs,  preparing  the 
public  consultation,  collection  of  inputs,  and  the  cost  for  operators  of  providing 
comments on the NRA draft measures; and 

notification of market definition, market analysis (including designation of SMP) and 
proposed  remedies  to  the  Commission  –  entails  cost  of  preparing  notifications  by 
NRAs. 

NRAs  and  operators  provided  data  for  all  the  relevant  stages  of  the  market  review  process: 
i.e. number of hours spent and hourly labour costs of each stage of one market review. NRAs 
and operators were also asked to estimate a percentage reduction in administrative cost of the 
next  round  of  market  reviews  in  order  to  account  for  the  learning  process  and  increased 
efficiency of the future market reviews.  

It has to be noted that the collected data are mostly expert estimates, as neither operators nor 
NRAs have the obligation to monitor and assess their administrative costs related to market 
reviews.  Also,  in  order  to  provide  a  more  accurate  baseline  measurement,  more  time  and 
resources  would  have  to  be  deployed  by  the  Commission  and  by  the  respondents.  Despite 
these  limitations,  the  collected  data  provides  a  relatively  good  estimate  of  the  order  of 
magnitude of the administrative costs incurred in market reviews.  

Results of the baseline measurement  

Operators providing electronic communications services  

The  Commission  received  208  responses  to  the  online  questionnaire  on  administrative 
burdens,  out  of  which  184  responses  were  submitted  by  operators.  All  the  information  is 
presented  in  aggregated  form,  as  data  from  individual  operators  is  confidential.  The  tables 
below indicate the distribution of respondents according to different characteristics: 

Please define the size of your company in your country. 

Number  of  operators  in  each 
category 

Percentage of operators in each 
category 

below 500 employees 

501 - 10000 employees 

above 10000 employees 

EN 

124 

50 

10 

137 

(67.4%) 

(27.2%) 

(5.4%) 

   EN 

 
  
How would you characterize your operations? (more than one answer is possible) 

Number  of  operators  in  each 
category 

Percentage of operators in each 
category 

fixed network operator 

service provider 

mobile network operator 

cable 
broadcaster 

operator 

or 

108 

97 

45 

31 

(58.7%) 

(52.7%) 

(24.5%) 

(16.8%) 

According  to  the  results  of  the  questionnaire,  big  companies  with  more  than  10.000 
employees  spend  on  average  more  time  on  information  obligations  than  middle-sized  and 
small  companies.  The  table  below  indicates  average  cost  of  labour  per  hour  and  average 
number of hours spent on providing (1) data and information for one market review, (2) input 
and comments for one national consultation associated with one market review.  

size of the operator 

Data and 
information 
for one 
market review 
– average 
number of 
working hours

Labour costs 
per hour 
(including 
overheads, 
social security 
payments, 
taxes, etc.) (€) 

Input and 
comments for 
one national 
public 
consultation – 
number of 
working hours

total cost for 
one market 
review per 
company (€) 

above 
employees 

- 
501 
employees 

10.000 

10.000 

below 500 employees 

217

180

32,5

69

64

73

528

268

35

51.669

28.864

4.979

Big  operators  with  more  than  10.000  employees  spend  on  average  around  €50.000  on  one 
market  review.  Most  operators  provide  data  for  several  markets,  depending  on  the  scope  of 
their  activities.  The  final  cost  to  the  operator  very  much  depends  on  the  method  used  by 
NRAs  to  collect  data  and  information  from  the  market.  Some  NRAs  collect  data  for  each 
market  separately,  some  for  a  whole  cluster  of  markets.  The  amount  of  data  required  by 
national  regulators  varies  from  country  to  country.  Some  operators  also  spend  time  and 
resources  on  appeals  against  NRA’s  decisions,  however,  this  is  not  considered  as 
administrative costs in the SCM used by the Commission.  

When  compared  to  the  revenue  streams  and  financial  position  of  big  operators,  the 
administrative costs of market review procedures for them are not substantial263. On the other 

263 

E.g.  the  annual  revenue  of  Deutsche  Telecom  in  2005  amounted  to  almost  €60  billion,  of  France 
Telecom almost €50 billion and Telefonica to €37 billion. More than half of the total revenue is realised 
on the domestic market. 

EN 

138 

   EN 

 
 
  
                                                 
hand, administrative burden for SMEs can be in some cases relatively significant, especially if 
they are obliged to make an initial investment in data collection and monitoring systems for 
the purpose of market reviews264. 

Given  different  approaches  to  data  collection  at  national  level,  estimating  the  total 
administrative costs of all the market reviews in the EU is very complex and would require a 
more sophisticated data collection method. It is however possible to provide an estimate of the 
total  administrative  costs  of  one  model  market  review.  The  following  model  case  illustrates 
the  costs  of  a  market  review  involving  mobile  network  operators  –  e.g.  market  16  of  the 
Recommendation  on  relevant  markets,  “voice  call  termination  on  individual  mobile 
networks”. 

In  order  to  analyse  market  16,  national  regulators  send  data  requests  to  mobile  network 
operators (in most member states 3 to 4 operators) and to mobile service providers, which are 
defined as mobile virtual network operators, enhanced service  providers  or simple resellers. 
According to the 12th Implementation report, the total number of mobile network operators in 
the EU is 78 (EU25, data from July 2006), the total for mobile service providers is 290. The 
following  table  shows  average  costs  of  a  mobile  network  operator,  of  a  mobile  service 
provider and the total for the whole EU in Euros.  

Category of mobile 
operator 

mobile 
operator 

mobile 
provider 

network 

service 

Total costs EU25 

Data and 
information 
for one market 
review – 
average 
number of 
working hours 

Labour costs 
per hour 
(including 
overheads, 
social 
security 
payments, 
taxes, etc.) (€)

Input and 
comments for 
one national 
public 
consultation 
– number of 
working 
hours 

Total cost per 
category of 
mobile 
operators (€) 

264

80

76

64

419

4.053.637

61

2.647.288

6.700.925

The total cost for the whole EU of one market review, based on a model case of the market 16 
is approximately € 6.700.000 for the total number of mobile operators and service providers 
in the EU.  

It  is  necessary  to  note  that  this  figure  represents  approximate  costs  of  analysing  one  of  the 
most resource-intensive markets. Also, the proportionality of these costs needs to be judged 
against  the  size  of  the  market.  According  to  the  latest  figures,  mobile  market  revenues 
continue to grow and amounted to approx. €128 billion in 2006265. Against this background, 
administrative  costs  of  one  market  review  represent  for  operators  approximately  0,005%  of 
their annual revenue.  

264 

265 

Initial investment in data collection systems were mentioned by several small operators as an additional 
burden. 
Internal Commission data used for the 12th Implementation report. 

EN 

139 

   EN 

 
                                                 
National regulatory authorities 

The  Commission  received  24  responses  to  the  on-line  questionnaire  from  NRAs.  As  in  the 
case of operators, figures must be considered as expert estimates because most NRAs do not 
have  detailed  statistics  on  administrative  costs  of  market  review  procedures.  The 
questionnaire included questions on administrative costs of all the three stages of the market 
review procedure – i.e. collection of data from operators, national public consultation on draft 
measures  and  notification  to  the  Commission.  The  second  stage  proves  to  be  the  most 
burdensome for national regulators, as it includes formulation of draft decisions, based on the 
analysis of data obtained from operators.  

National regulators deal with markets of very different sizes and the number of staff dedicated 
to  electronic  communications  issues  and  more  specifically  to  market  reviews  differs  from 
country  to  country.  In  general,  around  10%  to  20%  of  the  staff  working  on  electronic 
communications  issues  works  specifically  on  market  review  procedures.  In  order  to  analyse 
the responses more closely, countries were divided into 3 groups according to the size of each 
country and size of the regulatory authority. Small countries with small regulatory authorities 
(such  as  Cyprus,  Luxembourg,  Latvia  or  Estonia,  Slovenia,  Malta)  spend  less  time  and 
resources  in  absolute  terms  on  market  reviews  than  big  countries.  Nevertheless,  taking  into 
account  the  size  of  the  country  and  of  the  national  market,  these  costs  are  proportionately 
higher  than  the  administrative  costs  in  big  countries.  The  table  below  shows  average 
administrative costs of all three market review stages for the three groups of countries:  

Data  collection 
- no of hours  

Labour 
per hour  

cost 

Public 
consultation 
no of hours  

- 

to 
Notification 
the  Commission 
- no of hours  

Small countries266 

Middle-sized 
countries267 

Big countries268  

363

820

1770

28

46

46

292

674

1092

107

170

973

The following table shows the total cost in Euros of each stage of the market review for each 
group of countries. Costs were calculated as a sum of hours multiplied by hourly labour costs 
provided by each NRA, on the basis of the average number of hours and average labour cost 
for each group of countries, indicated in table above.  

Data collection 
- total cost in € 

Public 
consultation - 
total cost in € 

notification - 
total cost in € 

Total cost per 
group of 
countries 

Small countries 

42.029

36.967

17.007

96.003

266 
267 

268 

Small countries: Luxembourg, Latvia, Estonia, Slovenia, Malta, Cyprus. 
Middle-sized  countries:  Lithuania,  Sweden,  Netherlands,  Ireland,  Denmark,  Hungary,  Austria,  Czech 
republic,  Belgium,  Slovakia,  Finland,  Romania  (figures  from  Romania  do  not  include  the  cost  of 
notification  to  the  Commission,  as  Romania  and  Bulgaria  did  not  submit  any  notifications  to  the 
Commission prior to their accession). 
Big countries: Poland, Germany, Spain, Italy, UK, France. 

EN 

140 

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Middle-sized countries 

478.586

377.786

102.503

958.875

Big countries excluding 
France269  

Total cost EU 23 

240.850

248.010

252.805

741.665

1.796.543

The  total  cost  of  €  1.796.543  includes  23  EU  countries  and  excludes  costs  of  France270, 
Bulgaria,  Portugal  and  Greece.  Bulgaria,  Portugal  and  Greece  are  relatively  small  countries 
and  their  costs  can  be  estimated  using  the  average  figures  for  small  countries  in  the  above 
table.  The  total  cost  of  one  market  review  for  the  27  NRAs  in  the  whole  EU  would  then 
amount to approximately € 2.3 million.  

Conclusion 

The first step of administrative burden assessment provided an indicative quantification of the 
costs of one market review both for operators and for NRAs. It has to be born in mind that the 
figures provide only an indication of the order of magnitude of these costs; a more accurate 
estimation would require more time and resources as data collection systems and methods of 
carrying out market reviews vary from country to country. The total cost of all market reviews 
is difficult to obtain: every market has a different resource-intensity and different number of 
operators  required  to  provide  data  and  input.  This  section  estimated  the  cost  of  one  market 
review  for  mobile  operators  at  around  €  6.7  million  and  the  cost  of  one  market  review  for 
NRAs  at  around  €  2  million271.  Viewed  from  the  perspective  of  the  size  of  the  market  for 
electronic  communications  services272, 
the  administrative  costs  are  not  substantial. 
Nevertheless, there is some scope for streamlining and simplifying the procedures with a view 
of  cutting  the  unnecessary  administrative  burden.  Options  for  reducing  the  unnecessary 
administrative burdens will be described in the second step.  

Step 2 – Estimation of future administrative burdens  

The baseline measurement of administrative costs related to market reviews (Step 1) is based 
on real data provided by operators and NRAs.  In the second step, the Commission can rely 
only on rational estimates and projections of the current costs to the future. Given the variety 
of  operators  and  national  approaches  to  data  collection,  the  exact  quantification  of  total 
administrative costs is very difficult to obtain and would certainly require more detailed data 
collection  in  each  Member  State.  The  assessment  of  future  administrative  burdens  will 
therefore be based partly on the available data for the current administrative burden and on a 
number of assumptions.  

Assumption  1:  other  things  equal,  the  next  round  of  market  reviews  will  be  less 
resource-intensive due to a learning process  

269 

270 
271 

272 

French NRA provided only a figure for the total cost of one market review and not costs divided into 
the three stages. 
Idem. 
This is an indicative cost of one of the resource-intensive market reviews, as most NRAs calculated the 
cost as an average between markets 12 and 16. 
The size of the ICT sector (revenues) was around €649 billion in 2006, € 289 billion being derived from 
eCommunications, source: 12th Implementation Report 2006. 

EN 

141 

   EN 

 
                                                 
Market reviews were introduced by the current framework as a new element in regulation of 
electronic  communications.  Both  NRAs  and  companies  had  to  get  acquainted  with  the  new 
procedures and learn how to apply them more effectively. For this reason, it is supposed that 
thanks to the accumulated knowledge and experience from the first market reviews, the next 
rounds  will  be  somewhat  less  resource  intensive  and  that  the  administrative  burden  would 
gradually decrease (for examples, methodological and issues pertaining to the organisational 
process  would  be  already  in  place,  needing  at  the  most  some  fine-tuning).  Operators  were 
asked about their perception of the cost reductions resulting from accumulated experience in 
the next round of market reviews. The tables below show the results for data collection phase 
and  national  consultation  phase  respectively.  It  has  to  be  noted  that  these  figures  take  into 
account  neither  the  Commission  proposal  on  cutting  the  number  of  relevant  markets  in  the 
Recommendation nor the proposals to streamline market reviews and Article 7 procedures.  

By  what  percentage  will  the  cost  of  providing  input  for  a  single  market  review  (Art  5  of  the 
Framework  Directive)  be  reduced  in  the  next  round  of  market  reviews?  Please  tick  the 
appropriate range below. 

Total  number  of  answers 
indicating  the  given  range 
of cost reduction  

Percentage  of  answers  indicating 
the given range of cost reduction  

1% - 10% 

0% 

11% - 20% 

21% - 30% 

above 40% 

31% - 40% 

66 

51 

29 

21 

9 

8 

(35.9%) 

(27.7%) 

(15.8%) 

(11.4%) 

(4.9%) 

(4.3%) 

By  what  percentage  will  the  cost  of  providing  input  for  a  single  national  consultation  for  one 
market  review  (Art  6  of  the  Framework  Directive)  be  reduced  in  the  next  round  of  market 
reviews? Please tick the appropriate range below. 

Number of answers 
indicating the given range 
of cost reduction 

Percentage of answers indicating 
the given range of cost reduction  

1% - 10% 

0% 

11% - 20% 

21% - 30% 

above 40% 

31% - 40% 

72 

57 

26 

15 

9 

5 

(39.1%) 

(31%) 

(14.1%) 

(8.2%) 

(4.9%) 

(2.7%) 

EN 

142 

   EN 

 
  
 
 
Similarly to operators, also NRAs were asked about their expert estimate of the reduction in 
administrative  burden  in  the  next  round  of  market  reviews  (excluding  the  effect  of  the 
proposed  reduction  in  the  number  of  markets  and  the  Commission  streamlining  proposals). 
The tables below indicate the distribution of responses.  

By  what  percentage  will  the  cost  of  data  collection  from  operators  and  its  processing  for  a 
single market review (Art 5 of the Framework Directive) be reduced in the next round of market 
reviews? Please tick the appropriate range below. 

Number 
answers 
of 
indicating  the  given  range 
of cost reduction 

Percentage  of  answers  indicating 
the given range of cost reduction  

0% 

1% - 10% 

11% - 20% 

21% - 30% 

31% - 40% 

above 40% 

7 

5 

5 

3 

2 

2 

(29.2%) 

(20.8%) 

(20.8%) 

(12.5%) 

(8.3%) 

(8.3%) 

By what percentage will the cost of a single national consultation for one market review (Art 6 
of the Framework Directive) be reduced in the next round of market reviews? Please tick the 
appropriate range below. 

Number 
answers 
of 
indicating  the  given  range 
of cost reduction  

Percentage  of  answers  indicating 
the given range of cost reduction  

1% - 10% 

0% 

11% - 20% 

above 40% 

21% - 30% 

31% - 40% 

9 

8 

4 

2 

1 

0 

(37.5%) 

(33.3%) 

(16.7%) 

(8.3%) 

(4.2%) 

(0%) 

By  what  percentage  will  the  cost  of  a  single  notification  to  the  Commission  (Art  7  of  the 
Framework  Directive)  be  reduced  in  the  next  round  of  market  reviews?  Please  tick  the 
appropriate range below. 

Number 
answers 
of 
indicating  the  given  range 
of cost reduction  

Percentage  of  answers  indicating 
the given range of cost reduction  

EN 

143 

   EN 

 
  
 
  
 
  
1% - 10% 

0% 

11% - 20% 

above 40% 

21% - 30% 

31% - 40% 

10 

6 

5 

2 

1 

0 

(41.7%) 

(25%) 

(20.8%) 

(8.3%) 

(4.2%) 

(0%) 

The tables show that most operators and NRAs situate the possible reduction of administrative 
costs due to accumulated experience somewhere between 0% and 20%.  

Assumption  2:  the  reduction  in  the  number  of  markets  in  Commission  Recommendation  on 
relevant  markets  will  reduce  the  administrative  costs  of  fixed  network  operators  by 
approximately  25-30%273  and  those  of  NRAs  by  approximately  30-40%.  The  Commission 
will  table  a  proposal  for  a  revised  Recommendation  on  relevant  markets  together  with  the 
legislative proposals reviewing the regulatory framework. The revised Recommendation will 
cut the number of relevant markets by more than 50% (i.e. from 18 to 7). Retail markets will 
be  removed.  It  is  supposed;  however,  that  NRAs  will  still  monitor  the  retail  market  prices, 
therefore the reduction of administrative costs will be less than 50%. Fixed network operators 
will have to provide some data on retail markets but mostly only for monitoring purposes. It is 
assumed that the cost reduction for NRAs will be larger compared to operators because NRAs 
will not prepare a formal notification for the deleted markets274.  

As  for  internet  service  providers  and  cable  network  operators,  their  cost  reduction  will 
probably be negligible. The markets where these operators are involved stay on the list of the 
Recommendation on relevant markets. For mobile operators, provision of information about 
roaming  will  be  handled  under  the  Regulation  on  Roaming275  and  not  under  this 
Recommendation. 

Assumption  3:  Streamlining  of  market  reviews  will  bring  further  cost  reductions  for  NRAs 
and operators.  

The  Commission  announced  in  its  Communication  on  the  review  from  June  2006  the 
intention to streamline and simplify market reviews through:  

– 

– 

– 

273 

274 

275 

introduction of simplified procedures for notifications of markets which were found 
competitive and for notifications where only minor changes are proposed;  

rationalising of the market review procedures in one single instrument; and  

introduction of minimum standards for notifications. 

The  reduction  will  be  lower  for  fixed  operators  who  at  the  same  time  provide  internet  access  and/or 
mobile services. 
Technically,  the  NRAs  can  notify  also  markets  which  are  not  explicitly  included  in  the 
Recommendation; however they must justify this using the three criteria test. It is supposed that in most 
cases the NRAs will not notify the removed retail markets. 
OJ L 171, 29.6.2007, p. 32. 

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Some simplification of the notification process can be achieved under the current legislation. 
This could reduce the administrative burden for NRAs by 10-20%, depending on how many 
notifications  fall  into  the  categories  of  “notifications  of  markets  which  were  found 
competitive” and “notifications where only minor changes are proposed”276. 

Further  simplification  to  be  introduced  once  the  Directives  are  amended  could  result  in  a 
saving for NRAs in the order of additional 20-25%.  

Administrative costs of different institutional arrangements 

Chapter  7  of  this  Impact  Assessment  proposes  a  number  of  options  related  to  different 
possibilities  for  institutional  arrangements  in  regulation  of  electronic  communications 
markets.  From  the  point  of  view  of  administrative  costs  of  market  reviews,  the  differences 
between  the  three  options  are  not  significant.  Option  1  would  not  involve  costs  of 
notifications  as  markets  would  be  analysed  directly  by  the  single  European  Regulatory 
Authority.  Data  collection  costs  and  costs  of  public  consultations  would  remain.  Option  2, 
stronger Community powers with advisory role of the European Authority, does not add on 
administrative burden in terms of creating new information obligations for businesses and/or 
NRAs. Clearly, establishing a new authority involves set-up and operational costs, however, 
these  are  not  counted  as  administrative  burden.  Finally,  Option  3  would  entail  similar  cost 
reductions due to streamlining and reductions in the Recommendation.  

Administrative costs of different institutional arrangements 

Chapter  7  of  this  Impact  Assessment  proposes  a  number  of  options  related  to  different 
possibilities  for  institutional  arrangements  in  regulation  of  electronic  communications 
markets.  From  the  point  of  view  of  administrative  costs  of  market  reviews,  the  differences 
between  the  three  options  are  not  significant.  Option  1  would  not  involve  costs  of 
notifications  as  markets  would  be  analysed  directly  by  the  single  European  Regulatory 
Authority.  Data  collection  costs  and  costs  of  public  consultations  would  remain.  Option  2, 
stronger Community powers with advisory role of the European Authority, does not add on 
administrative burden in terms of creating new information obligations for businesses and/or 
NRAs. Clearly, establishing a new authority involves set-up and operational costs, however, 
these  are  not  counted  as  administrative  burden.  Finally,  Option  3  would  entail  similar  cost 
reductions due to streamlining and reductions in the Recommendation.  

Conclusion  

Administrative burden related to market reviews will be reduced in the next rounds both for 
operators  and  for  NRAs.  The  most  important  factors  of  this  reduction  are  the  streamlining 
measures proposed by the Commission and reduction in the number of markets in the revised 
Recommendation  on  relevant  markets.  According  to  the  survey  carried  out  by  the 
Commission, some reductions can be expected as a result of a learning process and experience 
with  the  first  round.  The  proposed  streamlining  of  the  procedures  means  that  NRAs  will 
benefit  from  substantial  reductions  of  costs  of  notifications  in  the  longer  term.  As  for 

276 

According to the latest statistics on market reviews, the number of markets found competitive oscillates 
between  1  and  7.  It  is  difficult  to  foresee  how  many  future  notifications  will  propose  only  minor 
changes,  therefore  the  Commission  makes  a  conservative  estimate  of  10-20%  overall  reduction.  See: 
http://ec.europa.eu/information_society/policy/ecomm/doc/article_7/competition-
regulation%20first%20round%2008-05-2007_nonewmarkets.pdf 

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operators, cuts in the number of relevant markets in the Commission Recommendations will 
bring cost reductions mainly to fixed network operators. 

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ANNEX  III:  EVALUATION  OF  COSTS  AND  BENEFITS  OF  THE  EUROPEAN  AUTHORITY  WITH 

ADVISORY ROLE IN ELECTRONIC COMMUNICATIONS 

This  annex  summarises  the  costs  benefits277  that  would  result  from  the  establishment  of  a 
European  Authority  with  an  advisory  role  for  electronic  communications  issues  (Option  2 
discussed in Chapter 7 of this report), since this would involve financing from the Community 
budget. 

While  cost-effectiveness  analysis  looks  at  the  costs  impacting  the  EU  budget  as  a  result  of 
carrying out  the EU intervention,  cost-benefit analysis must look more  widely on  long-term 
costs and benefits for different actors involved, and quantify them where possible. To support 
this assessment, the Commission commissioned a study to provide quantitative and qualitative 
information on the costs and benefits and added value of such an Authority278.  

The main aim of the European Authority is to contribute to greater consistency in regulation 
of  eCommunications  across  the  EU  and  to  simplify  the  regulatory  environment  particularly 
for providers of services with pan-European and cross-border services. The Authority's tasks 
can  be  grouped  in  three  main  areas:  (1)  issues  of  regulatory  inconsistency,  delays  in 
conducting national market analysis and promoting the identification of pan-European / trans-
national markets; (2) improving EU procedures for authorisations and regulation of services 
with pan-European potential, and (3) other activities, including those related to network and 
information security formerly undertaken by ENISA. 

The following quantifications of benefits in areas (1) and (2) above are based on an estimate 
that the Authority's budgetary costs would be around € 150 million over five year period (with 
yearly  appropriations  of  around  €  27  million).  The  benefits  in  area  (3)  have  not  been 
quantified. 

Under  a  conservative  scenario,  it  can  be  estimated  that  the  European  Authority  has  the 
potential  of  bringing  total  economic  benefits  exceeding  its  budgetary  costs  by  a  factor  of 
around 10-30 times (i.e. the order of magnitude of the benefits would be around € 250 – 800 
million). This factor can be even higher if the more optimistic scenarios on the number and 
size of pan-European markets to be authorised and subsequently regulated were to materialise. 

A  major  source  of  such  benefit  is  the  reduction  in  the  regulatory  risk279  that  would  be 
achieved  through  the  contribution  of  the  Authority.  Even  a  marginal  reduction  in  the 
regulatory risk (of around 10%) across Europe, will be reflected in lower cost of capital for 
the industry. In addition, the Authority's involvement will speed up the process of assigning 
spectrum for pan-European services; if implementation of major projects of this type can be 

277 

278 

279 

See the requirements for ex ante and cost-benefit analysis stipulated in Article 21 of the Implementing 
Rules of the Financial Regulation, Commission Regulation No 1248/2006 of 7 August 2006, and point 
47  of  the  Inter-institutional  agreement  between  the  European  Parliament,  the  Council  and  the 
Commission  on  budgetary  discipline  and  sound  financial  management,  2006/C  139/01.  These 
documents can be found, respectively, at: 
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_227/l_22720060819en00030021.pdf 
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/c_139/c_13920060614en00010017.pdf 
Cost-Benefit  Analysis  of  Option  for  Better  Functioning  of  the  Internal  Market  in  Electronic 
Communications,  Final  Report,  22  October  2007,  the  European  Evaluation  Consortium  –  Economisti 
Associati Srl, 2007. 
Risks associated with the potential for regulation to change and impact investments. 

and 

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brought  forward  by  just  one  year,  the  economic  benefits  can  be  in  the  range  of  several 
hundred millions euros.  

From the pure cost-effectiveness analysis point of view, it is clear that integrating the already 
existing European Network and Information Security Agency, ENISA into the new European 
Authority would result in cost savings from the synergy of the two. As discussed in Chapter 7 
of  this  report,  the  problem  with  ENISA  (which  was  established  in  2004  with  the  goal  of 
ensuring  a  high  and  effective  level  of  network  and  information  security  within  the 
Community) is that it has not had a critical mass of operational staff  to work effectively280. 
The  combined  entity  under  the  new  Authority  would  benefit  from  economies  of  scale  for 
administrative  tasks,  allowing  the  number  of  operational  staff  working  on  network  and 
information security issues to be increased as compared to ENISA. 

There  are  also  additional  benefits  to  be  expected  from  other,  less  predictable  areas  of  the 
Authority's activities. By way of example, it is estimated that the Authority (as a centralised 
pan-European reference point) could save the satellite industry € 0.5 - €6 million per annum 
by  reducing  information  costs  (i.e.  reducing  the  transaction  costs  caused  by  national 
differences in the legal format of the tradable user rights).  

There  are  other  important  qualitative  considerations  supporting  the  establishment  of  the 
Authority  that  cannot  be  adequately  quantified  or  monetised  in  a  cost-benefit  analysis.  In 
particular, as discussed in the Impact Assessment report, there are strong indications that the 
telecommunications  market  is  evolving  towards  technological  and  management  models, 
making the current regulatory approach of defining (national) markets less relevant, requiring 
instead  a  much  more  co-ordinated  EU-wide  regulatory  approach.  In  the  long  run,  enabling 
competition  between  different  new  technological  platforms  is  likely  to  be  one  of  most 
important economic benefits associated with the Authority.  

The  Authority  could  also  substantially  contribute  to  reduce  the  regulatory  risks  of  R&D 
projects in the field of eCommunications, which must achieve EU economies of scale to enter 
the market and which currently face considerable uncertainties in the availability of spectrum. 
Any  reduction  of  such  risk  could  thus  increase  the  tendency  to  invest  in  R&D  and  thereby 
contribute  to  bridge  the  gap  between  actual  and  socially  desirable  level  of  investments  in  a 
market-efficient way.  

Most of the above benefits are not replicable by the current - or strengthened - co-ordination 
between  the  Member  States  based  on  the  loose  co-ordination  structure  of  the  European 
Regulators Group (ERG) composed of the heads of the national regulatory authorities (Option 
3 examined in Chapter 7 of this report). ERG's peer-review without any veto power cannot be 
considered equally credible mechanism to reduce the risk for regulatory error across Europe 
or  to  decrease  perceived  market  uncertainty  related  to  regulatory  discretion  factors. 
Furthermore, ERG's involvement in spectrum management issues has been limited, and it also 
lacks operational experience in this field. Some of ERG's national member organisations do 
not  have  competence  in  this  field.  In  some  other  areas  of  the  possible  mandate  of  the 

280 

See the Communication On the evaluation of the European Network and Information Security Agency 
(ENISA), COM(2007) 285 of 1 June 2007: http://eur-
lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0285en01.pdf and The Evaluation of the 
European Network and Information Security Agency, Final Report by the Experts Panel, IDC EMEA, 
8.1.2007: 
http://ec.europa.eu/dgs/information_society/evaluation/studies/s2006_enisa/docs/final_report.pdf 

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Authority,  ERG  involvement  is  simply  not  possible  (replacement  of  missing  national 
analyses) or severely hindered by lack of sufficient incentives or legal mandate at the national 
level (trans-national markets). 

Therefore, even by applying conservative scenarios on the potential benefits and related costs, 
the  establishment  of  the  Authority  is  cost-effective  and  fully  justifiable  from  the  EU 
budgetary perspective. This does not rule out the possibility that operational savings  can be 
achieved if some of the assumptions on the Authority scope of activities can be better fine-
tuned in getting closer to the commencement of its activities. 

The  table  below  summarises  the  main  costs  and  benefits  related  to  the  establishment  of  the 
European Authority.  

Summary table of costs and benefits related to the European Regulatory Authority 

Authority's contribution in the 
various policy areas 

Annual 
Costs 

Key Assumptions 

Possible 
benefits* 
(orders of 
magnitude) 

Oversight of NRA remedies  

€ 0.7 mn 

€ 50 - 120 mn 

Replacement of NRA not carrying 
market analysis in time 

€ 2.7 mn 

€ 20 - 80 mn 

Authority reduces by 10% regulatory 
risk across EU 
There are some yearly 40 NRA 
remedies with hidden unexploited 
deadweight effects  

1-2 delays in carrying out market 
analysis are experienced on a yearly 
basis 

Authorisation and regulation of 
services with pan-European 
potential 

€ 7.9 mn 

€ 180 - 600 mn Every three years the launch of one 
pan-European market is shortened 
by one year bringing one-off benefits 
of some € 180 – 600 mn 

Other operational and 
management activities 

€ 16 mn 

TOTAL COSTS AND BENEFITS 

€ 27 mn 

€ 250- 800 mn 

Potential additional costs /benefits 

Procedures for analysis of trans-
national markets 

€ 24 mn 

€ 300 - 600 mn

If 1-2 transnational markets were 
identified and regulated in the period 

Source: European Commission, based on a study 'Cost-Benefit Analysis of Option for Better Functioning of the 
Internal  Market  in  Electronic  Communications',  the  European  Evaluation  Consortium  –  Economisti  Associati 
Srl, 2007. 

*) This is not an exhaustive list of benefits.  

Further details of the methodological approach and underlying assumptions can be found in 
the above-mentioned study. 

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Staffing 

In the long term it is estimated that the new Authority would need a staff of around 60 people 
to  carry  out  the  operational  functions  of  (i)  strengthening  the  internal  market;  (ii) 
harmonisation of rights of use; and (iii) dissemination of best practices and information, not 
including  administrative  staff.  These  staff  numbers  will  built  up  over  the  first  3  years  of 
operations of the Authority. 

In  addition,  in  2011,  the  Authority  will  take  over  the  work  currently  carried  out  by  ENISA 
that  will  result  in  a  significant  increase  of  staff  in  that  year.  Prior  to  2011,  there  will  be  no 
duplication between the activities of the European Authority and ENISA.  

Administrative staff will be built up in line with the growth of the operational staff such that 
the total number of posts will be 134 from 2012 onwards.  

With the creation of the Authority, one additional AD post for the Commission is foreseen for 
audit purposes. The task of ensuring cooperation and coordination between the Authority and 
the  Commission  would  be  accounted  for  by  redeploying  the  administrative  and  human 
resources  of  the  Commission  currently  allocated  for  cooperation  and  coordination  with  the 
ERG and with ENISA. 

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