In a series of articles The Cybergarden will attempt to shed light upon some of the most important changes that the proposed European Electronic Communications Code will bring to the legal landscape of EU telecom regulation. In Part 1 the analysis will focus on regulation of access.
Since the last revision of the regulatory framework for electronic communications back in 2009, the sector has significantly changed and evolved. This evolution gave life to a new type of market players that are now competing directly with the traditional telecom operators – over-the-top service providers. At the same time, a salient upsurge is present in the demand for high-quality fixed and wireless connectivity that is fueled by the widespread take-up of online content services. Alongside this conceptual evolution, electronic communications networks have evolved as well. The main corollaries of this transformation are evident: the current transition to an all-IP environment, the great possibilities provided by the practically unlimited transmission capacity of fiber optical networks, the convergence of fixed and mobile networks towards seamless service offers to the end-users and the development of innovative technical network management approaches, such as Network Function Virtualisation.
In view of all these usage and operational changes it is no surprise that the European Commission launched another review of the regulatory framework for electronic communications by proposing the European Electronic Communications Code (EEC Code) on 14 September 2016. This overhaul of the telecoms rules needs to be seen in the light of the Digital Single Market (DSM) strategy for Europe. The DSM strategy recognizes the importance of the paradigm shifts that the digital sector is undergoing and further highlights that individuals and businesses should be able to seamlessly access and conduct online activities under conditions of fair competition.
Alongside the EEC Code, the reform package incorporates two other legislative acts put forward by the European Commission – Proposal for a regulation establishing the Body of European Regulators of Electronic Communications (BEREC) and Proposal for a Regulation on the promotion of internet connectivity in local communities and public spaces (WIFI4EU). The first legislative act aims to augment BEREC into a fully-fledged agency in line with its newly assigned tasks and powers by the EEC Code and the second proposed act aims to encourage the provision of fast wireless internet access for citizens in spaces where public services are provided such as public administration buildings, libraries and hospitals. In addition to all three proposed legislative acts, the Commission further introduced an Action plan for 5G which envisages a common EU calendar for a coordinated 5G commercial launch in 2020. The plan further promotes joint efforts with Member States and industry stakeholders for the identification and allocation of spectrum bands for 5G, the organization of pan-European 5G tests as of 2018 and it encourages the adoption of national 5G deployment roadmaps across all EU Member States.
The cornerstone of the reform package is the proposed EEC Code. The proposal embodies a horizontal recasting of four existing Directives (Framework, Authorisation, Access and Universal Service), as it brings them all under a single new Directive. The recasting technique being chosen by the EU legislator is similar to codification as it brings together in a single new act various legislative instruments and all the amendments being made to them. Consequently, the new act will repeal all the acts being recast. However, unlike codification, recasting involves new substantive changes, as amendments are made to the original acts during preparation of the recast text.
In view of the policy goals that the EEC Code sets, it must be noted that the existing regulatory objectives of promotion of competition, achievement of the internal market and protection of end-user interests are retained. At the same time, Article 3 of the Code introduces a key new objective that will underpin the future efforts of the EU legislator – the widespread access to and take-up of very high capacity (VHC) connectivity across the EU.
As part of the assessment of the existing telecoms rules an ex-post evaluation was conducted. It acknowledged that access regulation has delivered competition more at the service level than at the network level, and while investments in VHC networks have increased, they have not taken place across all Member States and their pace was unsatisfactory in view of the public policy agendas. Notably, despite the release of a significant amount of spectrum for wireless broadband, progress in spectrum management did not meet the expectations of the last review in 2009, resulting in a delayed and fragmented 4G network roll-out and take-up across the EU. Efforts to achieve the Single Market objective have also reached unsatisfactory results. At the same time, most of the stakeholders agreed that connectivity is the underlying driving force for the digital society and in particular good connectivity will be a crucial prerequisite for achieving the Digital Single Market and unlocking the full potential of the European economy.
As a result of the performed ex-post evaluation, targeted amendments were formulated. The amendments related to access regulation are aimed at three particular regulatory goals: 1) reinforcing and improving the existing SMP access regime, 2) further promoting infrastructure competition and network deployment by all operators, 3) sustaining the deployment of VHC networks throughout the EU’s territory.
⇒ Amendments related to the SMP regime and the promotion of infrastructure competition:
Article 65 of the Code introduces modifications to the market analysis procedure, codifying current best practices and aiming at more focused and legally certain access regulation, as well as tightening its geographical focus to ensure that access obligations are imposed only when and where necessary to address retail market failures and to assure end-user outcomes. The rules also lay down an obligation for regulators to take into consideration commercial access agreements when they conduct their market analyses, as well as any other regulatory obligations already imposed, for example symmetrical obligations. Furthermore, Article 65 extends the current maximum three-year market review period to five years, which will allow operators longer term planning, and will provide national regulators with greater flexibility as regards the timing of market reviews.
The provision of Article 70 aims to stimulate greater infrastructure competition by ensuring access to civil infrastructure, such as buildings or entries to buildings, building cables including wiring, ducts, poles, manholes, cabinets, etc., where these are held by operators with SMP. It has to be noted that national regulatory authorities will have the power to impose such obligations on an SMP operator even when the assets that are affected by the obligation are not part of the relevant market as per the market analysis.
Also with a view to supporting infrastructure competition, Article 59 clarifies the conditions under which obligations can be imposed on all operators irrespective of their market position (symmetric obligations), to ensure access to non-replicable network assets. While the use of SMP regulatory remedies managed to produce effective competition on the retail markets, certain competitive constraints, in the form of enduring “bottlenecks”, are still present at the wholesale access markets. In many EU Member States operators other than those designated as having SMP position have deployed fibre networks and have laid down cables and wiring inside buildings creating in many cases a non-replicable infrastructure link to the end user. The overall result of these tendencies is the emergence of a patchwork of geographically scattered networks and the occurrence of several local “bottlenecks”. A sound regulatory response to those issues is the potential imposition of symmetric access obligations by the NRAs on all operators irrespective of their market position. The practical benefits of such a solution have already been empirically proven by the results of the regulatory reform performed by the French regulator – ARCEP back in 2009. ARCEP imposed symmetric access obligations on all operators of fibre networks in France and the measure was approved by the European Commission. The regulator decided to use different approaches with regards to the densely populated areas where there was economic sense for several operators to roll out fibre networks and the areas with low population density. The approach introduced by ARCEP mandated operators to provide upon reasonable requests passive access to their in-building fibre lines in non-densely populated areas. As for the densely populated areas a different position was taken – there operators were mandated to install an additional fibre in case another operator agreed to share the installation costs. In addition, the NRAs of Spain and Portugal also strongly rely on symmetric access obligations in their regulatory approaches and various reports and studies have shown that in both countries the coverage of VHC networks has successfully been expanded to reach areas with low population density and expectations for sustainable competition between the market players over time are really strong. Along this background, it is no surprise that the Commission attempts to “codify” some of those existing good practices in the provision of Article 59 of the Code.
Last but not least, Article 73 introduces an EU-level process for determining a binding methodology for setting voice termination rates. NRAs will have to set maximum symmetric termination rates based on the costs incurred by an efficient operator. The evaluation of efficient costs will be based on current cost values as the cost methodology will employ a bottom-up modeling approach using long-run incremental traffic-related costs of providing the wholesale voice call termination service to third parties. The details of the cost methodology will be set by a Commission decision. After the Code enters into force, the Commission will further adopt delegated acts concerning a single maximum termination rate to be imposed by NRAs on undertakings designated as having SMP in fixed and mobile voice termination markets respectively in the Union. In particular, the Commission undertakes to ensure in its delegated acts that the single voice call termination rate in mobile networks does not exceed 1.23 €cent per minute and the single voice call termination rate in fixed networks does not exceed 0.14 €cent per minute.
⇒ Amendments related to the deployment of VHC networks:
Article 22 of the EEC Code requires NRAs to survey the state of existing broadband networks as well as investment plans across their national territory, to enable them to better take geographic specificities into account in market analyses. National regulators will have to identify so called ‘digital exclusion areas’ where no operator or public authority has deployed or plans to deploy a VHC network or has upgraded or extended their legacy network to a performance of at least 100 Mbps download speeds, or is planning to do so. NRAs will be able to publish the designated digital exclusion areas and organise a call for interest therein with a view to promote VHC network deployment in these zones. This policy is in line with the Commission’s Communication on Connectivity for a Competitive Digital Single Market, where the Commission highlights the need to achieve widespread take-up of VHC networks not only in urban but also in rural and remote areas. In such areas Internet connectivity can play an essential role in preventing the digital divide, isolation and depopulation by reducing the costs of delivery of goods and services. Additionally, businesses in these areas can reduce their costs through video-conferencing, access to online administration, e-commerce, or data storage in the cloud.
The provision of Article 72 clarifies the circumstances in which pricing flexibility can be granted to SMP operators, without compromising competition. Pricing flexibility can be beneficial to investors in new networks, provided it does not impede downstream competition. When determining whether price control obligations are appropriate, NRAs will have to take into account the long term interests of the end-users in deployment of VHC networks and in case they deem price controls to be an appropriate measure they will have to allow the operator who is making the investment a reasonable rate of return taking into account also the specific risks of the investment project. Furthermore, when NRAs establish a demonstrable price constraint on the retail access market they will not be able to impose or maintain price control obligations.
Under Article 74 of the Proposal, NRAs are to be deprived of the power to impose obligations with regards certain new network elements that are part of markets where effective competition is not achieved and where those same NRAs intend to impose or maintain ex ante obligations. The rationale behind this approach stems from the fact that these are a specific type of network elements – new infrastructure units that contribute significantly to the deployment of VHC networks. The proposed text of Article 74 is thus intended to tackle one of the main concerns underlying the review of the current regulatory framework – the need for greater investments in VHC networks at an increased pace. Three cumulative conditions will need to be fulfilled in order for the new network elements to remain outside the scope of SMP regulation – i) the elements need to contribute significantly to the deployment of VHC networks, ii) the deployment of the network elements has to be open to co-investment offers on terms that favor sustainable competition so that other undertakings may also benefit from first-mover advantages and iii) it must be guaranteed that access-seekers who are not part of the co-investment can benefit from the availability of regulated access products that are characterized with the same quality, speed, conditions and end-user reach as was available before the deployment. The regulatory measure introduced by Article 74 is expected to bring strong competitive benefits due to two main reasons – first it will alleviate the general regulatory burden on those market players that want to specifically invest in VHC networks thus incentivizing them greatly and second it will prevent potential re-monopolization of the VHC infrastructure segment by providing first-mover advantages to all participating co-investors in a transparent process and on terms favoring sustainable competition. Finally, the interests of the non-participating undertakings will be effectively safeguarded by way of regulated access products with characteristics equal to those before the infrastructure upgrade.
Finally, Article 77 of the Code offers a simplified regulatory model for wholesale-only undertakings with significant market power, with the potential obligations being limited only to fair, reasonable and non-discriminatory access rules and subjecting the undertakings to dispute resolution mechanisms as necessary. However, the provision establishes strict conditions for an undertaking to be seen as truly ‘wholesale-only’ – i) all companies and business units in the undertaking shall have no actual or planned activities in any retail market for electronic communication services and ii) the undertaking shall hold no exclusive agreement with another undertaking that is operating downstream and is active on a retail market.