Summary

The existing European telecoms regulatory framework has not undergone any major amendments since 2009. The EU regulatory regime has been overtaken by technological and market changes. And, not only has the outdated regime failed to help the European telecoms sector to overcome the fragmentation of the EU into national markets but, even worse, an inconsistent implementation of EU rules at the Member State level has added to the regulatory uncertainty.

As a result, the European Commission now seeks to achieve a far-reaching overhaul of the current framework as part of its Digital Single Market (DSM) strategy. The new proposed rules would not only affect all operators and providers of traditional electronic communications networks and services, they would also make operators of “over the top” (OTT) communications services subject to telecoms regulation, e.g. services like messaging apps that are provided via the Internet.

Background

The Commission launched its DSM strategy in May 2015. We have written a number of articles following the DSM’s progress: on its inception, one year in, and in 2017 following a mid-term review. The DSM strategy consists of three “pillars” and 16 “Key Actions”. The overhaul of the current European framework for electronic communications is part of Key Action 9.

As part of Key Action 9, the EU has already adopted a new regulation on net neutrality and on the elimination of roaming surcharges for mobile phone users traveling within the EU. These changes were part of the so-called Telecoms Single Market package of 2015 (Regulation (EU) 2015/2120). However, the Commission’s overall goal for Key Action 9 is an extensive overhaul of the entire telecoms regulatory framework that is not limited to specific issues such as net neutrality or roaming.

The current regulatory framework consists of four separate directives originally adopted in 2002: the Access Directive (2002/19/EC), the Authorisation Directive (2002/20/EC), the Framework Directive (2002/21/EC), and the Universal Service Directive (2002/22/EC). This framework was most recently reviewed and underwent major amendments in 2009. However, this harmonised framework has not yet led to a European single market for telecoms networks and services. Instead, the sector has remained fragmented into separate national markets. In addition, the inconsistent implementation of the current framework into Member State law, and the equally inconsistent application of the law by the national regulatory bodies, resulted in regulatory uncertainty, especially for cross-border offerings and investments.

The Commission recognises that cross-border investments in the telecoms sector are necessary to achieve the ambitious broadband development goals proclaimed by the Commission and individual Member States. At the same time, the telecoms sector has undergone widespread structural changes in recent years, in particular due to the emergence of “new” communications services like messaging and other OTT services which threaten the business models of traditional telecoms providers.

Proposal of the EU Commission

Against this background, the Commission decided to review all of the existing legislation in the telecoms sector and, as a result, in September 2016 published a proposal for a new European Electronic Communications Code (EECC). This new Directive is intended to implement the EECC and incorporate, amend, and ultimately replace the current EU regulatory framework for the telecoms sector.

The Commission intends to achieve the following goals:

• a consistent single market approach to spectrum policy and management;
• a true single market protecting consumers and allowing network operators and service providers to realise economies of scale and effective cost control;
• a level playing field for market players and consistent application of rules;
• incentivised investment in high-speed broadband networks; and
• a more effective regulatory institutional framework.

Key Issues Addressed by the Proposal

While the Commission aims to streamline and update the entire telecoms regulatory framework, there are three priority areas which the Commission regards as essential to encourage cross-border investments in high-speed broadband technology and next-generation mobile offerings, as well as the integration of new communications services into the regulatory framework:

High-Speed Networks

The Commission regards access to high-speed broadband connections across the EU as an essential building block necessary to fully exploit innovative new technologies, such as cloud computing or the Internet of Things. European businesses will only be able to participate in the development of such new technologies and to efficiently apply them to their processes if they have access to the necessary broadband connections.

The EECC therefore includes provisions targeted at further incentivising investments in broadband networks. The Commission’s proposal provides for rules allowing formerly state-owned providers and other incumbents to invest or co-invest in high capacity networks in cooperation with their competitors. Such investments shall then be taken into greater account to specify access obligations imposed on operators with significant market power. The networks developed through co-investments may be exempted from such access regulation altogether. Furthermore, when regulating fees for access granted to network components by regulated network operators, the national regulatory authorities are required to ensure that these fees will not conflict with investments in high-speed networks, putting this requirement on the same level as efficient competition and consumer protection.

Spectrum Policy and Management

Currently, radio spectrum is mainly managed at the Member State level. In the past, this resulted in varying durations of licenses and obligations for minimum coverage, which in turn led to barriers for cross-border investments in spectrum usage rights. The EU Commission therefore proposes a more harmonised spectrum management framework designed to achieve a common market for mobile services.

In particular, the Commission proposes to give itself the power to adopt binding measures in order to achieve consistency amongst the Member States’ regimes for spectrum licenses. The draft proposal also provides a framework facilitating pan-European (or at least multi-country) procedures for the assignment of mobile spectrum. Additionally, it is proposed that the draft EECC will contain harmonised conditions for frequency usage that national regulatory authorities will be required to enforce when granting new spectrum licenses. The conditions include a harmonised license term, spectrum reservations for new market entrants, and a harmonised implementation of the “use it or lose it principle” with respect to the withdrawal of spectrum licenses. They also include rules that are intended to propagate a shared use of mobile frequencies (e.g., based on national roaming) by the respective mobile network operator and other mobile providers that do not operate their own mobile networks. If necessary, the national regulatory authority will also have the power to formally oblige mobile network operators to facilitate such shared use, e.g., via conditions imposed on them when obtaining the frequency allocations.

Level Playing Field for all Market Players

Over the last few years, an on-going discussion has evolved on whether OTT communications services (e.g., messaging apps or even email services) should be regulated in the same manner as traditional telecoms services (e.g., mobile/fixed telephony or Internet access services). Several national regulatory authorities initiated administrative proceedings against the providers of such new services. In the case of Gmail, the German regulatory authority (Bundesnetzagentur) initiated a proceeding (arguing that Gmail should be regulated as a telecoms service) which is now pending before the European Court of Justice.

In practice, the discussion is particularly driven by the providers of traditional services which demand a “level playing field”. Also, law enforcement authorities fear that it might become more difficult for them to investigate crimes if such new services are not subject to the same telecoms surveillance rules as traditional services.

In this context, the EECC will amend the scope of regulated services to include all interpersonal communications services. However, the full level of regulation will only apply to phone number-based services and not to number-independent ones. While under this framework, many new communications services would only become subject to a limited set of new requirements, others – specifically those that allow a breakout to the public switched telephone network (PSTN) – would then be regulated on the same level as traditional telecoms services.

For a quick overview over the OTT-specific aspects of the EECC, please refer to our infographic which can be downloaded here.

Next Steps

The Commission’s draft for the EECC is currently being discussed within the legislative bodies of the EU. However, most of the issues identified above are subject to strongly diverging interests of the affected stakeholders. So it is probably no surprise that the preliminary draft discussions within the EU Council took more than a year before discussions with the EU Parliament and the Commission on the proposal could even be started. And it is still unknown when the proposal might first be officially debated in the EU Parliament. Finalising the EECC might therefore take another several months, if not years. And, even once the EECC is eventually adopted by the EU, it will still not have any immediate effect, because – like any EU directive – it will first need to be implemented into national law by each Member State.

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