Electronic communications - the new EU regulatory framework

Impact of the new EU directives

On 24 April 2002 four out of a package of five EU Directives, and a Council decision on Radio Spectrum Policy came into force. The outstanding “Data Protection Directive” is expected to be adopted by June 2002. Member States now have 15 months to transpose the four new Directives into national law.

The new Directives are part of a wider package of measures aimed at simplifying and harmonising more than 20 existing EU Regulations and Directives. Some of the concepts outlined in the new Directives (Access and Interconnection, Universal Service and Data Protection) are already applicable within the Telecommunications Sector. What these new Directives do is to update those concepts with regards to the already converging telecommunications, digital broadcasting and internet industries (Electronic Communications Networks and Services).

The new Directives establish a set of procedures to ensure the harmonised application of the regulatory framework throughout the Community. The new Directives simplify rules for market entry, with new authorisation rules across the EU that remove the requirement for individual licences (Radio Spectrum licensing will remain), and provide NRAs with tools to cope with evolving future technology and market changes.

The legislation aims to reduce regulation as competition becomes effective in specific markets. The adoption of the new Directives is expected to stimulate more competition as it will create a clear and consistent regulatory framework across the EU for all telecoms operators.

In addition to the new Directives and the Radio Spectrum Decision, the Commission has also proposed a consolidated Commission Competition Directive.

The Commission is currently finalising a number of follow-up measures related to the new EU regulatory framework which are scheduled for adoption shortly.

A Commission Recommendation on Relevant Product and Service Markets (under the Framework Directive) will set out the different markets that NRAs will be expected to review over the 15 months implementation period. Commission Guidelines on market analysis and the calculation of Significant Market Power (under the Framework Directive) will provide the tools for NRAs to carry out these reviews to a common standard.

The Framework Directive also provides for the establishment of the Communications Committee (COCOM) a Commission-chaired group attended by Member State representatives to address implementation issues, while a separate Commission Decision will establish the European Regulators’ Group (ERG) which provides a formal forum for NRAs to meet and establish joint working – in addition to the existing Independent Regulators Group.

To complement the Decision on radio spectrum regulation, the coming months will also see the establishment of the Radio Spectrum Committee and the High Level Spectrum Policy Group.

What does this mean for the UK?
Like the rest of the EU, the UK market is most likely to benefit from a modern and simplified EU regulatory environment for electronic communications. A withdrawal from regulation where competition is effective, together with simplified market entry rules, will create a level playing field for all telecoms operators and consumers across the EU.

During the transitional period (from entry into force until transposition of the Directives into national law) national regulatory authorities (NRAs) must:

• carry out market reviews as set out in the Framework Directive and Recommendation on Relevant Product and Service Markets.

On the day after the Directives enter into national law:

• all individual Telecommunications Act licences will be revoked and the new authorisation regime will apply;
• Radio Spectrum Licensing will continue, albeit in a different form, subject to adoption by the UK Government of the recommendations in the “Cave Report” on Spectrum Management, and Spectrum trading will be permitted
• all regulatory actions will be carried out under the new Directives;
• Oftel will publish its determinations of SMP and specific obligations on SMP operators; and
• Oftel will publish designations of Universal Service Operators, details of Universal Service Obligations and specific interconnection and access obligations.

1. Framework Directive (FD)

• Sets the overall framework for regulatory decisions, including objectives and principles which NRAs including Oftel must take into account when making regulatory decisions.
• Sets out the principle that NRAs must carry out market reviews to establish the level of competition in a market before any regulation is imposed. Regulation can only be imposed if a market is found not to be effectively competitive. NRAs will work from a new definition of Significant Market Power, which is equivalent to the competition law concept of dominance.
• Requires NRAs to consult with the Commission and other NRAs before taking decisions and implementing procedures, to ensure the objective of harmonisation across Europe is met.

2. Authorisation Directive (AD)

• Abolishes existing licensing regimes and replacing them with “general conditions” – obligations set out in the AD. Providers of electronic communications networks and services will no longer be required to obtain explicit approval before they can offer services. In the UK, the DTI will begin work on implementing the new regime now the Directives have entered into force.

3. Access and Interconnection Directive (AID)

• Deals with wholesale relationships between providers of networks and services and associated facilities and places general obligations on operators to negotiate interconnection. It sets out NRAs’ responsibilities (and the limits of their discretion) to ensure operators’ obligations related to access or interconnection are met. For the most part, such obligations can be imposed only on those found to have SMP in the relevant wholesale market.

4. Universal Service Directive (USD)

• Establishes the procedure for designating providers of universal service.
• Specifies a minimum set of services that operators must provide. Gives details of specific obligations that may be imposed on providers with SMP in retail markets (as the AID does for wholesale markets). The USD also sets standards for consumers’ contracts with telecoms providers, number portability and procedures for providing consumers with an out-of-court dispute resolution process.

5. Data Protection Directive (DPD)

• Will set out how telecoms users’ personal data can be used and ensure consumers’ right to privacy. DPD was negotiated as part of the same process which led to the adoption of the other Directives. DPD is expected to be adopted by June 2002.

6. Decision on radio spectrum policy

• The aim of this Decision is to establish a policy framework to co-ordinate regulatory approaches to radio spectrum across the EU, and a legal framework to ensure harmonised conditions for the availability and efficient use of radio spectrum.

7. Competition Directive (in Draft only at this stage)

• The aim of this Directive is to replace, by a single text, all existing liberalisation Directives in the telecommunications sector previously adopted by the Commission. A draft of the Directive has been submitted to public consultation.

Update on Forthcoming UK Electronic Communications Legislation

Office of Communications Act 2002 (OFCOM)
In October 2001 the UK Government introduced a Bill to create a new Office of Communications (OFCOM). The new UK regulator for what in the future will be the “Electronic Communications” Sector will merge the responsibilities of the five existing regulators currently dealing with the regulation and licensing of the existing Telecommunications and Broadcasting Industries, namely;

OFTEL (Office of the Director General of Telecommunications)
The ITC (Independent Television Commission)
The Radio Authority (Broadcast Radio)
The Radio Communications Agency (Radio Spectrum Management /Licencing)
The Broadcasting Standards Commission

and will provide a “one stop shop” for the regulation of broadcasting content, telecommunications, competition and radio frequency spectrum management and licensing in the UK. OFCOM is planned to be up and running by the end of 2003.

The Office of Communications Act 2002 is a “Paving Act” which allows the establishment by the Secretary of State of OFCOM as a body corporate. The Chairman and other Board Members appointed by the Secretary of State are empowered to carry out all initial functions necessary to facilitate the setting up of OFCOM as a regulator of communications e.g. incurring expenditure, appointing staff etc, However OFCOM is not empowered to borrow money other than from the Secretary of State.

The Act was passed in March 2002

Communications Bill
The functions and powers of OFCOM and the transfer of functions from the existing regulators etc, are to be contained in a separate “Communications Bill”.

The draft Communications Bill is due to be published on 7th May 2002. Following consultation the Bill is likely to be laid before Parliament in Autumn 2002 with a possible target date for the resulting Act to come into force in Spring/Summer 2003.

The Bill will include measures outlined in the package of EC Directives on Electronic Communications which came into force on 24 April 2002. However due to the fact that the Directives must be implemented on time on 25th July 2003 and the also the fact that certain aspects of the Telecommunications Act 1984 (with regards to licensing of telecommunications networks and services) will be repealed at the same time, it is likely that the Directives will initially be implemented by way of separate Regulations which will be repealed when the Communications Act comes in to force. In that eventuality the repeal of the necessary parts of the Telecommunications Act are likely to be achieved by way of a Regulatory Reform Order.

The Bill is likely to contain a number of proposals with regard to

a. The provision of electronic communications networks and service. This will include the abolition of the existing regime of telecommunications licensing under the Telecommunications Act 1984 in favour of general authorisation. Specific conditions relating to inter alia Operators with Significant Market Power, and Universal Service Obligations will remain.

b. Use of the radio spectrum
Spectrum licensing will remain but the trading of spectrum between licence holders, currently prohibited, will be allowed (subject to Competition Law restrictions), to promote efficient use of unused capacity.

The UK government recently published a report by Professor Martin Cave outlining his recommendations for the future management of Spectrum in the UK.

c. Broadcasting (TV and radio)
Licensing, content and programme standards.

d. Consumer interests and competition functions
Matters in relation to which OFCOM will have competition functions e.g. the provision of electronic communications networks, services, apparatus and broadcasting and related matters. Functions under the Competition Act 1998, Fair Trading Act 1973 and Restrictive Trade Practices Act 1976.

The Electronic Commerce (EC Directive) Regulations 2002.
The UK along with other EU Member States was required to implement the Directive on Electronic Commerce (2000/31/EC) by 16 January 2002.

The UK Government undertook an initial public consultation on the implementation of the Directive in Autumn 2001. A further public consultation period on the Draft Regulations, which were published in early March 2002 closed on 2 May 2002.

For further information please contact David Roberts, Partner, Telecoms Group on +44(0)20 7367 3678 or by e-mail at david.Roberts@cms-cmck.com.