Annex A - Timetable and negotiating position
The Committee notes that this legislative package represents a substantive overhaul of EU telecoms regulation, which will affect the UK while a Member of the EU and after its withdrawal. The House of Commons Scrutiny Committee specifically asked that I provide the following.
More detail on the expected next steps — when he considers the legislative proposals are likely to be passed up to Coreper and trilogue discussions (with the European Parliament and Commission) entered into, and whether the intended target of adoption of both proposals by the end 2017 is realistic (with an eighteen month implementation period thereafter).
The Commission is maintaining its optimistic aim of reaching a general approach by the end of the Estonian Presidency in 2017. The Maltese Presidency is seeking to make as much progress as possible, with a particular focus on the chapters that deal with services at Council in June, and has scheduled a fast-paced programme of working groups accordingly.
In the European Parliament, we understand that there will be a vote on the Code in the ITRE (Industry, Research and Energy) Trade and Committee on 22nd June. The full timetable, including the plenary vote, is still to be confirmed.
At this stage I cannot comment on when the proposals are likely to be passed to COREPER, and though the trilogue stage is expected to take place in early 2018, this is not yet confirmed. I am committed to updating the Scrutiny Committees when the timetable is clearer and further progress has been made in the Council.
The Committee has also asked what the Government's objectives and red lines are for the negotiations.
As explained in my covering letter, the UK Government retains its right to keep formal negotiating positions confidential whilst negotiation is ongoing. The UK’s strategic priorities for the re-negotiation are set out in our non-paper published in 2015.
The Committee asked for an update on Working Group discussions to date and the outcomes of the high-level policy discussions at the TTE Council, and the extent to which the Government's objectives and red lines have been or are likely to be supported by other MS (for example, to lead the Commission to revise or withdraw certain elements, to secure a majority or to enable a blocking minority).
There is widespread support for protecting MS competence and subsidiarity, as well as an interest in ensuring competition and investment across the EU. There are a broad range of MS positions across most proposals including consumer rights, OTT services, the USO, and access. Nonetheless, there is support from other MS for the UK’s priorities on these issues. It is too early to say whether this will lead to the Council altering elements of the text. We will update the Committees when the Presidency issues revised text.
The Lords Committee also sought an updated assessment of the extent to which the UK is likely to want to mirror in its post Brexit domestic legislation the substance of the legislative proposals where there is a deviation from current UK law; and if so the extent to which this would require further agreement with the EU (for example because it involves reciprocal cross-border rights and obligations); and if not, the extent to which barriers to trade and investment may arise of diverging legislation and how different stakeholders (consumers, telecoms operators, 'over the top' communication service providers etc) may be affected.
The Commons report also requested an updated assessment of the extent to which the UK is likely to want to mirror in its post Brexit domestic legislation the substance of the legislative proposals where there is a deviation from current UK law; and if so the extent to which this would require further agreement with the EU (for example because it involves reciprocal cross-border rights and obligations); and if not, the extent to which barriers to trade and investment may arise of diverging legislation and how different stakeholders (consumers, telecoms operators, 'over the top' communication service providers etc) may be affected.
In response to both Committees I can explain that stakeholders have expressed an interest in staying close to the European Electronic Communications Code (EECC) post-Brexit. Whilst we are in the EU we will seek to implement the EECC into national legislation. If this is required to be considered post-Brexit, implementation will become a discretionary matter.
Annex B - Subsidiarity Concerns
Both Committees focus on the Commission proposals encroaching into MS competence.
Consequently I have been asked for an updated assessment, taking into account the results of stakeholder engagement, of which elements raise subsidiarity concerns and why, with reference to the Commission's proposal and analysis.
In particular these concerns are raised in specific relation to the proposals over harmonised spectrum management and the additional responsibilities and functions which are earmarked for BEREC, under its new proposed status as an agency of the EU.
The Treaty on the Functioning of the EU (TFEU) authorises intervention by the Union when the objectives of an action cannot be sufficiently achieved by the MS, but can be better achieved at Union level ‘by reason of the scale and effects of the proposed action’. Our argument here is that without a compelling general argument for scale effects of harmonisation outweighing the benefits of national prioritisation, spectrum decisions as a class cannot be better achieved at Union level.
Overall, the whole approach to spectrum management raises subsidiarity issues. Subsidiarity refers to the lowest level decisions can be made at, and under the current framework decisions are made at the lowest level they can be. In addition, there are structures and groups that have more authority than the Commission where a harmonised approach can be agreed by countries such as the CEPT (the European Conference of Postal and Telecommunications Administrations, which is a regional group comprising EU and non-EU countries), and the ITU (the International Telecommunications Union, which is a UN body).
At WRC-15 (the World Radiocommunications Conference 2015, a treaty-making conference organised every 3-4 years by the ITU) it was decided that Region 1 (Europe, Middle East and Africa) would allocate the 700MHz band for mobile broadband on a co-primary basis with digital terrestrial television (DTT). The Commission published its draft Decision on harmonising the 700MHz band (“the UHF Decision”) in February 2016 and this is still waiting to be signed off by both EP and Council following an agreement by the two institutions in an informal trilogue. However, even before the draft decision was first published several MS (including the UK, France, Germany, Sweden, and Finland) had announced their intention to clear the 700MHz band and there were discussions being held at CEPT and RSPG (the Radio Spectrum Policy Group) to resolve cross-border interference and harmonisation issues.
In addition, while the principle of harmonisation sounds attractive, it could lead to less efficient usage of spectrum. To mitigate against this some flexibility is required to opt-out of that harmonisation after a specific period of time if national needs and priorities deem that a spectrum band would meet those needs and priorities better through a different usage.
For example, the UHF decision originally wanted to guarantee the 470-694MHz band for broadcasting until at least 2030. While that will give a lot of stability for the broadcasting sector throughout Europe and will provide incentives for investment, for some countries which have extremely low and falling demand for DTT broadcasting, it is a very inefficient use of the spectrum. The final version will, therefore, harmonise the 470-694MHz band for broadcasting but with the option of allocating it for other uses should national need dictate.
Finally, several subsidiarity issues can also be found in the reform of BEREC from a network of national regulators to an Executive Agency of the Commission. The extra powers being given to BEREC to influence decisions made by national regulators and the designation as an Agency of the Commission suggests that the Commission are giving themselves more scope to be able to direct national regulators. Up to now, certain issues have always been the preserve of the MS . For example, Article 35 obliges MS to consult BEREC over a competitive spectrum award process and to take into account BEREC’s opinion on whether it should be carried out in this way. With BEREC’s new role this would mean greater EU-level oversight of MS in how they manage their competitive awards processes.
Below are some of the specific examples where there are subsidiarity questions in the current Code proposals:
Article 28(4) - At the request of a MS or upon its own initiative the Commission may adopt implementing measures to resolve cross-border harmful interferences between two or several MS.
While it may be helpful for the Commission to step in if one or more MS requests intervention, it would be wrong for the Commission to act upon its own initiative to resolve what it considers to be a cross-border issue between two or more MS .
Article 45(2) - Commission may adopt implementing acts setting out whether spectrum harmonised under an RSC decision shall be subject to a general authorisation or an individual right of use.
MS currently decide whether to award an individual licence or general authorisation, and this is based on individual needs and priorities so the Commission would be imposing conditions on MS that may be detrimental to national needs.
Article 47(3) - Commission may adopt implementing acts regarding the application of conditions that MS attach to authorisations (e.g. imposing coverage obligations).
The Commission Impact Assessment accompanying the proposals gave justification for Commission-imposed licence conditions as due to the differing licence conditions imposed by MS following the 4G auction. However, it can be said that the reason MS impose different licence conditions is to ensure their own priorities and needs are met and that due account is taken of the different national specificities. This article will take away the ability of MS to set licence conditions that are most appropriate to promote economic growth for their own situation.
Article 53 - Commission may adopt an implementing act to establish a common deadline for harmonised spectrum to be authorised and may limit or extend those licences falling under Article 49 (25-year licence proposal) to bring them into line with the harmonised deadline.
As mentioned above, there are questions about whether this would be in the interest of an individual MS.
Annex C - Key Policy developments
Turning specifically then to issues of further detail on policy implications.
Network access regulation
The Committee asked whether and how the new mapping obligation on national regulatory authorities would contribute to investment in networks; what clarification the Commission has provided, which stakeholders have been consulted, and what these stakeholders’ feedback has been.
On 21 December the Commission published a non-paper on the Access proposals (along with further non-papers on Institutional Governance (BEREC/NRA, national regulatory authorities); Spectrum management; and End-Users’ Rights) to amplify the original Code proposals and provide some additional detail and clarity. The Access paper explains that requiring NRAs to map investment plans and the state of broadband networks will enable them to take into account differences between markets in different geographical areas when taking regulatory decisions.
Ofcom already does this in the UK by mapping infrastructure, but not investment plans. The Commission's paper also explains that NRAs would be tasked with identifying "digital exclusion areas" where no operator or public authority has deployed or plans to deploy a very high capacity network or has upgraded or plans to upgrade their legacy network to a performance of at least 100 Mbps download speed. The NRA may choose to publish details of the digital exclusion areas and invite a call for interest to deploy very high capacity networks in these areas.
The Commission explains that requiring companies to provide accurate investment plans (and sanctioning those that do not) will provide greater predictability for those opting to invest in areas where there would normally not be a business case for more than one network. The paper does not provide any assessment of the costs and benefits to NRAs and industry of this proposal. The Council working group is not due to negotiate article 22 until mid-February and we can update the Committee subsequently.
Several telecoms operators commented on these proposals (contained in Article 22) when responding to our recent call for views. There is general concern that the proposal is too vague. Operators are concerned that given the rate of technological change, it is not viable to provide long term investment plans with the level of detail and accuracy required.
One smaller operator felt that the proposal could be useful in principle if accompanied with a pot of public funding.
The Committee queried whether the loosening of regulatory obligations on undertakings with significant market power (SMP) status where they engage in co-investment offers to invest in very high capacity networks will be an effective incentive for investment. The Committee asks what further research the Government has undertaken, and what its findings have been.
Responses to the Government's call for views were conclusively not in favour of the proposal to loosen regulatory obligations for wholesale access on undertakings with SMP status where they engage in co-investment offers to invest in very high capacity networks. Operators investing in infrastructure were clear that the proposal does not improve the viability of the investment and would not encourage them to alter their business models.
Our own economic analysis agrees: co-investment shares the risk (and resulting benefit) of investment between businesses, but does not reduce the risk in relation to the benefit. There is no explicit correlation which evidences a risk being reduced by the the number of collaborators engaged in it. Co-investment proposals, based on the French experience, does not necessarily encourage investment by reducing risk levels.
Our analysis also suggests that loosening of regulation, conditional on co-investment, could potentially make the investment less viable for the SMP operator by giving them less control and certainty over wholesale pricing. Access seekers also object to the proposal on the basis that loosening wholesale regulation is uncompetitive. In general, operators felt that the proposal allowed for gaming and should not favour a particular business model, noting that co-investment is already possible under the existing regulatory framework.
The Committee also asked whether the Code has any significant implications for an undertaking like BT, and Ofcom’s recent announcement that it should separate formally from Openreach.
In November 2016, BT published a summary position on the Commission proposals[1] and we have spoken with BT in detail. The Commission's proposal retains the concept of "significant market power", ensuring that economic regulatory intervention is based on the principles of competition. Under the new Code proposals, Ofcom will continue to have the power to impose obligations on BT whilst BT retains SMP in relevant markets. This is no different to Ofcom’s powers under the existing regulatory framework. Articles 61-65, which change the market review process and codify the three step test for SMP, might deliver a minimal impact.
The proposed Code does not introduce any significant changes to the provisions in the Framework on which Ofcom would rely in its proposals for legal separation of Openreach from BT Group. In any event, any changes to the Framework as a result of the Code would not be expected to be agreed before early 2018 at the earliest, and would only become applicable following transposition (most likely 12-18 months later).
The Committees also ask about network access regulation and whether the Commission has clarified how the new Code will address non-competitive oligopolies.
The Commission has not clarified how the new Code will address non-competitive oligopolies. The Netherlands and Belgium are pressing the Commission to address this issue and we will seek to support these MS where we are able to do so. The Commission is unlikely to provide any clarity until the access proposals are considered by the Council working groups from mid-February onwards and we can provide a further update. However, the Commission has suggested that it might seek to provide greater clarity on this subject when reviewing the SMP guidelines later this year.
Radio Spectrum
You have noted my view that that the Code proposes the complete harmonisation of spectrum management across the EU, or “binding and enforceable rules for enhancing coordination of spectrum management in the EU” as the Commission represent it. You have requested further clarity on the content of the proposals to enable you to appraise the extent to which this is the case, with specific reference to the following questions:
i) factors that must be taken into account in spectrum assignment; (ii) new rules regarding spectrum licensing that will be decided at EU level; (iii) the new powers to pass Implementing Acts or other measures that relate to spectrum management. Please also explain which of their current powers NRAs would retain under the proposals, in relation to radio spectrum.