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Electronic communications: the Article 7 procedure and the role of the Commission - Frequently Asked Questions

Commission Européenne - MEMO/06/59   07/02/2006

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MEMO/06/59

Brussels, 7 February 2006

Electronic communications: the Article 7 procedure and the role of the Commission - Frequently Asked Questions

What is meant by electronic communications?

The term “electronic communications” covers all forms of communications via electronic means, via telephone (fixed line or mobile), facsimile, internet, cable, satellite etc. In the age of converged technologies, it is important to allow any definition of such communications to be as broad as possible, without limitation to particular technologies, and thus be able to embrace future technological developments. The open definition of this term reflects the principle of technology neutrality which is one of the fundamental features of the EU regulatory framework for electronic communications. As part of the notification mechanism, the Commission has established a list of “markets” for electronic communications (e.g. local and national calls), that it considers should be the starting point for analysis on a national level by national regulators. These markets are set out in the Commission Recommendation “on relevant product and service markets susceptible to ex ante regulation” (see: http://ec.europa.eu/information_society/policy/ecomm/article_7/index_en.htm)

What is the cooperation and notification mechanism and what is its legal basis?

The legal basis is Article 7 of the Electronic Communications Framework Directive (2002/21/EC), the principal instrument for EU regulation of electronic communications. Under the procedures set out under this article, the national regulatory authorities (“NRAs”) are required, in consultation with industry, to analyse their national markets for electronic communications and propose appropriate regulatory measures to address market failures, and then notify their findings and proposed measures to the Commission and other national authorities. More precisely, the NRA, in accordance with competition law principles, must define the boundaries of the relevant market, assess whether any one or more players is dominant (or has significant market power, “SMP”) in this market and where operators are found to be dominant, propose appropriate regulatory remedies to ensure effective competition.

The Commission assesses the majority of cases within a one-month “phase one” procedure, after which it may choose to approve and/or comment on the proposed measures. However if the Commission considers that the proposed measure would create a barrier to the single market, or has serious doubts as to its compatibility with Community law, the Commission opens a “second phase” investigation and the procedure’s deadline is extended for a further two months. Following this in-depth investigation, the Commission may, if its concerns are confirmed, exercise its power of veto. This veto power can only be exercised in relation to the proposed market definition or SMP analysis. As regards proposed remedies, NRAs have discretionary powers and the Commission may make comments.

So far, the Commission has issued four veto decisions.

  • Veto decision in case FIN/2003/0024 concerning international calls (Finland): Ficora, the Finnish regulator, considered on the basis of its analysis that this market was characterised by effective competition since it did not identify any market players with significant market power. The Commission, however, found that Ficora not only arrived at this conclusion by taking into account regulation already in place to tackle potential competition problems, but also did not provide sufficient evidence underpinning its findings to enable the Commission to endorse the NRA’s conclusions.
  • Veto decision in case FIN/2004/0082 concerning the mobile access market (Finland): Ficora concluded that one operator had SMP mainly on the basis of high market share (>60%). However, according to competition law practice, market shares alone are not necessarily sufficient to establish dominance and Ficora failed to consider sufficiently market developments that would have rebutted the presumption of dominance.
  • Veto decision in case AT/2004/0090 concerning transit services (Austria): the Austrian Regulator stipulated that a transit market includes the services provided by a network operator to other operators (or itself) to convey calls across the network, The Commission disagreed with the Austrian regulator’s view that operators who were supplying such services only to themselves (in particular, mobile operators) could also supply them to others on a commercial basis. The NRA’s approach lead to a significant unjustified reduction of the dominant market player’s market share (Telekom Austria). Furthermore, the regulator failed to assess the impact of deregulation on small operators.
  • Veto decision in case DE/2005/0144 concerning wholesale call termination on fixed networks (Germany): the Commission challenged the German regulator’s findings that only the incumbent operator, Deutsche Telekom, was found to be dominant on its individual network in this market. The NRA did not consider any of the other operators in respect of their individual networks to be dominant, despite each having a market share of 100%. The German regulator felt that any power on the part of these alternative operators was curtailed by the purchasing power of Deutsche Telekom. On the basis of legal and economic considerations, the Commission considered that Deutsche Telekom could not exercise such power.

How does an Article 7-procedure work in practice?

Once a Member State NRA notifies the Commission of its proposed measure for a particular market, the case is registered, and an ad hoc case team comprising officials of the services of both the Information Society and Media and Competition Directorates General is appointed. The case team analyses the notification and may ask the NRA concerned to provide some further information or clarification for the purpose of conducting the assessment. The NRA has three working days to respond to such a request. The team must carry out its assessment and comply with the necessary internal checks and balances, within the legally binding deadline of one month. At the end of this period, and provided that the notified measure does not raise “serious doubts” as to its compatibility with Community law, the Commission may decide to make comments. NRAs are to take utmost account of comments issued by the Commission before adopting the draft measure in question.

In the event the Commission expresses serious doubts, the Commission's investigation period is extended by a further two months ("phase two" investigation) during which the NRA may not adopt its proposed measure. During these two months, the case team resumes an in-depth examination of the case and invites third parties to make known their views. What follows thereafter is an intense exchange of information between all interested parties (including the NRAs and industry players) and all data provided and views expressed are carefully considered by the Commission. At the end of the investigation period, the Commission may withdraw its serious doubts (in which case the NRA may adopt the draft measure), make comments (of which the NRA must take utmost account when implementing the draft measure) or exercise its right of veto, thereby requiring the NRA to withdraw its proposed measure. In both phases the NRA may withdraw its draft measure.

Why are so many market analyses still missing and what does the Commission do about this?

Some NRAs have been late in notifying the Commission of their market analyses. In October 2005 the Commission launched infringement procedures again seven EU Member States (BE, CZ, EST, CY, LV, LUX, and PO), for failing to notify it of their market analyses. By the end of January 2006, Luxembourg and Cyprus had started their notifications to the Commission. Although, as of 7 February 2006, four Member States were still missing, more time and effort will clearly be needed for all markets to be analysed exhaustively and before the full benefits of liberalisation are felt throughout the EU.

Do you have any real evidence that you - or Member States - can “regulate” competition into existence?

In the 1980s traditional telecoms monopolies controlled all forms of telecommunications – voice and data. Starting with handsets in 1988 and progressively adding services until 1998, the EU liberalised all telecoms services. The number of fixed-line operators doubled between 1998 and 2003. Big operators began entering each others’ markets, new entrants invested in services and infrastructure, and consumers got a better deal all round. On average, for the same telecoms services, consumers spent about 30% less of their income in 2002 than they did in 1996. The affordability index for average income users in all Member States sank to a record low in 2002.

As to the current state of play, the Commission will adopt later this month its 11th Implementation Report providing market data and economic developments in the electronic communications markets per Member State.

Does the Commission have sole power to define e-communications markets, or can Member States do it, too?

The starting point is the Commission Recommendation on relevant markets (see http://ec.europa.eu/information_society/policy/ecomm/article_7/index_en.htm). The NRAs are expected to analyse the 18 markets listed in this Recommendation, taking into account their national circumstances. However, if an NRA considers that a market not listed in this Recommendation is relevant for regulation because it is characterised by persistent market failure, it may impose regulatory measures but has to justify on the basis of predefined criteria why regulation is warranted in that specific situation.

What happens when a new technology or service is launched – do you (or Member States) define a new market?

Regulation under the framework for electronic communications is based on competition law principles. In practice, this means that whenever a new technology is introduced, the NRA has to analyse whether this technology is used to provide services comparable to existing services or whether this technology provides a totally new service. Only in the second case, that is when the service is clearly distinguishable from existing services or products, may it become justifiable to define a new market.

Do you have a target date for fully effective competition in all 18 markets?

Effective competition is not achieved by setting deadlines. By means of appropriate regulation we create preconditions for competition to develop. The Communication today indicates that whilst some markets have already been found to be effectively competitive (especially retail fixed telephony markets and mobile markets), we are still far from seeing effectively competitive electronic communications markets throughout Europe.

What happens once all 18 markets are deemed “effectively competitive”?

Successful regulation means that this sector-specific regulation can gradually be dismantled as and when the EU electronic communications market becomes competitive. At that time, commercial behaviour in the marketplace will be constrained by competition law, just as in other sectors.

What kind of market failures need to be tackled?

The general aim of ex ante regulation is to ensure effective competition on the market to the ultimate benefit of end-users. Market failures which the NRAs and the Commission endeavour to tackle include excessive pricing, denial of access to networks, barriers to market entry and discriminatory treatment.

What are the regulatory measures that can be imposed, and on whom?

Regulatory measures can be imposed only if competition is not functioning in the market analysed. This is the case when an NRA finds that an operator has SMP and thus decides the appropriate remedies to impose on it. The notion of SMP is equivalent to the competition law concept of “dominance”, as defined in the case law of the Court of Justice and the Court of First instance of the European Communities.

The regulatory framework provides NRAs with a ‘tool kit’ of remedies which leaves them with the flexibility to design appropriate remedies to tackle any market failures observed, and so achieve their regulatory objectives. For wholesale markets, the following categories of remedies are available: transparency, non-discrimination, accounting separation (separation of accounts between various levels of business), access obligations (requirements to provide access to the SMP operator’s network) and price control. In retail markets, the obligations may include requirements not to charge excessive prices, inhibit market entry or restrict competition by setting unsustainably low prices, or discriminate between end-users.

Obligations imposed should be based on the nature of the problem identified, proportionate and justified.

What are the benefits for telecoms operators?

Article 7 procedures help to:

  • give market players legal certainty as to how and under what circumstances operators will be regulated. EU-wide rules, and co-operation among national regulators, help to ensure that regulatory practice is consistent across the EU,
  • give market players the confidence that they need to plan their investments in a consistent and predictable EU market,
  • make it easier to do business across the EU, and
  • enable new players to enter the market and compete.

What are the benefits for the citizen?

Article 7 procedures help to:

  • stimulate competition, which results in cheaper products and services, and
  • stimulate investment, which leads to more and better products and services.

Why both Commissioners Reding and Kroes?

There are two Commission Directorates General concerned with the implementation of the Article 7 notification mechanism: DG Competition and DG Information Society and Media. While DG Information Society and Media has the responsibility for the regulatory framework – including the review of the directives in 2006 – the application of the Article 7 procedures is a joint responsibility with DG Competition. This secures a coherent and consistent application of competition law principles enshrined in the regulatory framework for the electronic communications sector.

The two DGs work hand in hand, pooling their sectoral, regulatory and competition law expertise, thereby reflecting the principles underpinning the regulatory framework. Close co-operation between the two DGs has ensured that the new principles of the regulatory framework have been put successfully into practice. Despite the sheer number and magnitude of notifications so far received, both DGs have ensured that the tight legal deadlines for assessment are always met.

How many cases has the Commission assessed?

By mid-January, the Commission received 334 notifications from 20 Member States. In all cases, the Commission assessed the notifications within the tough Article 7 deadlines of 1 month and required an extra 2 months when it had serious doubts as to the compatibility of the proposed measures with Community law. The Commission had issued a total of 198 decisions. The Commission is expecting many more notifications to come, possibly reaching 550 notifications by the end of 2006.

Commission decisions issued (mid-January 2006)
[Graphic in PDF & Word format]


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