Telecoms: the 'Article 7' procedure and the role of the Commission – Frequently Asked Questions
European Commission - MEMO/08/620 15/10/2008
Other available languages: none
Brussels, 15 October 2008
What is the 'EU-wide consultation mechanism' on regulatory measures in the telecoms sector, also referred to as the 'Article 7' procedure?
Article 7 of the Framework Directive of the EU telecoms rules (2002/21/EC) is the legal basis for the EU-wide consultation mechanism on regulatory measures in the telecoms sector, the principal instrument for telecoms regulation in the single market. Under Article 7, national regulatory authorities are required, in consultation with industry, to analyse their national telecoms markets, propose regulatory measures to address market failures where one or more players is dominant (or has 'significant market power' (SMP)), and then notify the European Commission and the other national regulators of their findings and proposed measures. This mechanism ensures a consistent regulatory approach within the EU and legal certainty for market players wanting to invest in telecoms across borders. It helps to make the single market competitive to the ultimate benefit of the consumer in terms of lower prices and more choice.
How does the 'Article 7' procedure work in practice?
The Commission assesses the majority of proposed national regulatory measures in a one-month “phase one” procedure, during which it may choose to endorse the proposed measures, sometimes with comments of which national regulators must take utmost account. If the Commission considers that the proposed measure would create a barrier to the single market, or has serious doubts about its compatibility with EU law, it opens a “phase two” investigation and the procedure’s deadline is extended for a further two months. Following this investigation, the Commission may, if its concerns are confirmed, require the national regulator to withdraw its proposed measure. This veto power can only be exercised in relation to the proposed market definition or SMP analysis. National regulators have discretionary powers for their proposed remedies but the Commission may make comments.
The new EU Recommendation, adopted by the Commission today, on the rules of procedure for the EU-wide consultation mechanism on regulatory measures reduces national regulators' administrative requirements for this procedure. Regulators can now notify certain categories of draft regulatory measures through short standard notification forms, which summarise the proposed measure. The Commission will in principle endorse these kinds of regulatory measures. This will further simplify and speed up the consultation mechanism. It will also free resources and focus on markets where bottlenecks persist and effective competition still needs to be accompanied by regulatory oversight.
What are the benefits for telecoms operators?
'Article 7' procedures:
What are the benefits for consumers?
'Article 7' procedures help to:
How is the 'Article 7' procedure affected by the proposed reform of the EU telecoms rules?
The current EU telecoms rules aim to promote competition, encourage investment, cut unnecessary costs and remove obstacles to cross-border business in the EU. These objectives have been strengthened by the telecoms reform proposed by the Commission in November 2007 (IP/07/1677). Lighter, more transparent and predictable regulation that stimulates investment and innovation is needed to keep pace with market developments and to deal with remaining competition bottlenecks (particularly in broadband) and make sure that cross-border competition is not hampered by 27 partly inconsistent regulatory systems. The Commission's telecoms reform proposals therefore extend its current oversight powers under the 'Article 7' procedure to national regulators' remedies, allowing it to more effectively and swiftly intervene when it considers that a proposed measure could create a barrier to the single market or is not in line with EU law. The Commission has also proposed to create a European Telecoms Agency, a new office gathering national regulators in a venture equipped to consolidate Europe's fragmented telecoms markets in line with technologies that know no national borders.
The Commission took a first step in this direction by adopting the revised Recommendation on relevant markets in November 2007. This reduced the number of markets subject to regulatory scrutiny from 18 to 7, refocusing regulatory efforts on markets where competition is not yet effective and which are crucial for Europe's competitiveness and simplifying the regulatory environment by reducing the burden on both regulators and industry.
How has the 'Article 7' procedure been changed today?
The simplified notification procedure will apply to:
What exactly is covered by the EU telecoms rules?
The EU telecoms rules cover all communication via electronic means: fixed line or mobile telephony, fax, internet, cable, satellite; they are not limited to particular technologies so as to embrace future technological developments such as Next Generation Networks (IP/08/1370). This open definition takes account of the principle of technology neutrality, one of the most fundamental principles of the EU telecoms rules.
Does the Commission have sole power to define telecoms markets, or can Member States do it too?
National regulators are expected to analyse the markets listed in the
Commission Recommendation on relevant markets, taking into account their
national circumstances. However, if a national regulator considers that there is
persistent market failure in an unlisted market, it may impose regulatory
measures if justified in that specific situation by predefined criteria.
Most retail markets are deregulated once regulation at wholesale level combined with regular competition law protects retail users. This allows the Commission and national regulators to refocus their efforts on markets where competition is not yet effective and which are crucial for Europe's competitiveness, such as broadband.
Why is broadband access often mentioned as one of the remaining competition bottleneck markets?
National regulators have generally found the incumbent operator for the public telephone network in their country to be dominant on the broadband access market. This is because before the liberalisation of telecoms markets only the incumbent had rolled out infrastructure that reached end-users. When the networks were upgraded to provide broadband services, the dominant operators largely maintained their dominant position, preventing alternative operators from competing – a bottleneck market. Physical access obligations imposed on incumbents, i.e. obligations to grant access to the 'last mile', have in principle made it possible for alternative operators to offer wholesale broadband access services. However, few provide wholesale broadband access services to other alternative operators.
EU broadband penetration is currently on average 20%, though as market leaders Denmark (35.6%) or Finland (34.6%) demonstrate, there is much room for growth.
Broadband access is put in a new context by the on-going rollout of new broadband infrastructures, the Next Generation Networks (NGN), which will facilitate the development and use of converged services. Such new broadband services require a coordinated adjustment of regulatory approach to maintain or enhance the level of competition already achieved and ensure that a maximum of consumers can benefit from such services. On 18 September the Commission presented a draft recommendation on next generation access for public consultation (see IP/08/1370).
Who defines a new market when a new technology or service is launched?
Regulation under the current EU telecoms rules is based on competition law principles. In practice, this means that whenever a new technology is introduced, the national regulator has to analyse whether this technology is used to provide services comparable to existing services or whether this technology provides a totally new service, i.e. clearly distinguishable from existing services or products. Only in the second case can regulation of a new market be justified.
What kind of market failures do regulators have to tackle, and how?
The following remedies to market failures are available to national regulators in the EU telecoms package: the obligation to not charge excessive prices or unsustainably low prices that act as barriers to market entry or restrict competition; separation of accounts between various levels of business (accounting separation); requirements to provide access to the SMP operator’s network (to prevent denial of access); and an obligation prohibiting discriminatory treatment of customers.
In its reform proposals on the current EU telecoms rules, which were voted by the European Parliament on 24 September (MEMO/08/581) and which will be discussed by the Council in November, the Commission included the remedy of functional separation in the toolbox of national regulators. This remedy will allow regulators to set conditions for access to the infrastructure of the dominant market player, in particular where non-discrimination behaviour cannot be ensured by the other existing remedies.
How many national regulatory measures has the Commission assessed?
By 22 September 2008 the Commission had received 800 notifications from the Member States. The national regulatory authorities of 15 Member States are currently in the process of carrying out second round market analyses. In all cases, the Commission assessed the notifications within the 1-3 month 'Article 7' deadlines and issued a total of 522 decisions.
How often has the Commission exercised its power to veto draft regulatory measures?
So far, the Commission has issued 5 vetoes:
Do you have any real evidence that the EU – or Member States – can create competition by regulating markets?
In the 1980s traditional telecoms monopolies controlled all forms of telecommunications, both voice and data. Starting with handsets in 1988 and progressively adding services until 1998, the EU liberalised all telecoms services.
Since the entry into force of the EU telecoms rules of 2002, national regulators have been analysing their telecoms markets and have imposed regulatory remedies such as access obligations and price controls on operators with significant market power. This has allowed existing operators to enter each other's markets, new entrants to invest in alternative infrastructure and services and consumers to benefit from more, better and cheaper communication services.
Today, the numbers speak for themselves. The 13th Single Telecoms Market Progress Report (2007) shows that investment by operators in the European Telecoms sector has increased by 16.33% over the past 5 years and exceeded €50 billion in 2007. This is similar to the US and higher than China and Japan put together. The number of fixed broadband access lines was nearly 100 million as of 1 January 2008, up from 80 million in January 2007. The mobile sector continued to grow by 3.8% in 2007 reaching €137 billion, thus remaining the largest segment in the telecoms market, and prices for mobile telephony dropped by up to 14% in 2007. Consumers have also benefited from increased platform competition such as mobile broadband and higher-speed fixed services, particularly over fibre (IP/08/460).
However, there is still more to do. A consistent regulatory approach across the Member States' telecoms markets is crucial to a well functioning, competitive single market. Today, however, only 30% of major operators' EU business is active outside their home market. The Commission took this into account in its proposed reform of the EU telecoms rules. The new EU Telecoms Package will probably come into effect in the Member States in the course of 2010. In the meantime the Commission is seeking to further enhance the competitiveness of Europe's telecoms sector through Recommendations targeting specific markets that require a more consistent or efficient regulatory approach. It plans to adopt early next year a Recommendation on the regulation of termination rates (IP/08/1016) and one on Next Generation Access (IP/08/1370).
Do you have a target date for fully effective competition in all markets?
Effective competition is not achieved by setting deadlines. Appropriate regulation helps to create conditions for competition to develop. Nonetheless, we are still far from seeing effectively competitive telecoms markets throughout Europe.
For example, in 2007, only 13.5% of subscribers in Member States across the EU used an alternative provider for direct access to the fixed telephone line. In 12 Member States they are even less than 5%, which shows that there is still a lack of direct access competition, despite the availability of new technologies and services such as Voice over the Internet Protocol, carrier selection and carrier pre-selection. Incumbent operators of public telephone network still own 46% of the broadband lines. Mobile termination rates remain high in Europe, and distort competition between fixed and mobile networks.
What happens once all the markets identified by the Commission for regulation are deemed “effectively competitive”?
Successful regulation means that sector-specific regulation can gradually be
dismantled as and when the EU telecoms market becomes competitive. At that time,
commercial behaviour in the marketplace will be governed by competition law, as
in other sectors.