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Telecoms: how the Article 7 consultation and notification mechanism works: frequently asked questions

Commission Européenne - MEMO/10/226   01/06/2010

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MEMO/10/226

Brussels, 1 June 2010

Telecoms: how the Article 7 consultation and notification mechanism works: frequently asked questions

(see also IP/10/644)

What is the Article 7 procedure?

Article 7 of the EU's Electronic Communications Framework Directive (2002/21/EC) is one of the main EU instruments to regulate the telecoms sector. It is a consultation and notification mechanism that requires national telecoms regulators to inform the Commission, and telecoms regulators in other EU countries, about measures they plan to introduce to solve market problems. The Framework Directive was recently amended as part of the telecommunications package adopted by the European Parliament and the Council in November 2009.

Seven telecoms “markets” (e.g. wholesale broadband access) have been identified as the starting point for analysis by national regulators. These markets are set out in a Commission Recommendation on Relevant Markets (IP/07/1678). Since 2002, under the procedures set out under Article 7, national telecoms regulators have analysed their national telecoms markets, in consultation with the industry, and proposed appropriate regulatory measures to address market failures.

National telecoms regulators must ensure that telecoms markets are competitive. The authorities therefore must define the boundaries of the relevant markets and assess whether one or more market players are dominant on them (i.e. have significant market power - SMP). If operators are found to be dominant, appropriate regulatory remedies must be proposed to ensure effective competition. The national regulators inform the Commission and other national regulators of their findings and proposed measures

The Commission assesses the regulatory measures (notably the definition of markets and assessment of SMP) within a one-month “phase one” procedure, after which it may choose to approve and/or comment on them. If the Commission considers that the proposed measures would create a barrier to the Single Market, or has serious doubts as to their compatibility with EU 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, require a regulator to withdraw the measures they have proposed (a possibility known as 'power of veto').

The revised telecoms rules adopted in November 2009, which the EU Member States must implement into their national law by 25 May 2011, gives the Commission new responsibilities with regard to the imposition and implementation of remedies (see below).

How will the EU Telecoms Reform, as adopted by the Council and Parliament on 13 November 2009, change the Article 7 procedure?

As of May 2011, the new EU telecoms rules will give the Commission the power to oversee remedies proposed by national regulators e.g. on the conditions of access to the network of a dominant operator; or on fixed or mobile termination rates. The objective is to ensure a more consistent, efficient application of those remedies across the EU in a single telecoms market.

Under the new rules, should the Commission, in close cooperation with "BEREC" (the Body of European Regulators for Electronic Communications) consider that a draft remedy would create a barrier to the Single Market, the Commission could issue a recommendation that required the national regulator to amend or withdraw its planned remedy. The new rules also enable the Commission to adopt further harmonisation measures in the form of recommendations or (binding) decisions if divergences in the regulatory approaches of national regulators, including remedies, persist across the EU in the longer term, e.g. on broadband access conditions or on mobile termination rates.

How does the Article 7 procedure work in practice today?

Once a national regulator notifies the Commission of its proposed measure for a particular market, the case is assessed and the regulator may be asked to provide more details or clarifications. The regulator has three working days to respond to such a request. The Commission must carry out its assessment, and comply with the necessary internal checks within one month. At the end of this period, and provided that the notified measure does not raise “serious doubts” as to its compatibility with EU law, the Commission may decide to comment. Regulators should take account of the comments issued by the Commission before adopting the draft measure in question.

When the Commission expresses serious doubts, its investigation period is extended by two months ("phase two" investigation) during which the regulator may not adopt its proposed measure. During these two months, the Commission examines the case in detail and invites interested parties to comment on it. The Commission carefully considers the views of all stakeholders (including national telecoms regulators and market players) in the course of the investigation process.

At the end of the investigation period, the Commission may withdraw its serious doubts (in which case the regulator may adopt the draft measure), make comments (of which the regulator must take utmost account when implementing the draft measure) or require the regulator to withdraw its proposed measure. The regulator may withdraw its draft measure at any time during either phase.

Which electronic communications markets are subject to regulation?

National regulators are expected to analyse seven markets for telecoms services where competition is potentially not yet effective and where consumer benefits would thus potentially be lacking. These markets have been defined in the Recommendation on Relevant Markets (IP/07/1678) and include:

  • Access to the fixed telephone network

  • Call origination on the fixed telephone networks

  • Call termination on individual fixed telephone networks

  • Wholesale access to the local loop

  • Wholesale broadband access

  • Wholesale terminating segments of leased lines

  • Voice call termination on individual mobile networks

However, if a national regulator notices consistent market failure on another market, it may regulate it, but has to justify its decision.

What kind of market failures need to be tackled?

The general aim of regulation is to ensure effective competition on the market for the benefit of consumers. Market failures include excessive pricing, restrictions of access to networks, barriers to market entry and discriminatory treatment.

What regulatory measures can be imposed, and on whom?

Generally regulatory measures can be imposed only if the markets analysed are not competitive. This is the case when a regulator finds that an operator has significant market power (SMP) and thus decides to impose appropriate remedies. The notion of SMP is equivalent to the competition law concept of “dominance”, as defined in the case law of the Court of Justice of the European Union.

The EU telecoms rules provide regulators with a ‘tool kit’ of remedies which give them the flexibility to design appropriate remedies to tackle any market failures observed, and so achieve their regulatory objectives. Based on the nature of the problem, obligations imposed should be proportionate and justified.

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 consumers.

What happens when a new technology or service is launched – does the Commission or Member States define a new market?

Whenever a new technology is introduced, the regulator has to analyse whether it provides services comparable to existing ones or provides totally new ones. In the case of a new service, it is justifiable to define a new market.

Has the European Commission used its veto on any measures proposed by national telecoms regulators?

Since 2002, the Commission has issued six veto decisions covering nine cases.

  • Veto decision in cases PL/2009/1019 and case PL/2009/1020 concerning internet traffic exchange services (IP/10/240): The Commission issued a decision requiring the Polish telecom regulator Urząd Komunikacji Elektronicznej (UKE) to cancel its plans to regulate the markets for internet traffic exchange services in Poland. The Commission felt that UKE had defined those markets too narrowly and that the UKE failed to provide the data to support an SMP finding. Therefore, it requested UKE to withdraw its measure.

  • Veto decision in case PL/2006/518, 524 concerning its analysis of retail access markets (Poland): the Commission issued a decision requiring the Polish telecom regulator, Urząd Regulacji Elektronicznej (UKE), to withdraw its draft measures for regulating retail access services. The Commission felt that UKE had failed to justify why it intended to regulate broadband access services in addition to regulating retail narrowband access. Therefore, it requested UKE to withdraw its draft measures.

  • Veto decision in case DE/2005/0144 concerning wholesale call termination on fixed networks (Germany): the Commission challenged the findings of the German telecoms regulator, Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen (BNetzA) that only the incumbent operator, Deutsche Telekom, was dominant on its individual network in this market. The regulator did not consider any of the other operators to be dominant on their individual networks, although each had 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 concluded that Deutsche Telekom could not exercise such power.

  • Veto decision in case AT/2004/0090 concerning transit services (Austria): the Austrian telecoms regulator Telekom-Control-Kommission (TKK) 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 national regulator's approach led to a significant unjustified reduction of the incumbent’s market share (Telekom Austria). Furthermore, the regulator failed to assess the impact of deregulation on small operators.

  • Veto decision in case FI/2004/0082 concerning the mobile access market (Finland): The Finnish telecoms regulator Viestintävirasto (FICORA), concluded that one operator had SMP mainly on the basis of a high market share of more than 60%. However, according to competition law practice, market shares alone are not necessarily sufficient to establish dominance. Ficora had failed to consider all market developments that would have rebutted the presumption of dominance.

  • Veto decision in case FI/2003/0024, 0027 concerning international calls (Finland): FICORA 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 arrived to this conclusion by only taking into account regulation already in place. In addition, the regulator did not provide enough evidence tot support its findings to enable the Commission to endorse its conclusions.

In addition, there have been 41 cases where National Regulatory Authorities have decided to withdraw their proposed measures to avoid a veto decision.

What are the results achieved so far?

As of June 2010, national telecoms regulators have informed the Commission about almost 1100 draft regulatory measures. In all cases, the Commission assessed the notifications within the Article 7 deadlines of one month and required an extra two months when it had serious doubts as to the compatibility of the proposed measures with Community law.

This means that all national telecoms regulators have analysed the 7 markets listed in the Recommendation on relevant markets at least once. The regulators in Bulgaria and Romania, which joined the EU only on 1 January 2007, are still conducting first market analysis.

The Article 7 promotes competition, investment and innovation, and contributes to the consolidation of the single telecoms market. In addition, the Article 7 procedure has:

  • ensured a consistent approach regarding market definitions and SMP analysis across Europe;

  • brought sound economic analysis to the market review process;

  • increased regulatory transparency.

However, existing rules have been unable to ensure that regulators always choose the appropriate measures to resolve competition problems. Sometimes the choice of a remedy for similar market situations differs significantly from one Member State's regulator to another in areas such as significantly diverging tariffs operators are allowed to charge each other for terminating calls, be it on the mobile or on the fixed network. This distorts competition and consumers may end up not fully reaping the benefits of regulatory intervention.

Overall, however, the existing rules have led to better regulation based on competition principles and contributed to the development of a common European regulatory culture.

Outcome of the notifications closed as of 31 May 2010

How have consumers benefited from the Article 7 procedure?

    The regulation of the telecoms market has brought significant benefits to European consumers. As a result of termination rates revision under the Article 7 procedure, today EU consumers pay 34.5% less for their mobile phone calls and text messages than in 2004. Regulation of wholesale broadband markets has provided access to high-speed internet services at affordable prices for more EU citizens. Assuring competition, consumers have better choice of products and services thanks to enhanced investments.

What are the benefits of the Article 7 procedure for telecoms operators?

The Article 7 procedure brings several benefits for telecoms companies:

  • gives them the legal certainty as to how and under what circumstances they will be regulated and ensures that regulatory practice is consistent across the EU

  • gives them the confidence to plan their investments in a consistent and predictable EU market

  • supports the emergence of truly European operators which can provide their services in more than one Member State

  • enables new players to enter the market and compete fairly

  • increases transparency.

Do you have a target date to ensure effective competition on the seven markets defined by the Commission?

Effective competition is not achieved by setting deadlines. Appropriate regulatory measures create preconditions for the development of competition. The Commission's revised Recommendation on Relevant Markets shows that some markets like those for mobile access and call origination services are competitive in most Member States. Technical developments and efficient enforcement of appropriate wholesale regulation has enhanced competition on others, like those for retail fixed telephony and leased lines.

What happens once all 7 markets still listed in the revised Recommendation on relevant markets are deemed “effectively competitive”?

One of the main objectives of the Commission is to limit regulation to those markets that will not be effectively competitive without intervention. Successful regulation means that this sector-specific regulation can gradually be dismantled when the EU electronic communications market becomes competitive. At that point, commercial behaviour in the marketplace will be constrained by competition law, just as in other sectors.

Annex

The new Single Market Procedure for assessing market definitions and
significant market power findings proposed by national telecoms regulators, from May 2011
(Article 7 of the Framework Directive 2009)

* BEREC - Body of European Regulators for Electronic Communications

The new Single Market Procedure for assessing regulatory remedies
proposed by national telecoms regulators from May 2011
(Article 7a of the Framework Directive 2009)

* BEREC - Body of European Regulators for Electronic Communications


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