The Acquis in the Telecommunications Sector

The reform of the telecommunications sector at the European level started in the early 1980s. The key player in the reform process has been the European Commission. In contrast to classic intergovernmental bargaining, which was common in the 1980s, the EU operated as a relatively autonomous actor in the policy process (Stone Sweet and Sandholtz 1998). Via the field of competition policy, the Commission succeeded in presenting itself as the legitimate actor in the telecommunications sector and was supported in its endeavour by the ECJ (Héritier 2001b: 16). Based on Article 86 (3) ECT, the Commission was able to issue Directives without formal approval by the Council.¹¹⁹ Starting out in 1979 with a report on the importance of networks infrastructures for economic competitiveness and proceeding with various programmes aimed at developing a pan-European telecommunications infrastructure, the Commission gradually expanded its regulatory competencies in this sector.¹²⁰

In 1987, the Commission issued its first Green Paper on telecommunications in which it promoted similar reform steps as in the United States, the United Kingdom and Japan and thus the creation of a common market in the European information and communication sector. The British government was very supportive of the developments because it wanted to prevent other member states from maintaining their monopolies (Thatcher 2001: 16-17). The first major legislative initiative in this context ended with the adoption of the Terminals Directive in 1988, liberalizing the markets for terminal equipment (European Commission 1988a). While the latter still earned harsh criticism from the governments of several member countries, the new strategy of the Commission unleashed a reform dynamic over time. This development culminated in a series of legislative acts in the early and mid-1990s, leading to the full liberalization of telecommunications services and even networks and infrastructures by the year 1998

119 Many of these Directives have been challenged before the ECJ, mainly because national governments objected to the by-passing of the Council and not because they were in general against the substance of the Directive. The ECJ, in turn, clarified that under the provisions of Article 86 (3) ECT the Commission had the right to issue Secondary law in order to specify the obligations of the member states (Scott 1995: 209).

120 In 1983, the Commission’s task force for information technology and telecommunications was established and became part of DG XIII, which was later turned into the DG for Telecommunications, Information Industries and Innovation.

(European Commission 1990; European Commission 1996b; European Commission 1996c; European Council 1995; European Parliament 1997a; European Parliament 1997b).

Efforts of telecommunications liberalization were accompanied by attempts to reregulate the sector. The latter included the setting of procedures and the provision of guidelines in order to harmonize the work of the regulatory bodies across the member states. The following section mainly discusses the provisions of the telecommunications regulatory framework. For three reasons this is done in some detail: first, the provisions of the CRF are central for our understanding of the relationship between EU institutions and regulatory authorities at the national level, i.e. concerning reforms in the CEECs. Second, the new CRF has significantly altered the scope for sectoral regulatory intervention. And finally, the revision of the old CRF fell exactly into the decisive phase of the accession negotiations with the eight new member countries from Central and Eastern Europe. It thus constitutes a good example of how the acquis has evolved in course of the accession process and the way the applicant countries have reacted to this evolution.

The new CRF in telecommunications was set up to manage the transition from a monopoly situation to full competition in national markets. Due to rapid technological changes and the upcoming convergence between telecommunications, broadcasting and internet-based services, the new CRF was designed to reinforce competition in new, dynamic and often unpredictable markets while at the same time protecting basic consumer rights. It is the outcome of extensive public consultation, including the 1999 Communications Review (European Commission 1999a) as well as the corresponding Communication from the Commission to the other EU institutions (European Commission 2000) that followed shortly thereafter.

The new CRF comprises six basic documents, five Directives and one Regulation, and had to be transposed into national law by 24 July 2003. Thus, it fell directly into the decisive period of the accession negotiations and the last monitoring round. The central document as regards the role of the NRAs is the ‘Directive on a common regulatory framework for electronic communication networks and services’ or simply ‘Framework

Directive’ (FD).¹²¹ It contains all relevant provisions of the new CRF, among others the functions, competencies and duties of the NRAs in the member states. The FD responds to the convergence developments described above by covering various different networks and services. It further sets out general principles and objectives for NRAs and establishes horizontal provisions of the new regulatory package. The most important changes of the new compared to the old CRF concern market analysis, the concept of SMP and the responsibilities of the NRAs in the member states.

One major provision of the new CRF is the definition and subsequent analysis of relevant markets concerning undertakings with SMP. In order to define and analyze markets correctly, NRAs need to collect information from market participants, NCAs, the NRAs in other member states and from the Commission. The basic idea behind these requests for information is that the NRAs do not put an over-proportionate burden on the regulated companies. In addition, the Commission wants the NRAs to make this information publicly available, except for cases in which confidentiality is required. This asks NRAs to facilitate the horizontal exchange of information and, thus, to provide a clearly defined point of access for demands or information provided by the industry.¹²²

A central goal of the new CRF is to create certainty and consistency for the industry concerning the actions taken by the NRAs in the member states. Therefore, the Commission has issued ‘soft law’ which aims at harmonizing the actions of the latter. First, the ‘Commission Recommendation on relevant product and service markets’ (European Commission 2003a) lists 18 markets for which analyses should be conducted by the NRAs and which should be subject to ex ante regulation in case one or more operators in the markets are found to possess SMP. In case no operator possesses SMP, regulation has to be rolled back by the NRAs. On the basis of this Recommendation, which is to be reviewed regularly by the Commission, the NRAs shall become active.¹²³

121 Directive 2002/21/EC (European Parliament 2002b).

122 The rights and obligations of NRAs concerning the industry information are listed in Article 5 FD.

123 In July 2004, the Commission decided to postpone the update of the list of electronic communications markets contained in the Recommendation from June 2004 to the end of 2005. This should provide a period of stability and legal certainty for market players and lead to a more meaningful assessment of relevant

Secondly, the ‘Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services’, or short ‘Guidelines’, play an important role in providing standards to ensure the consistent application of the new CRF (European Commission 2002a). The goal of these Guidelines is to ensure equivalent market definitions across member states. They contain the parameters necessary for the definition of markets and the analysis of effective competition according to the principles of the new CRF. In sum, NRAs should become active in those markets defined as relevant according to the principles set out in the Recommendation and should take careful account of the Guidelines while analyzing these relevant markets and assessing SMP.

The new CRF further empowers NRAs to impose obligations on operators with SMP. The conception of SMP, however, has been fundamentally changed compared to the old framework. It does not refer to the 25 per cent market-share-threshold of sector-specific regulation any longer but is now based on the Commission’s practice and the ECJ’s definition of company dominance according to competition law.¹²⁴ In case the non-competitiveness of a market and the presence of SMP can both be ascertained, the NRA is entitled to impose appropriate obligations under Articles 8-13 AID.¹²⁵ The latter foresee ex ante regulation at the wholesale access level. In detail, Articles 9-13 AID ask for transparency (Art. 9), non-discrimination (Art. 10), accounting separation (Art. 11), access to and use of specific network facilities (Art. 12), as well as cost accounting obligations and price control (Art. 13).¹²⁶

markets. In addition, the new date shall also allow the Commission to gain a better understanding of the situation in the new member states of the EU.

124 As a proxy for market power, the Guidelines suggest to compute market shares, typically based on sales volume or sales value. SMP is normally viewed as being a factor only where the market share of a company exceeds 40 per cent. Where the market share exceeds 50 per cent, SMP is assumed to exist. The FD instructs the NRAs to apply competition rules in situations where there is at least one company with SMP in a market.

Conversely, where competition is effective and no operator is found to have SMP, regulators are obliged to remove any obligations imposed on carriers previously deemed dominant under the respective national regulatory framework.

125 The ‘Access and Interconnection Directive’ 2002/19/EC, also called the ‘NRA toolkit’ (European Parliament 2002a).

126 In these cases, it is not necessary for the NRA to proof that SMP has indeed been abused as with ex post regulation. However, all measures have to be based on the nature of the problem identified, proportionate, and justified in relation to the policy objectives contained in the FD. Hence, the NRA has to answer the

In cases, in which the desired regulatory results could not have been achieved, Article 17 II USD¹²⁷ might be employed instead. This article aims at the retail level and foresees that in non-competitive markets, NRAs can employ retail price-cap measures on an ex post basis by demanding from undertakings with SMP that they orient their tariffs at costs. The goal in this case is to prevent such an undertaking from setting tariffs or conditions to the disadvantage of consumers or other market participants. All other measures by NRAs on undertakings with SMP beyond those contained in the FD are exceptional and, therefore, subject to authorization by the Commission or the Communication Committee (COCOM).

According to the new framework, the Commission retains a veto over all decisions of the NRAs concerning the definition of relevant markets and the attribution of SMP.

Articles 6 FD and 7 FD demand NRAs to consult all interested parties on draft measures with a significant impact on the relevant national telecommunications market or the Single Market in the EU. One of the key provisions that significantly affects the work of the NRAs is the latter’s obligation to notify certain draft decisions to the Commission and other NRAs, and to give them the opportunity to comment on them. Article 7 (4) FD even empowers the Commission, after consultation of COCOM, to call upon a NRA to cancel a draft measure that aims at defining a relevant market or attributing SMP, where such a measure would either be against trade between member states or be incompatible with the objectives of the Single Market or Community law.¹²⁸

At the supranational level, there exists a variety of organizations in charge of telecommunications regulation. The NRAs do not want the Commission to establish an European Regulatory Authority (ERA), which would control national telecommunications markets centrally from Brussels. This is mainly due to the fact that COCOM is a widely

questions which of the measures envisaged are effective to improve competitive conditions in the market, and for how long each of these measures shall be applied in order to achieve the desired results.

127 The ‘Universal Service Directive’ 2002/21/EC (European Parliament 2002c).

128 A special form of coordination is required for the case of transnational markets. For all tasks referring to transnational markets, “[…] the national regulatory authorities concerned shall jointly conduct the market analysis taking the utmost account of the Guidelines and decide on any imposition, maintenance, amendment or withdrawal of regulatory obligations referred to in paragraph 2 of this Article in a concerted fashion” (Art.

16 (5) FD).

accepted institution for the horizontal coordination between member states and the vertical coordination between the member states and the Commission.¹²⁹ Initially, the Commission had planned to install a ‘High Level Communications Group’ (HLCG) with advisory status, consisting of NRA experts and a secretariat provided by the Commission. It was supposed to formally replace the currently existing ‘High Level Regulators Group’

(HLRG), which is consulted by the Commission on issues of legislation and technology developments.

However, the HLCG will probably not be institutionalized in the near future. Among others, NRAs were sceptical about the work of such an institution, especially when it comes to carrying out the task of horizontal coordination under the new CRF. Instead of establishing the HLCG, NRAs preferred to strengthen the already existing Independent Regulators Group (IRG) and, in addition, to maintain the European Committee for Telecommunications Regulatory Affairs of the European Conference of Posts and Telecommunications (ECPT/ECTRA). Both institutions are regarded as being capable of fulfilling the tasks originally foreseen for the HLCG. In this respect, the IRG could function as an instrument for consensus-building among NRAs and mediate between interest groups and EU institutions, i.e. the European Parliament and the Council of Ministers.

The new regulatory framework in telecommunications with its major provisions described above was adopted and became part of the acquis communautaire in 2002.

Hence, its adoption fell right into the period of the final accession negotiations between the EU and the first-round applicant countries from Central and Eastern Europe. Together with the numerous Directives on the liberalization of telecommunications equipment, services and infrastructures, which were issued in the 1980s and 1990s, the CRF thus constituted Community law that the applicant countries had to transpose into national law before they could become full members of the EU in May 2004.

129 It is a formal committee made up of representatives from the Commission and the member states. As such, it presents to the Commission opinions of a non-binding nature on draft regulatory measures (Art. 22 FD).