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Opening Up The Telecommunications Market

Proposal for an EC Directive on Interconnection in Telecommunications

COM(95)379 July 1995


INTRODUCTION

This is a European Commission proposal for an Article 100A Directive, as typically used to establish the "level playing field" essential for the development of the Single Market. It seeks to open up competition in telecommunications service provision and "to enable new market entrants to access existing business and residential customers". It follows the normal format of a "New Approach" Directive in requiring Member States to dismantle national barriers to trade and to accept instead a pan-European regulatory framework based upon harmonised technical criteria. The details of the Directive have yet to be negotiated by the European Member States, but it is usual in New Approach Directives for an element of compromise to be sought between potentially conflicting national viewpoints. The teams of officials who conduct the negotiations will have the objective of reaching a "common position" which their Ministers could support in the Council. In order to achieve this, most Member States will have to concede some points which they would have wished to see carried into the Directive but which did not command majority support. No Member State has a right of veto in an Article 100A Directive.


INTERCONNECTION OF NETWORKS

This proposal relies upon commercially negotiated agreements between operators to achieve the further interconnection of networks, with a limited regulatory role for Member States through their national authorities. Existing operators with significant market power would be required to negotiate agreements upon reasonable request from potential competitors and the ability of Member States to limit the number of network operators in their territory would be curtailed. The concept of rights matched with obligations is introduced, so that a new entrant who negotiates extensive running powers over an existing network would also acquire the obligation to provide a high level of service. This proposal is seen by the Commission as a key part of legislative reform of the telecommunications sector and it would be an essential step towards full competition in telecommunication service provision and infrastructure, which is envisaged by January 1998.

The proposal recognises that access to most telecommunications customers is controlled by the existing service providers through their management of the network infrastructures. Replication of the infrastructure (especially for wired systems) would involve start-up costs of a magnitude sufficient to deter competition and would bring with it environmentally disruptive construction work. Significantly, a medium-term objective of "number portability" is described, in which end-users could contract with a different service operator while retaining the same subscriber number. A regulatory environment is proposed which would ensure open access to networks by bona fide operators, such that telecommunications companies would have a legal right to obtain interconnection with the networks of others. If these proposals come into effect, it seems inevitable that the role of the regulator in the UK will shift considerably, with the supervision of network access agreements becoming a major activity.


TECHNICAL STANDARDS

The interconnection arrangements, including the technical arrangements, would be determined by these commercially negotiated agreements. Network integrity and security would not be seen as valid arguments for denying access to another operator (although that operator would have to demonstrate that his activities would not degrade the network). The regulatory authorities would be as much - probably more - concerned with ensuring that fair and reasonable agreements were reached as with setting system technical standards; national technical requirements and specifications would be displaced in the hierarchy of:

1. European standards - ETSI, CEN, CENELEC

2. International standards - ITU, ISO, IEC

3. International industry norms

4. National standards/specifications.

(Note: this hierarchy is a familiar one in the EC Single Market, except for (3). The placing of industry norms - which are not subject to the standardisation consensus - above nationally agreed standards could lead to difficulties).

Proposals to start work on new national standards or specifications would be subject to the procedures of the 83/189/EC Directive, which has the objective of preventing Member States proceeding unilaterally with technical specifications which could become barriers to trade. Arguably this is already the case, but it will gain greater significance when national telecommunications networks are subject to full competition.


STANDARDS OF SERVICE

Existing network operators are commonly subject to licensing obligations to provide loss-making services such as rural lines, emergency services, operator assistance, public payphones, directory enquiries and facilities for disabled customers. The proposals recognise that such obligations must be retained under an open competition regime, otherwise the unprofitable services might not survive. However, it does not follow that all service providers will have to offer the full range of these unprofitable services; some providers will cater for niche markets only. Provision is made in the proposals for the cost of certain services - which will be specified as "universal service" - to be shared if they appear to create an inequitable burden for the network operators who do provide them. It is presumably open to the existing provider to seek to include some or all of these services in the negotiated agreements with others but, apart from ensuring that universal service is available from one or more providers, it does not appear to be an area where the regulator can intervene. The mechanism of cost-sharing calls for close attention, as it has a direct bearing upon the standards of service available to customers whom the service provider might regard as "unprofitable".


UNIVERSAL SERVICE OBLIGATIONS

The regulator will have to ensure that service providers offer, or contribute to the cost of, that range of services defined as "universal service". It is not clear whether universal service will be defined nationally - in each Member State - or uniquely throughout the EU. It must be noted that the service provider's responsibilities stop at the line socket; there is no obligation to supply terminal equipment (except as public payphones) as part of universal service. Oftel is currently engaged in determining what should constitute universal service in the UK.

It is probable that those service providers who do not - for whatever reason - offer the full range of universal service will be required to pay into a fund to support the activities of those who do. This is the principle of "pay or play". On present very approximate costings, the fund would require contributions equivalent to 0.5% - 0.8% of all revenues, which would then be applied to re-imburse the "players". Clearly, the calls upon the fund will increase if the extent of defined universal service is enlarged, bringing a risk that modest but vital special services may be marginalised. For the UK, Oftel has proposed a broad definition of universal service, with the option to create more specific definitions (that may be varied from time to time) for different customer groups. It will be a matter of concern, as the details of this Directive are negotiated, to see how the concept of universal service is to be managed.


THE NEXT STEPS

The Interconnection Directive is due to come into force by the end of 1997. It now has to be negotiated by Member States and the Commission, in order to turn the draft proposals into a workable framework. Organisations of disabled people will want to ensure that the UK stance in negotiations adequately reflects their needs and that accepted and valuable areas of service which they now enjoy will not be put at risk because they are not widely known outside the UK. They may also wish to emphasise priorities for consideration as universal service and to prevent the extension of that concept to include services which could be funded by their consumers (eg public sector authorities) at an economic level.

In a fully competitive environment, network and service operators will risk commercial vulnerability. Customers reliant upon special services may be faced with a restricted choice (because there will be fewer "players" than "payers") and that choice could decline further if operators see "paying" as a commercially more attractive option. It would seem desirable to reserve some powers for the national regulators to determine certain minimum levels of service (which might include some technical criteria) that must be seen to be embraced in the commercially negotiated agreements for interconnection.


KEY POINTS FOR DISCUSSION WITH NEGOTIATORS

q Maintain sufficient powers for national regulators to set minimum levels of service (including where necessary the imposition of technical standards) from operators gaining access to networks, thereby maintaining some choice for end-users dependent upon uneconomic services (ie restrict "pay or play" option to cases where universal service obligations would be unreasonable).

q Press for the adoption of clearly defined and restricted categories of universal service, so that the contributory fund is applied only to services that are vital and genuinely uneconomic. Query why the revenues derived from telecommunications users should be applied to subsidise education and other public services. Ensure that special services for disabled people figure as a prominent category in universal service obligations.

q Obtain assurances that UK services that are important to disabled users will not be omitted from universal service obligations solely because they are not commonly provided by other telecommunications operators in the EU.

q Consider whether the leasing of special terminal equipment at affordable rentals for use by disabled people could be made part of universal service.

q Maintain regular contact with the UK negotiators and with officials in the EC, to ensure that new proposals arising in the course of negotiating the Directive are made known so that their potential impact upon disabled users can be considered.

q Make available a "shopping list" of special telecommunications services known (or expected) to be of value to disabled persons. Distinguish between services that have to be supplied as part of the network and those that rely solely upon the availability of appropriate terminal equipment. [Look for other ways, including disability discrimination legislation, of ensuring that appropriate terminals are provided in public places]. Prioritise special network services for immediate or eventual inclusion within the universal service obligation.

This commentary has been prepared by Tony Shipley for the Scientific Research Unit of Royal National Institute of the Blind. It is based upon an earlier version presented to the COST 219 UK Liaison Group. The information and comments are presented in good faith but readers intending to act upon them are advised to obtain independent confirmation of critical points before doing so.

March 1996

 



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