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The EU's Quest For Harmony In Telecom
by William New
The European Union has set the ambitious goal of becoming the world's most advanced location for telecommunications. But it may face some old-world power struggles along the way.
The 15 countries of the European Union are well into a massive harmonization process of boiling some 25 directives on telecommunications down to six. In the same stroke, they want to bring the regulations up to date with changing technology and make them "future-proof," or capable of withstanding the test of time.
The six draft initiatives — five directives and a decision — cover most issues related to electronic communications, from competition policy to radio-spectrum policy, universal service and protection of personal data. The European Commission — the EU-wide regulatory body — proposed the initiatives last year. Under EU procedures, the European Parliament and the European Council of Ministers (the member-state representatives), with commission concurrence, would have to approve each regulation.
All sides believe the process will be completed by late this year or the first quarter of 2002. "We still hope all the horses will come into the barn at the same time," one EU official said.
The Big Picture
A key principle of the harmonization is to switch from short-term, technology-specific regulations to broader concepts that will last. The commission believes its proposal is tech-neutral, eliminating the vertical separation of services such as cable, telecom and broadcasting. Instead, it proposes horizontal regulations that would single out companies found to be dominant in markets deemed uncompetitive.
Currently, in order to detect dominance, national regulators look at major sectors of voice telephony, mobile telephony, leased-line markets and interconnection services to determine which firms have how much of each market. The new system would focus on economic markets to determine which is having the most difficulty. It then would provide the national government with a "toolbox" of measures it could take to introduce more competition in the market.
In the commission proposal, the threshold for a company with "significant market power" would not be determined by sector but rather by the market overall. In either case, a dominant company would be subjected to certain obligations intended to create more competition. Under existing law, a company with more than 25 percent of the market is considered dominant in most cases. The commission would raise that threshold to 40 percent, using economically justifiable reasons, sources said.
The commission believes its proposal would achieve a delicate balance between flexibility for individual states and a substantial degree of harmonization for the European Union as a whole, which would help consumers and investors.
Where The Debate Stands
Parliament recently approved the first three draft directives without significant changes and sent them to the council, where they ran into trouble.
The three initiatives would create an overall regulatory framework for electronic communications, impose rules on access to and interconnection of networks and associated facilities, and impose rules on government authorizations of networks and services aimed at cutting the red tape involved. The three proposals must be sent back to the Parliament for a second reading, likely in the second half of this year, according to Robert Verrue, the EU director general of information society.
Parliament is expected to read two other initiatives, on universal service and spectrum, for the first time later this month, according to an EU source. The Telecoms Council then likely would consider the proposals at its next meeting in late June. The final directive, on data privacy in the telecommunications sector, will come later.
In addition, a separate effort is underway in Europe to unbundle the local loop, or final mile of phone lines to homes and offices, as a way to spur competition. A directive on that issue was passed earlier this year, Verrue said in a May 10 speech.
Will The Veto Power Be Vetoed?
In the directives, the biggest sticking point between the commission and the EU member states is the degree of control the commission would have over national regulations. Because the overall goal is to harmonize telecom markets across Europe, the commission proposed that national governments make their own regulations but that the commission hold veto power over national decisions if it thinks they are not creating a competitive environment.
"The commission wants to be able to say, 'That's not how we intended this,'" said one industry source. From an industry standpoint, "you want some sort of certainty that harmonization would occur."
An official for one company, Cable & Wireless, concurred. "Our main issue is that we want a harmonized framework that is implemented in a harmonized manner across member states," said Joanna Lowry, director of international government relations.
The Parliament backed the commission's proposal, but the member states rejected the idea of veto power in a recent meeting of the telecom ministers. Instead, they rewrote that provision so the commission could issue only a nonbinding opinion on the regulation. They also denied the ability to appeal national rulings.
This has caused alarm in the U.S. and European telecommunications industries, which otherwise generally like Europe's harmonization effort. A suggested compromise would strip the commission's veto power but establish an appeals process in which the commission's nonbinding opinions could help, one industry source said. Without an appeal process, companies would be left no recourse beyond arbitration, which normally takes years.
"The real issue is checks and balances," said Karen Corbett Sanders, vice president of international public policy and regulatory affairs at Verizon. "Our concern is that we have [national] regulators who are being given a bright, new, shiny toolbox and there may be a penchant to use it in markets that have not been regulated thus far. We want to be sure they are skilled with the tools but they haven't been given apprenticeships yet."
A Host Of Other Concerns
Some of the industry concerns surfaced during Verrue's visit to Washington earlier this month. He met U.S. officials in a formal, bilateral "information-society dialogue," where he gave a status report and heard about efforts in the United States, such as a bill, H.R. 1542, in Congress designed to expand high-speed Internet access. "The United States is trying to find its own solutions," one EU official said.
One problem, an industry source explained, is that regulators now have ex ante power, based on the principle that companies would act badly without regulations, instead of ex post power, which would allow regulators to intervene if a company acts badly. With ex ante power, there are no checks and balances, the source said.
The data-protection directive, which is separate from the well-known EU data-privacy directive governing business transmissions of EU data to locations outside Europe, raised doubts for companies offering wireless services to consumers. For one, companies want consumers to have to opt out of services offered to them rather than elect to opt in, as the directive would require.
As proposed, companies would have to go to each potential listing in a directory service and ask them if they want to opt in. The directive also would prohibit the use of wireless call-location data or the sending of unsolicited commercial e-mail ("spam") to consumers, except where subscribers have opted in. Industry sources also questioned the 15-month transition period from adoption to implementation of the directives.
"At this stage," Verrue said of the potential for overcoming the disagreements, "I am making no predictions about what the final outcome will be."
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