GSMA Response to ITRE’s Stakeholder Consultation on
the European Commission’s proposed Regulation for a Connected Continent
7 November 2013
The GSMA welcomes the opportunity to respond to the ITRE consultation on the European Commission’s draft Regulation for a Connected Continent. The GSMA believes that the Commission has rightly recognised the significant contribution of telecoms to boosting growth and jobs across all sectors of the economy and we share its objective of a strong Connected Continent that can underpin innovation and a vibrant digital ecosystem for Europe. However, while there are some individually positive measures, we see little in the proposal overall that would act as a spur for long term growth and investment. Furthermore, there are elements that will increase costs for telecoms operators and create uncertainty, with the risks that entails for future investment. Overall, the GSMA believes that the proposals have suffered as a result of the requirement to accelerate procedures to match the pace set by the tight legislative timetable. The GSMA thinks the Commission’s proposed Regulation needs to be substantially improved and complemented with additional measures if Europe is to have a telecoms policy framework fit for the next ten years - one that can help meet the connectivity challenge and serve to underpin the region’s drive for growth, jobs and competitiveness. The need for this greater level of ambition has already been recognised in the Commission’s accompanying Communication and the European Parliament’s recent Resolution on the implementation of the regulatory framework. We therefore urge the EU legislators to call for the timely preparation of comprehensive proposals to address the underlying reasons for Europe’s lagging investment in communications infrastructure. These hould focus on the following areas: refocusing regulation on the investment agenda; reducing fragmentation in the EU’s telecoms market; and providing a supportive environment for development of innovative European digital services. This consultation response addresses these points first and then turns to an assessment of some of the key elements of the Commission’s proposal. Our recently published Mobile Economy Europe 2013
report points to an industry at a crossroads. On the
one hand its contribution to Europe’s economy and society is enormous and certain to grow as mobile technologies and services drive innovation in sectors as diverse as transport and health. On the other hand the European mobile industry is facing falling revenues and earnings just at the time when key investments are required in next generation mobile infrastructure. A further GSMA study has explored Mobile Wireless Performance in the EU and the U.S.
and highlights the
direct impact of these trends. Over the last five years average mobile operator investment has been around 30% higher in the U.S. than in Europe. By the end of 2013 nearly 20% of U.S. mobile connections will be 4G/LTE – the corresponding figure for Europe stands at less than 2%. Cisco reports that average mobile
data connection speeds in North America in 2012 were about 75% faster than those in Europe, with the difference set to grow to 100% by 2017. These are clearly worrying trends but policy reforms can help redress this imbalance. It is private investment, enterprise and innovation that will build the Connected Continent but the EU institutions and national regulators can play their role by ensuring the policy and regulatory environment is one that encourages investment in connectivity, enables innovation in content and services, and builds consumer confidence. Proposals for changes to the policy and regulatory framework should be measured against these objectives.
A. Connecting Europe requires a broader policy agenda
1. Regulation refocused on the investment agenda
As set out above, Europe is facing a connectivity challenge with investment in mobile telecommunication infrastructure lagging other regions of the world - a trend exacerbated by falling revenues and earnings in the sector. At least part of the problem is a policy and regulatory approach in Europe that pays excessive attention to driving down short-term retail prices. Regulation in the U.S. appears to have incentivized greater investment with firms seeking out competitive advantages where they can. The prevailing regulatory logic is that the mobile ecosystem is dynamic in nature and so intervention is not required to keep a firm’s advantage in check. Firms compete to offer consumers products with new and more valuable features, a process which includes making large, risky investments. In Europe, regulation has focused on a more static view of the market, one where firms compete but must do so on an equal basis, where consumer price deflation has been the primary goal. Regulation of individual price items can limit the ability of operators to adapt pricing schemes to a new environment. We believe that a rebalancing is required, with legislators and regulators paying more attention to preserving incentives for investment and innovation rather than focusing primarily or exclusively on the pursuit of static efficiency through the promotion of commoditized competition and ever lower prices.
Regulation should be tilted towards encouraging investment and innovation and focus less on the
management of end-user prices.
A less fragmented EU market There are more than 100 mobile network operators in Europe and the region hosts two thirds of the world’s 812 MVNOs. This market fragmentation denies scale and scope economies to EU operators and is further exacerbated by lack of regulatory consistency between Member States. For example, despite attempts to co-ordinate spectrum release through the Radio Spectrum Policy Programme there have been delays in the full release of the 800 MHz band for mobile broadband across Member States. This fragmented approach hinders the roll out of new services in Europe and is in sharp contrast with other major markets such as the U.S. Impediments to the efficient consolidation of mobile markets should be reduced in Europe by treamlining merger reviews and taking a more cautious approach to the imposition of remedies. If Member States are considering advantageous conditions for new market entrants such as setting aside
pecific spectrum or providing advantageous terms, they should first undertake a transparent competition assessment. Increasing the number of competitors does not necessary deliver greater competition.
Long-term predictability in spectrum policy and more flexibility for spectrum rights holders, based on
long-term assignments and harmonized best practice on spectrum licensing, licence conditions, and licence renewals.
Consolidation should be enabled by removing barriers to market efficient consolidation and avoiding measures that artificially encourage an increase in competitors in already competitive markets.
3. A more supportive environment for development of innovative European digital services
A thriving digital economy depends on innovative services and content that meet the requirements of Europe’s consumers, businesses, and governments. Smart policy should facilitate the development of new business models and services, and allow European players not only to build the networks that enable the next wave of innovation, but to participate and drive competition in that services market as well. Some existing regulations have been outdated by market and technological developments, and create competitive disadvantages for European businesses in key areas such as consumer protection, network ecurity, data privacy and taxation. The overarching objective should be to ensure the equal treatment of all players providing functionally equivalent services and to reduce the overall regulatory burden to take account of new market realities. Consistent application of rules across Europe is equally important and full harmonisation may have a role to play in this respect. European policy should also facilitate and support industry’s efforts to collaborate in developing interoperable pan-European services that meet customers’ expectations. It is necessary for the network operators and Internet players to develop new business models and agreements that would be mutually beneficial for all ecosystem participants. The conclusions of the October European Council were welcome in this respect, highlighting “the need to address bottlenecks in accessing one´s “digital life” from different platforms which persist due to lack of interoperability or lack of portability of content and data. This hampers the use of digital services and competition.”
The regulation and taxation of digital services should be adjusted to ensure the consistent treatment of all market players providing functionally equivalent services, and to encourage innovation and partnerships.
B. Comments on different elements of the Commission’s proposals
We hope the following detailed comments can serve as a constructive contribution to the co-legislators’ deliberations on the Commission’s draft Regulation.
General Provisions (Chapter I, Articles 1 to 2)
The whole electronic communications regulatory framework needs to be tilted towards a more investment and innovation focussed agenda.
The Regulation should ensure the equal treatment of all players providing functionally equivalent ervices and reduce the overall regulatory burden to take account of new market realities.
The Regulation should more clearly emphasise the importance of focussing on investment, innovation and the region’s industrial competitiveness. It should also ensure national regulators (NRAs) take into account competition from other players in the value chain when assessing whether measures should be imposed on operators.
Furthermore, given market evolutions, NRAs should also be required to ensure a level playing field for all actors competing on the market. These should be reflected in the objectives set in Article 1.
The draft text proposes a new definition of “specialised services” and we welcome its acknowledgement of the right to differentiate retail offers and deliver specialised services based on quality of service. The text will need to be clarified as it is still open to some interpretation.
Single EU Authorization (Chapter II, Articles 3 to 7)
The rules allowing a home regulator to oversee operators’ actions in other Member States would be complex to implement and their effectiveness would be conditional on excellent coordination between home and host regulators. It is not clear that the measures will simplify operations and result in ignificant cost reductions for operators with multiple jurisdictions.
Given that host country NRAs would retain their competencies in key areas such as market analysis, pectrum and number licensing, and consumer protection, the proposal would not result in the implification of operations for European Electronic Communications Providers (EECP). On the contrary, the home country control principle may significantly increase administrative burden on operators in the form of increased costs of administrative and legal procedures (e.g. additional information requests, translation and travel costs) and complexity of operations. Increased procedural costs of NRAs would ultimately also be borne by operators in the form of higher regulatory fees. The requirement to provide the notification in all languages where an affiliate is present appears especially burdensome. The notification procedure under the single EU authorization should not apply to existing EECP authorisations, or a simplified procedure should be established to cover such cases.
The recitals provide that the criteria and procedures for apportioning contributions under universal ervices obligations should be proportionate and non-discriminatory. However, as drafted, they discriminate against operators in the host Member State who would have to pay a disproportionate amount of these costs.
Some fundamental questions need clarification regarding the enforcement of administrative decisions of home country NRAs in other countries, as well as the applicable law to judicial review processes. It remains unclear how the decision of the home NRA regarding suspension or withdrawal of rights of the EECP is to have any legal effect in the host Member States, and what law would govern judicial review processes. Would home country NRA control over suspension and withdrawal of rights also entail the jurisdiction of home country courts in challenging the decisions of the home NRA? The regulation of the home Member State should apply in relation to the EU's regulatory framework for electronic communications. This would have a significant impact both on the harmonization of regulations and simplification of an EECP’s operations across borders without any prejudice to consumer protection.
We note that this is another example of the lack of a level-playing field. While mobile operators do not face specific issues with the notification system put in place by the 2002 Directive, it appears that players competing with them do not have to follow the same rules. The proposed Regulation provides an opportunity to ensure that the same rules apply to similar services, and that European mobile operators are not at a competitive disadvantage on the basis of out-dated rules.
Spectrum (Chapter III, Section I, Articles 8 to 16)
Mobile is a capital-intensive industry requiring significant investment in infrastructure. Spectrum policy — supported by a stable, predictable and transparent regulatory regime — has a fundamental impact on the attractiveness of markets for investment. We broadly welcome efforts to harmonise and coordinate aspects of spectrum policy. In the medium to long term this can provide more certainty as operators plan their investments and network deployments.
Despite attempts to co-ordinate spectrum release through the Radio Spectrum Policy Programme and other initiatives, there have been delays in the full release of the 800 MHz band for mobile broadband across Member States. This fragmented approach hinders the roll out of new services in Europe and is in sharp contrast with other major markets such as the U.S.
Bidders are best placed to determine how they will subsequently exploit the spectrum and therefore we agree with the Commission that any limitations should be carefully justified.
Whilst the Radio Spectrum Policy Programme (RSPP) makes it clear that Member States must consider the impact of spectrum assignments on competition, they have chosen to do so in very different ways. The proposed guidance on this is particularly welcome.
We believe that the priorities should be the following:
the first objective should be to fully implement the current framework in ALL Member States, uch as provisions on trading, liberalization;
econd, minimise conditions for new and existing licences, extend terms or preferably making licences indefinite, and leave a more liquid secondary market to deal with re-assignment;
finally, synchronise spectrum releases / renewals.
With regards to synchronised spectrum release, further analysis is required about the length of the windows over which authorisation procedures will be conducted, and the ability of Member States to co-ordinate the timing.
When determining the amount and type of spectrum to be assigned, the implications of combining complementary bands in a single procedure need to be carefully assessed. Multiband auctions are normally more complex, and therefore should be avoided if no extraordinary circumstances apply.
Spectrum assignments require a well-planned and organised assignment process, designed in close cooperation with industry and including consultations and public hearings on usage conditions, restrictions, and auction format. Governments and NRAs should ensure that industry has sufficient and timely information about the process and objectives in order to make informed judgements on pectrum requirements and acquisitions.
There is a need to clarify the application of the non-discrimination requirement regarding fees to be paid for spectrum rights of use. The text should further explain how the proposal shall work in practice and also how the current proposal will contribute to ensuring equal treatment of players.
It is important that for spectrum that is put on the market through an auction procedure, where the fees are determined by the bids of the operators, the technical and regulatory conditions required to use that spectrum need to be established prior to the start of the auction process; in some cases prior technical testing could be necessary.
While the technology matures, exclusive access should be the primary means for public cellular mobile ervices to access spectrum, with shared access seen as a complementary tool within the spectrum toolkit.
There are some concerns about facilitating the resale of fixed broadband capacity through the use of radio local access networks (RLAN). The proposal could undermine private investments and consumer protection if it is possible to establish and provide access to RLAN outside the scope of the electronic communication framework. Also, incentivizing partnerships to extend Wi-Fi coverage and therefore increase offloading possibilities should not work against fair competition and private investments. The aim of the proposal should be further clarified.
We would also welcome more clarity on the references to small-area wireless access points as the current wording could lead to ambiguity and misinterpretations. It must be ensured that small-area wireless access points, operating in licensed spectrum used for mobile services, should only be operated by authorised persons or authorised undertakings in order to avoid interference with the mobile networks.
International Calls and SMS (Chapter IV, Article 21)
To meet the connectivity challenge, regulation needs to refocus on investment and innovation and away from micro-managing end prices to consumers. Further intervention in the retail prices of competitive markets would reinforce regulatory uncertainty, send a negative signal to investors, and challenge the coherence of the current regulatory framework.
Under the existing regulatory framework the international voice call market is not considered transnational, but part of national unregulated and competitive retail markets. Furthermore, mobile retail calls, with the exception of international roaming, have never been regulated because of the large range of competitive calling options available to consumers.
According to the first Recommendation on Relevant Market only fixed international calls were potentially subject to ex ante regulation. In practice, these markets were quickly deregulated because of the range of calling options available to consumers there are various substitutes for international calls available (e.g. call by call, special calling cards, MVNO tariffs, VoIP solutions like “Skype or “Viber”, etc.). Thus these markets achieved effective competition many years ago and there is no justification for a new regulatory intervention.
It is one of the basic principles of the regulatory framework that regulatory intervention is conditional upon market definition and analysis, and the finding of significant market power that prevents effective competition. The provisions regulating the price of international communications appear to bypass this principle. Price regulation is the most intensive intervention possible and should only be a last resort. “Introducing price regulation without considering the principles of the regulatory framework undermines predictability and certainty and can send a negative signal to investors.
The Commission’s Impact Assessment document asserts that price decreases “would have taken place anyway notably as a result of (…) increasing competition as well as technical changes”. This calls into question the need to regulate at this point in time.
Recital 44 refers to potential objective criteria which might justify higher retail prices than the proposed caps. But the text is rather imprecise and does not give clear guidance, which leads to further regulatory uncertainty.
Net Neutrality (Chapter IV, Articles 23 to 24)
The mobile industry is a strong supporter of an open Internet, and the flexibility to manage traffic and innovate on the network and in customer propositions is required to keep it open and effective. We welcome the Commission’s efforts to propose a balanced set of proposals on net neutrality, but fear that the measures finally tabled risk reducing operators’ flexibility in offering customised services, thereby limiting consumer choice. For mobile to play its full role as a driver for innovation across all sectors it is very important that operators are free to develop services that meet the needs of their customers, and are able to charge different prices for differentiated products. This ability to charge appropriately for the value added for both best efforts Internet and specialized services is a key driver for the high network investment needed to meet Europe’s connectivity challenge.
The acknowledgement that operators are entitled to deliver both Internet access services and pecialised services is welcome, provided the definition of specialized services is not unduly restricted in the process. It is indeed of utmost importance for the sector to be able to differentiate its retail offers based on speed or volumes, as well as on quality. It should be clarified that operators can offer their customers access to certain services (e.g. social media) or types of traffic (e.g. e-mail) without the related data conveyance impacting customers’ overall data allowance.
Some aspects of the current draft however do not fully match with the functioning of networks, especially when indicating that specialised services should not impair Internet access services. Although it is theoretically possible to consider specialized services and best effort as two distinct constructs, that is not the case from a network infrastructure perspective. The provision of specialised ervices and best effort Internet over the same physical network infrastructure is the most efficient
use of network resources. Flexibility in operating the networks and dynamically assigning network resources is important for efficiently transporting multiple traffic flows over the network. As operators invest in their networks to allow specialised services, the increased capacity also benefits the Internet access services thanks to smart allocation of resources.
The possibility to offer quality controlled services will foster the provision of a whole range of innovative services both to the businesses (e.g. e-health applications, telepresence, VoIP, M2M) and consumers (e.g. gaming) and will enable more efficient utilization of networks.
The provisions on traffic management are strict and impacting for mobile network operators. The cumulative principles imposed to traffic management practices should be sufficient to provide afeguards for customers. In order to be future proof, more flexibility should thus be introduced in the list of reasonable traffic management measures and optimisation of services such as video should be permitted to prevent or minimise congestion (and which is not necessarily temporary or exceptional).
Rights of End-Users (Chapters IV and V, Articles 25 to 30)
Consumer confidence is prerequisite to encouraging the take up of the innovative new on-line content and services and can be an important driver for investment in connectivity. Consumers must trust the environment and clear and consistent rules across borders and between different types of service provider can underpin this. We support consistent consumer protection rules across Europe, but the extent to which the provisions in the proposed Regulation achieve this remains unclear.
Rules on transparency should be meaningful and consistent across the entire Internet value chain and avoid being overly prescriptive regarding the information provided to consumers. It is also important that such provisions take full account of technical limitations, and are applied in a harmonised manner across the EU.
The 2009 telecoms package (i. e. the Universal Service Directive – USD) strongly improved consumers' rights regarding contracts, information, quality and price transparency as well as switching. These provisions - implemented in the Member States only in late 2011 and 2012 - are now proving their effectiveness. Similarly the Consumer Rights Directive (CRD) overhauls and strengthens consumers' rights when contracting with businesses, including telecoms providers, as of July 2014. The proposed Regulation builds on these still nascent rules by harmonizing them and making them far more restrictive and prescriptive for telecoms providers, with uncertain benefit for consumers.
We note the contradiction between the Commission’s aim for a “fully harmonised” mandatory framework qualified within recital 40, and the political guidance given by the European Council Conclusions in October: “allowing Member States a degree of flexibility to take additional consumer protection measures.” We support consistent consumer protection rules across Europe, but we fear that the Regulation will not be sufficient to achieve that given that Member States want the freedom to adopt additional consumer protection regulation.
Some of the proposed provisions would imply significant financial and technical challenges for operators, which the Commission’s impact assessment fails to acknowledge. The principle of proportionality has not been sufficiently taken into account (cf. switching time, cut-off facility for domestic services), and many of the requirements duplicate those already covered in the USD or the
CRD. Some of the proposals do not take into account technical and administrative limitations, others appear unnecessary and burdensome to implement.
The proposals also fail to regulate functionally equivalent services provided in the same way, for example over the Internet. Consumers should benefit from consistent rights in the ICT sector.
It should be clear in relation to all obligations that they apply to private consumers and not business customers.
Cut-off facility: we support a facility by which end-users are able to consult their accumulated consumption of services limited to contracts under which services are billed per use, as there is no unintended overspending risk for consumers on flat-rate contracts or pre-paid services. However, implementing an option for customers to freely set an individual limit would be disproportionate. Furthermore, allowing the choice of the financial threshold to rest with the user is not realistic in terms of IT systems.
Broadband transparency measures
and speed: the proposed rules on transparency and contracts
hould not discriminate against mobile technology. Providing actual available speeds for mobile networks is not feasible as download and upload speeds vary widely due to factors beyond the control of mobile operators such as the number of users in a cell, the antenna strength of the handset, the physical distance to base stations, and other variables including meteorological conditions. In terms of transparency, a proper balance has to be defined so that the consumer receives relevant information. Requiring multiple parameters to be included in the contract would not meet the “understandable information requirement” as the vast majority of users are unable to make informed decisions based on these criteria. The proposal to grant new powers to the Commission to specify methods for measuring speed needs to consider the fact that some NRAs have already worked on and implemented quality measurements methodologies. It follows that any rules adopted at the EU level take into account the rules already in force in Member States so as to avoid any additional costs and operational impacts for operators that comply with national measurements.
Contract durations: the proposed rules allowing customers to end a contract after 6 months could undermine the freedom to contract, and risks reducing consumer choice in tariff plans. The USD provides for a maximum contract duration of 24 months and includes the obligation to provide tariffs for contracts of 12 or less months. However, based on long contract terms, providers are able to make more attractive price offers for consumers than for contracts with shorter or no contract terms. The proposed requirement also fails to take into account reasonable costs incurred by the operator as a result of the early termination, including commission payments, taxes etc. The GSMA recommends a legal framework that increases choice and competition in tariff plans to benefit of end users.
Switching: providers have very recently made investments to ensure their switching processes are in compliance with the USD provisions on activating a ported number within one working day. We propose that any further improvements in the portability process focus on enabling the consumer to agree with the provider when the actual porting of a number should take place, in order to limit any potential disruption of service and ensure its continuity. Given the preponderance of web based mail ervices, we are sceptical about the impact of measures on e-mail forwarding after switching and we point to the importance of securing a level playing field. The obligation to refund pre-paid credit in case of number porting may necessitate complex developments and would be disproportionate, in particular if the amount concerned is small.
International Roaming (Chapter VI, Article 37)
The proposed changes to the existing Roaming III Regulation one year after its adoption and only a few months before the entry into force of the key provisions (decoupling), and well before the 2016 review create legal uncertainty and would undermine confidence in the key principle of regulatory consistency and predictability.
Market dynamics will deliver roaming prices close to domestic in the timetable foreseen in Roaming III, driven in particular by the move from voice to more price elastic data usage. The rebalancing is under way and successive waves of EU roaming regulations do not facilitate this process.
The current Roaming III legislation was only adopted last year with widespread support from the European institutions. The most significant changes to the market for roaming services across Europe will be implemented by mid next year, and the review on the Roaming III legislation is scheduled for 2016.
Mobile network operators are intensively implementing the technically complex provisions of the Roaming III Regulation, with the costs expected to run into several hundred million euro. The new proposals include a conditional exception to the obligation on operators to enable the separate sale of roaming and domestic services by July 2014. However the investments required to implement eparation will have to be made well before this exception can be formalised through agreement on the Connected Continent Regulation. Clarification would therefore be needed to address the inconsistency between the timetables for operators’ obligations and the proposed exemption. We do not yet see how the Commission intends to remedy this mismatch in time-tables.
Operators implementing its structural provisions require stability and certainty – and the same goes for any alternative roaming providers considering entry into the market. The new regulatory initiative undermines the legitimate expectation of alternative operators that such newly created possibilities to compete for the provision of roaming services would be long term or permanent. The provisions introduced by Roaming III should get a chance to prove their effectiveness and should not be weakened or undermined by new provisions.
We would emphasise several concerns with the roaming “wholesale agreement” proposal as currently drafted. It is complex and will be difficult to enforce. Several details would need to be clarified before individual operators could make informed decisions on whether to join or continue with their obligations under the Roaming III Regulation. For example, the Commission plans to task BEREC with developing guidelines on “reasonable use” by December 2014. This key factor would remain uncertain up until that date. Also, as indicated by the sub paragraph 11, the new rules are without prejudice to the Union competition rules, and consistency between the two might raise some questions on the concrete feasibility of those bilateral or multilateral agreements.
The pricing element of charging for incoming roaming calls is fundamental as it covers costs related to the delivery of calls from home operator networks into other Member States. Removing incoming roaming call charges would expose operators to differences in mobile termination rates (MTR). The mobile termination market is still very heterogeneous. The MTR levels vary between 8.5ct (in Luxembourg) and 0.8ct (in France). The amount of mobile terminated calls which a mobile network operator receives from and sends to another Member State also differ significantly. Levying a charge on customers for receiving the roaming call enables this differential to be covered. Charges for incoming calls also help to avoid fraud scenarios.
Many operators have included roaming at domestic prices or as part of national allowances in certain tariffs. These offers will be progressively extended within the next years and they deliver for those who really attach importance to roaming services.
About the GSMA The GSMA represents the interests of mobile operators worldwide. Spanning more than 220
countries, the GSMA unites nearly 800 of the world’s mobile
operators with 250 companies in the
broader mobile ecosystem, including handset and device makers, software companies, equipment providers and Internet companies, as well as organisations in industry sectors such as financial ervices, healthcare, media, transport and utilities. The GSMA also produces industry-leading events such as Mobile World Congress and Mobile Asia Expo.
For more information, please visit the GSMA corporate website at www.gsma.com. Follow the GSMA on Twitter: @GSMA.