Recent Developments in EU Telecommunications Regulation

Recent months have witnessed a flurry of activity from the European Commission in the field of telecommunications regulation. On December 18, 2020, the Commission adopted a new Delegated Regulation setting single maximum Union-wide voice termination rates, as well as an updated Recommendation on those relevant markets within the electronic communications sector that it still deems to warrant regulation. On February 4, 2021, the Commission opened infringement procedures against 24 Member States for failing to implement the European Electronic Communications Code (EECC) into national legislation by the transposition deadline of December 21, 2020. And on February 24, it tabled a proposal for a new Roaming Regulation to replace the previous one of 2012 (Regulation No 531/2012). With these and other smaller initiatives, the Commission aims to complete a comprehensive overhaul of the European Union regulatory framework for the electronic communications sector, which it kickstarted in September 2016 with an ambitious legislative package intended to transform the EU into a “Gigabit Society” by 2025.

European Electronic Communications Code: Member State Transposition

Directive 2018/1972 establishing the European Electronic Communications Code (EECC), which entered into force on December 21, 2018, modernized the EU regulatory framework for the electronic communications sector. It consolidated and updated the four directives that previously formed this framework (the Framework Directive, the Authorization Directive, the Access Directive and the Universal Service Directive), with the overarching objective of facilitating investments in very high-speed networks.

The Member States have had two years, i.e., until December 21, 2020, to enact the rules into national legislation. However, at that date, only three of the 27 Member States had fully transposed the EECC (two other Member States had done so only partially). On February 4, 2021, the European Commission opened infringement procedures against the 24 defaulting Member States, sending them letters of formal notice requesting them to adopt and notify the relevant transposition measures (with a reply due within two months, i.e., by early April). At the time of writing, 14 Member States have notified at least partial transposition measures to the Commission. (The United Kingdom has also transposed the EECC by way of the Electronic Communications and Wireless Telegraphy (Amendment) (European Electronic Communications Code and EU Exit) Regulations 2020.)

New EU-wide maximum voice call termination rates

The EECC gave the European Commission a mandate to adopt, by the end of 2020, a delegated act setting single maximum EU-wide mobile and fixed voice termination rates (“Eurorates”). These are the rates that operators charge each other for the termination (delivery) of voice calls on their networks.

On December 18, 2020, the Commission fulfilled this mandate by adopting a Delegated Regulation setting the following single Union-wide maximum voice termination rates:

• € 0.2 cent per minute for mobile calls, to be achieved gradually by 2024, facilitated by a three-year glide path (maximum € 0.7 cent in 2021, € 0.55 cent in 2022, and € 0.4 cent in 2023, except where national regulation already provides for lower caps);
• € 0.07 cent per minute for fixed (landline) calls, to be achieved by 2022, with a transitional period during 2021.

The maximum rates apply to intra-Union calls (i.e., originated from and terminated to Union numbers) and not to calls originating from third-country (i.e., non-EU) numbers, with two exceptions. The first exception applies to the situation where an operator from a third-country charges an EU-based (terminating) operator equal or lower termination rates than those set by the Eurorates Regulation (for calls in the opposite direction). The second exception applies to calls originating from a third country listed in the Annex to the Regulation. Third countries can apply to be listed in this Annex if their termination rates are set according to the same cost model principles as the single Union-wide rates. Note that a call made between two EU numbers while roaming in a third country will be subject to the “Eurorates.”

Regulation of termination rates is nothing new in the EU. Historically, national regulatory authorities (NRAs) have considered that the termination of calls is a separate market and that each operator has a monopoly on the termination of calls to its own customers. NRAs have frequently found that, absent regulation, operators have been charging or would charge “inefficient” termination rates, i.e., rates significantly above the costs of the termination service. According to NRAs, incumbents and larger mobile operators have, in particular, used higher termination rates to price-discriminate between on-net and off-net calls in order to entrench and expand their strong market positions to the detriment of smaller rivals. This has prompted NRAs to intervene to lower termination rates.

However, faced with diverging approaches in the Member States, the European Commission adopted a recommendation in 2009 suggesting that termination rate caps should be based on an efficient costs standard and should be symmetrical (i.e., the same for all operators). In this context, the “efficient cost standard” has been interpreted to mean that the termination rates should be calculated on the basis of a forward-looking “pure LRIC” (long-run incremental cost) model.

The recent EECC went a step further, by providing for a complete harmonization of voice termination rates across EU Member States, based on a unified cost model (namely, a bottom-up pure LRIC model, see Annex III of the EECC). The new “Eurorates” Delegated Regulation is the implementation of this approach.

The Delegated Regulation will enter into force the day after its publication in the EU Official Journal (this has not yet happened, at the time of writing). The list of third countries in the Annex is left blank in the published text. It seems likely, however, that the United Kingdom (which, as an EU Member State until recently, already regulates termination rates in accordance with EU standards) will choose to adopt the EU voice termination caps in order to allow UK-based operators to terminate calls in the EU at the EU-regulated voice termination rates. The Eurorates will also apply to call termination in the EEA countries Norway, Iceland and Liechtenstein, which are already following the EU standard, but will not apply in Switzerland (where termination rates are unregulated and significantly higher than the EU average).

New Recommendation on Relevant Markets Susceptible to Ex Ante Regulation

On December 18, 2020, the Commission adopted a revised version of its Recommendation on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation. The new Recommendation replaces the previous one of 2014 and is the fourth revision since 2003.

The overall analytical approach with a view to identifying electronic communications markets that (still) warrant regulation has not changed. NRAs should start from an assessment of the competitive situation on the retail markets. If a retail market is not effectively competitive, they should then look to the related wholesale markets, starting from the market situated furthest upstream and going down the value chain. They should apply the “three criteria” test to each market, i.e., assess whether (i) the market is characterized by high non-transitory barriers to entry; (ii) the market structure tends towards effective competition and (iii) competition law alone is inadequate to address the lack of competition. These criteria are cumulative: if one of them is not or no longer fulfilled, ex ante regulation of the market is no longer warranted.

In an Annex to the Recommendation, the Commission lists the relevant product markets that it generally considers meet the three criteria test EU-wide and that NRAs should analyze in any event. The new Recommendation only identifies two such markets (both wholesale connectivity markets):

• The market for wholesale local access provided at a fixed location;
• The market for wholesale dedicated capacity.

These markets correspond to markets 3a and 4 of the 2014 Recommendation (with a slight redefinition of former market 4, which was previously labelled “market for wholesale high-quality access provided at a fixed location”).

The European Commission considers that the wholesale local access (WLA) market still warrants regulation given that the local access network is the part of the network most difficult to replicate.

By contrast, the Commission has concluded that the wholesale central access (WCA) market (market 3b of the previous Recommendation) now generally tends to effective competition, mainly due to the presence of alternative platforms, in particular cable networks, which act as a competitive constraint on WCA provided by the former incumbents. In addition, the Commission expects that wireless infrastructure will compete with, or replace, copper infrastructure in rural areas thanks to the development of 5G.

Interestingly, the Recommendation provides that where access products, provided at different handover points, are identified as being substitutes, the market should be defined to encompass all such products. The Dutch NRA already defined a common “wholesale fixed access” (WFA) market in its previous market analysis round (encompassing both local and central access). More NRAs may now follow this example.

The previous 2014 Recommendation also included the markets for fixed and mobile voice call termination. The removal of these two markets from the list is not surprising given the parallel adoption of the “Eurorates” Regulation discussed above, which harmonizes termination rate regulation EU-wide, thereby removing the need for intervention by individual NRAs.

NRAs can still regulate markets that are not listed in the Recommendation, provided that they can demonstrate that, in the specific national circumstances, these markets fulfil the three criteria test. Conversely, NRAs may deregulate listed markets where, in the specific national circumstances, they no longer satisfy this test.

The revised Recommendation also puts a new emphasis on geographically differentiated regulation. To date, NRAs have found most markets to be national in scope, because the incumbent’s network had national coverage. However, with the progressing deployment of alternative networks, competitive conditions can vary significantly between different areas of the same country (for instance between urban and rural areas) and could require a more targeted regulatory approach. In these circumstances, the Commission recommends defining separate geographic markets. NRAs should identify a basic geographic unit as a starting point for assessing competitive conditions (e.g., based on network typology or administrative units) and aggregate the units that exhibit similar competitive conditions (which may result in defining non-contiguous geographical markets). Segmentation of remedies can then be used to target those areas where competition is less strong or less stable.

Proposal for a new Roaming Regulation

On February 24, 2021, the European Commission published a proposal for a new Regulation on roaming on public mobile communications networks within the Union. The proposal aims to extend the existing Roaming Regulation (Regulation 531/2012) and, at the same time, to recast it in order to improve clarity, as it has already been amended on multiple occasions over time. The existing Regulation, which lowered roaming prices for calls and SMS and capped roaming prices for data across the EU, is set to expire on June 30, 2022.

The first Roaming Regulation of 2007 was controversial in that it was the first measure to impose EU-wide price regulation (a model that has now been expanded to termination rates, see above), by imposing price caps for voice calls (at wholesale and retail level). The second Roaming Regulation of 2010 expanded this to SMS (at wholesale and retail levels) and data (at wholesale level). It also introduced a “bill shock” protection measure for data roaming within the EU. The 2012 Regulation then introduced data roaming price caps at retail level and expanded the “bill shock” measure to data roaming outside the EU. Finally, an amendment to the Regulation introduced “roam like at home” (RLAH) as of June 15, 2017, i.e., the principle that users should not pay more for calls, SMS, and data when roaming in another EU country than in their home country.

The European Commission’s latest proposal would further reduce the EU-wide wholesale maximum roaming charges that the visited operator could levy on the roaming operator for calls, SMS and data to below the levels applicable under the current Regulation (valid until June 30, 2022):

• The average wholesale charge for voice calls would be capped at € 0.22 per minute, decreasing to € 0.019 per minute as of January 1, 2025;
• The average wholesale charge for SMS would be capped at € 0.004 per message, decreasing to € 0.003 per message as of January 1, 2025;
• The average wholesale charge for data would be capped at € 2 per gigabyte, decreasing to € 1.5 euro per gigabyte as of January 1, 2025;
• The maximum charges applicable as of January 1, 2025 would apply until June 30, 2032, subject to review by the European Commission.

In addition, the proposal aims to:

• Give roaming customers a genuine RLAH experience in terms of quality of service, by obliging roaming providers to ensure, when technically feasible, that the roaming services are provided under the same conditions as if they were consumed domestically and to provide access to all available network technologies and generations;
• Increase transparency at retail level regarding (a) quality of service (by introducing an obligation for operators to clarify in their contracts with customers the quality of service that they can reasonably expect when roaming within the EU), (b) value-added services (by obliging operators to provide, in their contracts with customers and in the “welcome SMS,” information on the type of services that may be subject to higher charges), and (c) access to emergency numbers (by introducing an obligation for operators to include information in the “welcome SMS” on the different possibilities to access emergency services when roaming);
• Increase transparency at the wholesale level with regard to value-added services by creating a centralized EU database for value-added service numbering ranges (to be managed by the Body of European Regulators for Electronic Communications, (BEREC));
• Ensure free-of-charge access to emergency services to customers while roaming, among others by preventing the roaming provider from levying any charge related to emergency communications and transmission of caller location information (CLI).

By contrast, the provisions on fair use policy and on sustainability derogations remain unchanged in substance compared to the current Regulation. The fair use provisions allow roaming providers to apply a policy to prevent “abusive or anomalous” usage of regulated roaming services by roaming customers. The sustainability mechanism allows roaming providers to request authorization from their NRA to apply a surcharge when they are exceptionally unable to recover their overall actual and projected costs related to providing regulated roaming services from their overall and projected revenues related to providing those services.

As a result of Brexit, UK customers no longer enjoy RLAH privileges when travelling in EU Member States. The Trade and Cooperation Agreement with the EU does not guarantee surcharge-free roaming for UK consumers in the EU, or for EU consumers in the UK, but merely says that both sides will encourage operators to have “transparent and reasonable rates” for roaming. For now, it seems that most operators on both sides have voluntarily opted to continue to offer surcharge-free roaming, but this may change if operators on either side start increasing wholesale roaming charges. The UK has also legislated to retain some safeguards for consumers, including, in particular, a “bill shock” protection mechanism (i.e., a £45-a-month limit on the amount that customers could be charged for using mobile data overseas before having to opt into further use, and requirements to inform customers when they reach 80% and 100% of their data allowance).