DOES EUROPE NEED A SINGLE EUROPEAN TELECOM REGULATOR ?

By Laurent De Muyter1

This paper argues that the use of inadequate soft law and hard law tools to regulate markets

at EU level in the past justifies assigning to the European Commission (“Commission”) the

power to regulate markets at EU level in order to ensure that such regulation complies with

the principles of the EU framework for communications, in particular judicial control. The

Draft 2010 Framework proposed by the Commission does not give the European Electronic

Communication Market Authority (“EECMA”) the power to act as a EU regulator but

entrusts the Commission with this task. The Draft 2010 Framework leaves however the scope

of the judicial control of the Commission’s action unclear.

I. Introduction

The necessity of establishing a European telecom regulator has been heavily debated over the

past few years. The first wave of liberalization directives required the Commission to

“investigate [..] the added value of the setting up of a European Regulatory Authority to

carry out those tasks which would prove to be better undertaken at Community level”2.

Accordingly, the Commission ordered two studies which essentially consisted of wide

consultations of the telecommunication sector to assess its support for a European regulatory

1 Associate, Jones Day, ldemuyter@jonesday.com. This paper won the 6th Young Lawyer’s Writing

Competition of the Communications Law Committee of the International Bar Association. The author thanks Gaëtane Goddin and Alexandre Verheyden for their useful comments on an earlier draft. All opinions expressed in this article are those of the author only.

2 See Article 22 of Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection in Telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP), O.J., L 199, 26 July 1997, p.32 and Article 1 (8) of Directive 97/51/EC of the European Parliament and of the Council of 6 October 1997 amending Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment in telecommunications, O.J., L 295, 29.10.1997, p. 23–34.

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authority3. The conclusion of these reports was that, while there was a significant level of

support for EU involvement in areas such as pan-European markets, competition,

interconnection, Significant Market Power (“SMP”), enforcement, and homogeneity of

implementation, there was little support for an independent European regulatory authority.

On this basis, the Commission concluded that “at [that] stage, [...] the creation of a

European Regulatory Authority would not provide sufficient added value to justify the likely

costs [and] could lead to duplication of responsibilities, resulting in more rather than less

regulation”4.

The second telecom package (“2003 Framework”) did not provide, as a consequence, for a

EU regulator5. Instead, the Commission relied on coordination and cooperation between the

national regulatory authorities (“NRAs”) and with the Commission to ensure consistent

application of the 2003 Framework. This approach was essentially based on

− the establishment of the European Regulators Group (“ERG”)6, and

3 Eurostrategies/Cullen International, “The possible added value of a European Regulatory Authority for

telecommunications”, Study for the European Commission October 1999, and NERA and Denton Hall, “Issues associated with the creation of a European Regulatory Authority for telecommunications”, March 1997. Both studies are available at: http://www.ec.europa.eu/archives/ISPO/infosoc/telecompolicy/en/Study-en.htm.

4 Communication from the Commission, “Towards a new framework for Electronic Communications infrastructure and associated services – The 1999 Communications review”, COM (1999) 539 final, p. 9.

5 The 2003 Framework is composed of (i) Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services, O.J., L 108, 24.4.2002, p.33 (“Framework Directive”), (ii) Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities, O.J., L 108, 24.4.2002, p. 7 (“Access Directive”), (iii) Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorization of electronic communications networks and services, O.J., L 108, 24.4.2002, p. 21 (“Authorization Directive”), (iv) Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services, O.J., L 108, 24.4.2002, p. 51 (“Universal Service Directive”), (v) Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector, O.J., L 201, 31.07.2002, p. 37 (“Privacy Protection Directive”).

6 Decision 2002/627/EC of 29 July 2002 establishing the European Regulators Group for Electronic Communications Networks and Services, O.J., 2002, L 200, p.38, as amended by Commission Decision of 14 September 2004 (2004/641/EC), O.J., 2004, L 293, p.30.

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− an increase in the Commission’s supervision power over NRA regulations through

an automatic notification system whereby (i) all NRAs’ market analyses were

subject to Commission’s comments, and (ii) all NRAs’ market definitions

different from those identified in the Recommendation on the relevant markets7

and SMP-designations were subject to a possible Commission veto (the so-called

“Article 7 Procedure”).

The review of the 2003 Framework conducted in 2006 by the Commission led to the

conclusion that there was still not enough consistency in the application of the EU rules8. It

also highlighted the regulatory fragmentation of the internal market9. In this context, the

Commission ordered a cost-benefit analysis of the potential establishment of a European

electronic communications market authority. This analysis concluded that the establishment

of such authority would be “cost effective and fully justifiable from a EU budgetary

perspective”10.

7 Commission recommendation of 17 December 2007 on relevant product and service markets within the

electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, O.J., 28.12.2007, L 344, p.65 (“2007 Recommendation on the relevant market”).

8 Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions on the Review of the EU Regulatory Framework for electronic communications networks and services, COM (2006) 334. See also Explanatory memorandum to the draft proposal for a directive of the European parliament and of the council amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and services, and 2002/20/EC on the authorization of electronic communications networks and services, COM(2007)697. On the question of the lack of consistent application of the EU rules, see also the ECTA’s annual regulatory scorecard available at http://www.ectaportal.com/en/basic651.html.

9 Ibidem. See also Hogan & Hartson and Analysys, “Preparing the next steps in regulation of electronic communications – a contribution to the review of the electronic communications regulatory framework”, 2006, http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm#2006.

10 The European Evaluation Consortium 2007, “Cost-Benefit Analysis of Options for Better Functioning of the Internal Market in Electronic Communication”, available at: http://ec.europa.eu/information_society/policy/ecomm/library/ext_studies/index_en.htm#2007.

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As part of the next suggested framework (“Draft 2010 Framework”)11, the Commission

adopted on 13 November 2007 a draft regulation establishing an Electronic Communications

Market Authority (“EECMA”). The EECMA will incorporate the tasks currently undertaken

by the ERG and the European Network and Information Security Agency (“ENISA”). It will

be composed of (i) an administrative board of 12 members (half of which will be from the

Commission) that will vote on a 2/3 majority voting and (ii) a board of regulators composed

of all regulators, using simple majority voting. The relevance of the establishment of the

EECMA has already been subject to diverging opinions. While the Commission sees the

EECMA as “the key that unlocks the door to a true Single market for telecoms”12, the ERG

qualifies it as a “new layer of unnecessary centralism”13.

Leaving aside the political reasons that may lay behind those statements as well as the

conceptual arguments supporting the creation of an EU regulator14, this paper will focus on

the following points:

11 The Draft 2010 Regulatory Framework is composed of (i) Draft proposal for a directive of the European

parliament and of the council amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and services, and 2002/20/EC on the authorization of electronic communications networks and services, COM(2007)697 (“Draft Framework Directive”); (ii) Draft proposal for a Directive of the European Parliament and of the Council amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on consumer protection cooperation, COM(2007)698 (“Draft Universal Services Directive”); (iii) Draft Regulation for a regulation of the European Parliament and of the Council establishing the European Electronic Communications Market Authority, COM(2007)699 (“Draft Regulation”) (all documents are available at: http://ec.europa.eu/information_society/policy/ecomm/library/proposals/index_en.htm)

12 V. Reding, “The EU Telecoms Reform 2007 : Better, more consistent rules for effective competition and sustainable investment”, 28 November 2007, SPEECH/07/65.

13 ERG letter of 6 November 2006 to Commissioner Reding, available at www.erg.eu.int . 14 For further analysis of such conceptual arguments, see D. Geradin and N. Petit, “The development of

Agencies at EU and National levels : conceptual Analysis and proposals for reform”, Jean Monnet Working Paper 01/04, available at www.jeanmonnetprogram.org.

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− whether, in practice, the history of regulation at EU level by the Commission

justifies submitting its activities to the principles of the EU framework on

electronic communication, and in particular to judicial control; and

− whether the Draft 2010 Framework establishes a EU regulator and, if yes, under

which judicial control.

II. Past inadequate EU regulation

Under the currently applicable rules (i.e. the 2003 Framework), the Commission has limited

power to regulate national and transnational markets, as it can only comment or withdraw a

draft measure proposed by a NRA15 or identify transnational markets that NRAs should

analyze16. Furthermore, the Commission’s veto does not cover the imposition of remedies.

In other words, the Commission has no power to impose specific ex ante regulation. Should

the Commission consider that a draft measure is contrary to the 2003 Framework, it is

obliged to take an infringement action before the European Court of Justice (“ECJ”) under

Article 226 EC Treaty to have it annulled17.

History of regulation at EU level shows that this lack of regulatory powers has forced the

Commission to regulate some markets through (i) soft law, and (ii) hard regulations, which

have both proved to be contradictory, contrary to the principles of the 2003 Framework, and

even sometimes illogical. This paper will focus on the two main areas of EU regulatory

intervention in the past years, i.e. mobile termination rates (“MTRs”) and roaming.

15 Article 7 (3) and 7 (4) Framework Directive. 16 Article 15 (4) Framework Directive. NRAs remain free to decide whether imposing, maintaining,

amending or withdrawing remedies (Article 16 (5) Framework Directive). 17 See various infringement proceedings brought by the Commission for incorrect implementation of the 2003

Framework at: http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/infringement/releases/index_en.htm.

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A. Regulation through soft law: the MTRs

There is a general trend by the Commission to regulate the telecommunications sector

through soft law, with the effect of diluting judicial control. Indeed, the Commission has

made extensive use of recommendations, communications, guidelines, and opinions to shape

the electronic communication markets18. This trend already started in the nineties with the

guidelines on the application of competition law to the telecommunication sector19 and the

so-called Access Notice20.

Since the adoption of the 2003 Framework, the Commission has also used the Article 7

Procedure to regulate some national markets. This is in particular true for the Commission’s

approach to mobile termination rates (“MTRs) regulation 21 , which is arguably (i)

contradictory, (ii) contrary to the case-law of the ECJ, and (iii) sometimes bereft of any

economic common sense.

First, the Commission has adopted diverging views with regard to (i) the obligation to evolve

towards symmetric MTRs, and (ii) the obligation to take economies of scope into account:

− The Commission has developed a general view that MTRs should in principle be

symmetric and that MTR regulation should evolve towards symmetry in the short

18 See for instance, Commission recommendation of 17 December 2007 on relevant product and service

markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, O.J., 28.12.2007, L 344, p.65 (“2007 Recommendation on the relevant market”); Commission recommendation of 19 September 2005 on accounting separation and cost accounting systems under the regulatory framework for electronic communications, O.J., 11.10.2005, L 266, p.64.

19 Guidelines on the application of EEC competition rules in the telecommunications sector, O.J., C 233, 06.09.1991, p.2.

20 Notice on the application of the competition rules to access agreements in the telecommunications sector, O.J., C 265, 22.08.1998, p. 2-28.

21 As for the regulation of roaming (see below), the Commission first tried to use competition law to regulate the MTRs but never issued a formal decision (see Press release, 27 march 2002, Commission suspects KPN of abusing its dominant position for the termination of calls on its mobile network IP/02/483).

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to medium term22. However, it has not challenged ARCEP and ANACOM’s

decisions to increase the asymmetry in France and Portugal in their second market

analysis23.

− In its comments on the German draft market analysis24, the Commission requested

BNetzA to adopt a cost-model that would take into account the operators’

differences in economies of scales resulting from different market shares. In its

comments on the Belgian submission25, the Commission however refused BIPT’s

cost model, which took such economies of scale into account.

Second, the Commission’s quest for symmetric MTRs (i.e. all national operators’ MTRs

based on the (same) costs of a reasonably efficient operator) may be found to violate the case-

law of the ECJ. At the outset, one could question the compatibility of symmetric MTRs with

the competition law principles on which ex ante regulation should be based. In particular, the

ECJ rejected the benchmarking as a sufficient method for assessing excessive pricing in the

United Brands case and considered that the Commission must first compare “between the

selling price of the product in question and its cost of production, which would disclose the

22 SG-Greffe (2006) D/204472, comments from the European Commission of 4 August 2006 in the case

BE/2006/0433. SG-Greffe (2006) D/204966, comments from the European Commission of 4 September 2006 in the case FR/2006/0461. More generally, on the question of asymmetries, see L. Benzoni and P. Geoffron (éd.), Competition and regulation with asymmetries in mobile markets, Quantifica Publishing, Paris, 2007; Patrice Geoffron and Haobo Wang, “What Mobile Termination Regime for Asymmetric Firms with a Calling Club Effect?”, (December 5, 2007), available at SSRN: http://ssrn.com/abstract=1088290 .

23 SG-Greffe (2007) D/207191, comments from the European Commission of 26 November 2007 in the case PT/2007/707 and SG-Greffe (2007) D/205459, comments from the European Commission of 13 September 2007 in the case FR/2007/0669.

24 SG-Greffe (2006) D/204180, comment from the European Commission of 20 July 2006 in the case DE/2006/0421 where the Commission held that “This costing model should reflect the fact that operators may have different cost structures which can inherently be linked to different technical conditions of their networks or can be a result of different economies of scale due to different market shares”. See also SG-Greffe (2006) D/202771, comments from the European Commission of 24 May 2005 in the case IT/2006/0384.

25 SG-Greffe (2006) D/204472, comments from the European Commission of 4 August 2006 in the case BE/2006/0433.

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amount of the profit margin”26. Accordingly, (i) as cost orientation of MTRs primarily aims

at preventing excessive pricing27 and (ii) assuming that each network is a distinct market for

termination services28, cost-oriented MTRs should arguably be based on each operator’s own

network costs. This view is also supported by the recent ECJ decision in Arcor case where

the ECJ ruled that “in fixing the tariffs for unbundled access to the local loop, account must

be taken of the costs which the notified operator had to incur for the investments made in

putting its local infrastructures in place”29.

Furthermore, the ECJ stated in Mobistar that:

“defining a maximum price, such as that chosen by the Belgian

authorities, may be considered compatible with Article 30(2) of

the Universal Service Directive, provided that it is genuinely

possible for new operators to contest the application of

maximum prices by operators already present in the market by

26 Case 27/76, United Brands, ECR [1978], p. 207, para. 251. 27 See Article 13 Framework Directive. 28 See 2007 Recommendation on the relevant market. 29 Case C-55/06, Arcor, 24 April 2008, para. 72 (not yet reported). The ECJ also stated that “when setting

rates for unbundled access to the local loop on the basis of cost‑orientation, the notified operator must take account of quantitative elements which are in line with the costs which he incurred in putting that loop in place” and that “if […] the cost calculation basis were based exclusively on historic costs, which, depending of the age of the network, could potentially lead to account being taken of an almost entirely depreciated network and thus result in a very low tariff, the notified operator would be faced with unjustified disadvantages. […] the remuneration which it would receive in consideration for the provision of unbundled access to the local loop would not enable it to make a reasonable profit from the operation, bearing in mind that it is also require […] to ensure the long term development and upgrade of the local infrastructure” (emphasis added). Case C-55/06, Arcor, 24 April 2008, para 66 and 106-108 (not yet reported). In its opinion in the case, A.G. Poires Maduro also stated that “There is no doubt that the regulation accords the notified operator the right to a reasonable return for making the local loop available to competing operators. Even if Deutsche Telekom’s local network were, possibly, to be fully depreciated, the regulation would preclude the rates being set at zero or at a level very close to free access. […] Deutsche Telekom’s right to receive a reasonable return is simply a lower limit which the regulatory authority is required to respect” (emphasis added). Opinion of A.G. Poiares Maduro, 18 July 2007, Case C-55/06, Arcor, para. 71 and 72 (not yet reported).

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showing that those prices are too high in relation to their cost

structure”30.

Also, A.G. Poires Maduro stated in Arcor that:

“[In the Mobistar case, t]he Court also emphasized that it was

entirely possible that these maximum prices could prove to be

‘too high’ in relation to the operators’ cost structure. In such

cases, the charges would obviously have to be set, on the basis

of the operator’s actual costs, below the figure obtained by

applying the theoretical bottom-up cost model. […] The

principle of cost-orientation refers first and foremost to the

notified operator’s costs, that is to say its actual costs

‘connected with’ the provision of access to the existing local

loop owned by that operator. In order to assess whether the

charges are consistent with the notified operator’s costs, the

notified operator’s accounts provide the only possible starting-

point for establishing those costs. It would be methodologically

incorrect to take as the central basis for establishing the

notified operator’s costs connected with the provision of access

to its network, not its cost statements, but a bottom-up

analytical model, which provides figures for costs connected

with the provision of a modern, efficient local loop to be built

from scratch by a virtual efficient operator. In fact, the actual

costs connected with an existing local loop may be much lower

30 Case C-438/04, Mobistar, ECR [2006], p.I-6675, para 35. (emphasis added).

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than those calculated using a bottom-up theoretical model of

that nature”31.

It stems from the above that a regulation based on symmetric MTRs that would allow an

operator to apply an MTR above its real costs (because, for instance, the cost-model is based

on the assumption that an operator has a market share of 33% in a market with three players

while this operator has in reality a 50% market share32) would be contrary to the notion of

cost orientation. The Commission’s (and the ERG’s33) support for symmetric rates therefore

violates these precedents by refusing to take the objective situation (“in concreto”) of each

operator, when this leads to costs lower than the costs of a reasonably efficient operator.

Third, some Article 7 decisions of the Commission seem to lack any economic basis:

− In its comments on the Austrian submission34, the Commission welcomed TKK’s

application of symmetric MTRs but drew TKKs’ attention to the discrepancies in

MTRs in the Members States and invited it to work with the ERG in order to

achieve a coherent approach across the EU. This suggests that MTRs should not

only converge towards symmetry (which is the subject of the ERG common

position35), but also that they should converge across Member States (which goes

beyond the ERG common position). Furthermore, while the use of similar cost-

setting methodologies may justify indirect MTR convergence, there is little

31 Opinion of A.G. Poiares Maduro, 18 July 2007, Case C-55/06, Arcor, (not yet reported), para 78 and 87

(emphasis added). See also Opinion of A.G. Poiares Maduro, 14 July 2004, Case C-109/3, KPN Telekom, para. 53 where the A.G. refused the possibility of one operator to recover the same costs twice.

32 See Brussels Court of Appeal decision of 4 April 2008, available at www.bipt.be. 33 ERG Common Position on symmetry of mobile/fixed call termination rates, available at www.erg.eu.int . 34 SG-Greffe (2007) D/205894, comments from the European Commission of 3 October 2007 in the case

AT/2007/0680. 35 ERG Common Position on symmetry of fixed call termination rates and symmetry of mobile call

termination rates, available at www.erg.eu.int .

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economic rationale justifying the application of similar MTRs in different

Members States characterized by different objective costs (network costs,

coverage obligations, population density, license costs, etc).

− In its comments on the Italian submission36, the Commission suggested that the

H3’s MTRs could not be above the MTR of its sister company located in another

Member State that has a lower market share. This suggests that the MTRs should

be based on the costs of an operator active in a different geographic market.

Again, comparing costs within distinct geographic markets arguably lacks any

economic rationale.

The author believes that the above cases show the limits of a regulation through soft law.

However, because the Commission’s views on symmetry are not adopted through binding

decisions, these have not yet been assessed by the European Courts. Indeed, the Court of

First Instance (“CFI”) confirmed in Vodafone España37 and BASE38, that operators could not

appeal Article 7 decisions before the CFI on the basis of Article 230 EC Treaty. This is

essentially based on the fact that the Commission’s comments do not have legal binding

effects unless they are adopted under Article 7(4) of the Framework Directive (veto

decisions). However, although the CFI considers that the obligation to “take the utmost

account” of comments of the Commission “leaves some leeway [to NRAs] to determine the

36 SG-Greffe (2007) D/204910, comments from the European Commission of 2 august 2007 in the case

IT/2007/0659. 37 Case T-109/06, Vodafone España, 12 December 2007 (not yet reported). 38 Case T-295/06, BASE, 22 February 2008, (not yet reported).

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content of the final measure”39, the reality is that NRAs have almost always felt compelled to

follow the comments made by the Commission.

It follows that operators lack the power to appeal EU soft law regulation, the extensive use of

which has increased the lack of judicial control of regulation. With regard to the eclectic

regulation of MTRs through the Article 7 procedure, this has arguably proven largely

unsatisfactory.

B. Regulating through hard law: the Roaming Regulation

The Commission has also used “hard” regulations to impose remedies directly on operators.

The first case was the regulation on Local Loop Unbundling (“ULL Regulation”)40 which

imposes an obligation to provide access to unbundled local loop (“ULL”) and to apply cost-

oriented prices. Because the ULL regulation leaves its implementation to the Member States,

it has not been applied consistently by the NRAs41. Under the 2003 Framework, wholesale

unbundled access was included in the markets to be regulated by the NRAs42.

39 Case T-109/06, Vodafone España, 12 December 2007 (not yet reported), para. 160, and Case T-295/06,

BASE, 22 February 2008, (not yet reported), para. 121. 40 Regulation No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on

unbundled access to the local loop, O.J., L 336, 30.12.2000, p.4. 41 See ECTA broadband scorecard, available at http://www.ectaportal.com/en/basic651.html. See also the

Commission’s annual reports on the implementation of the telecommunications regulatory package (at http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/index_en.htm). In 2006, the Commission recognised for instance that « local loop unbundling […] does not appear to be working in practice in Estonia, Cyprus, Lithuania, Latvia, Malta, Poland, Slovenia and Slovakia » (See 11th Report, p.10).

42 Market 11 of the Commission recommendation of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communication networks and services, O.J., 8.5.2003, L 114, p.45 (“2003 Recommandation on the relevant market”).

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On 27 June 2007, the EC adopted a regulation on roaming (“Roaming Regulation”)43. For

the first time, the Commission is regulating exhaustively a market at EC level, by imposing

quantified remedies directly to operators. Because it lacks power to do so via the 2003

Framework, the Commission has chosen to do it via a binding regulation. This choice is

subject to criticism. Indeed, the Roaming Regulation (i) results from a disorganized

procedure, (ii) does not follow the principles set out in the 2003 Framework, and (iii)

arguably violates EC law.

Mistaken procedure. Originally, the emergence of roaming services stemmed from the lack

of a single procedure for granting spectrum at EU level, which has driven operators to operate

on a national basis and charge foreign operators for the interconnection services provided to

their customers. Because the price elasticity for roaming tariffs is very low, operators have

been able to charge high rates for those services.

The Commission has long tried to tackle the issue of high roaming tariffs. The first attempt

was through competition law. In particular, the Commission started a sector enquiry to

identify the competitive issues raised by roaming services44. This was based both on Articles

81 and 82 EC Treaty. Because Article 81 EC Treaty proved to be an unlikely avenue45, the

Commission started formal proceedings against T-Mobile and Vodafone in Germany and

against Vodafone and O2 in the UK on the basis of Article 82 EC Treaty only. In particular,

the Commission alleged that these operators were applying excessive pricing on the

43 Regulation 717/2007 of the European Parliament and the Council of 27 June 2007 on roaming on public

mobile telephone networks within the Community and amending Directive 2002/21/EC, O.J., L 171, p. 32. 44 See MEMO/01/262 of 11 July 2001. See also Commission working document of 13 December 2000, on

the initial findings of the sector enquiry into mobile roaming charges. 45 In view notably of the necessity to prove that those agreements restricted competition and could not be

justified under Article 81 (3) EC Treaty. In this regard, the ECJ has already rured that national roaming is able to increase rather than impede competition. (Case T-328/03, O2 Germany, ECR [2006] ,p. II-1231).

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wholesale market for roaming services on their respective networks46. This regulatory

avenue also proved unsatisfactory given the difficulty to quantify excessive pricing. Also,

the case somehow ran in contradiction with the Commission’s repeated statement that it does

not act as a price-setting authority when applying EC competition law47. The Commission

therefore simply decided to regulate roaming through a regulation, dropping all allegations

against the operators48. The whole process lasted for 8 years.

Contradiction with the principles of the 2003 Framework. The Roaming Regulation

imposes on all mobile operators in the EU a price cap obligation at both the wholesale and

the retail levels49 . While such obligation amounts to a price control remedy which is

currently one of the most severe remedy provided for in the 2003 Framework, it contradicts

three principles of the 2003 Framework:

− First, the wholesale national market for international roaming was identified as

market 17 in the 2003 Recommendation on the relevant market. Although no

NRAs decided to analyze this market, it remains that, under the 2003 Framework,

it was for NRAs to analyze those markets. It is therefore questionable whether the

EC had not exhausted its right to act, on the basis of Article 95 EC Treaty, by

adopting the 2003 Framework. Indeed, the adoption of the Roaming Regulation

now prevents NRAs from regulating the roaming market (market 17).

46 Press release, “Commission challenges international roaming rates for mobile phones in Germany”, 10

February 2005, IP/05/161, and Press release, “Commission challenges UK international roaming rates”, 26 July 2004, IP/04/994.

47 Fifth Report on Competition Policy, pt. 3 and 76, XXIVth Report on Competition Policy, pt. 207. 48 Press release, “Commission closes proceedings against past roaming tariffs in the UK and Germany”, 18

July 2007, IP/07/1113. 49 Articles 3 and 4 Roaming Regulation.

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− Furthermore, the Roaming Regulation in effect imposes remedies, without having

defined the markets, and designated SMP operators. This is in contradiction with

the principles set out in the framework, in particular the obligation to conduct a

market analysis and to designate SMP operators before imposing remedies such as

cost orientation50.

− Finally, the Roaming Regulation imposes simultaneously remedies at retail and

wholesale level while, in principle, remedies could not be imposed on the retail

market without examining whether the imposition of remedies on the wholesale

market is sufficient to eliminate competition bottlenecks51.

Possible Illegality. In addition to the contradiction with the 2003 Framework, it is

questionable whether the adoption of the Roaming Regulation is contrary to EC law. In

particular, it has been argued that:

− Article 95 of the EC Treaty does not provide an adequate legal basis for regulating

roaming services because (i) there are no existing national laws in force or

anticipated in the Member States which require harmonization so as to permit the

free movement of services within the EC; and (ii) the Roaming Regulation does

not have a harmonizing effect, but is in fact a measure to enhance consumer

protection by limiting prices.

− The Roaming Regulation is disproportionate to the aim to be achieved.

50 Article 8 (3) Access Directive. 51 Article 17 (1) of the Universal Service Directive. See also Recital 15 of the 2007 Commission

recommendation on the relevant market, according to which “Regulatory controls on retail services should only be imposed where national regulatory authorities consider that relevant wholesale measures […] would fail to achieve the objective of ensuring effective competition and the fulfillment of public interest objectives. By intervening at the wholesale level, including with remedies which may affect retail markets, Member States can ensure that as much of the value chain is open to normal competition processes as possible, thereby delivering the best outcomes for end-users”.

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− The Roaming Regulation is contrary to the subsidiary principle52.

These arguments have been lodged before the High Court of Justice (Queen's bench

division)53 and are currently subject to a preliminary reference to the ECJ54. Again, Article

234 EC Treaty was the sole path for challenging the Roaming Regulation. Indeed, because

the Roaming Regulation is of a general nature, operators have no possibility of challenging it

before the ECJ under Article 230 EC Treaty, since they have no direct and individual

concerns55.

As for soft law regulation, the use of a binding regulation for regulating roaming has

therefore arguably also proved unsatisfactory.

III. The Draft 2010 Framework

As explained above, the Commission’s review of the 2003 Framework concluded that there

was a need for an EU regulator. The Draft 2010 Framework provides for the establishment

of the so-called EECMA, which has generally been presented as fulfilling this task56. As we

will see below, this assumption is far from true. Indeed:

52 See Practical Law Company, “High Court refers Roaming Regulation to ECJ”, available at

http://competition.practicallaw.com/3-379-9734. 53 R (on the application of Telefonica O2 Europe plc and others) v Secretary of State for Business and

Regulatory Reform, [2007] EWHC 3018 (Admin), available at http://www.casetrack.com/ct4plc.nsf/items/9-379-9694. Because of the peculiarities of the UK judicial system, this has been lodged without the existence of a dispute between operators.

54 See Case C-58/08, (not yet reported). 55 Cases 789 and 790/79, Calpak, ECR [1980], p.1949. 56 Financial Times, Editorial comment, “Bandwidth banter”, 15 November 2007; Forbes.com, “EU's Reding

Wants Telecom Super-Regulator”, 11.01.07. See also European Commission’s fact sheet on the European telecom market authority, available at http://ec.europa.eu/information_society/newsroom/cf/itemlongdetail.cfm?item_id=3723.

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− The EECMA is not (and could arguably not be) a European Regulator and

therefore fails to achieve its claimed objectives of regulatory consistency and

harmonization.

− The Draft 2010 Framework presents the Commission as a true regulator, but fails

to fully subject its action to judicial control.

A. The EECMA is not an EU regulator

To qualify as an EU regulator, the EECMA should be competent to regulate markets and

should comply with the conditions set forth in the 2003 Framework (including independence,

transparency, effective appeal mechanisms)57. As currently drafted, the Draft Regulation

fails to qualify the EECMA as a regulator.

Indeed, the forecasted tasks of the EECMA are essentially of an advisory nature. It shall

deliver opinions at the request of the Commission on “all matters regarding electronic

communications”58 or on its own initiative59. In addition, it has an obligation to deliver

opinions, when the Commission adopts (i) a “Phase II” decision60, (ii) a decision to impose

remedies on the national market61, (iii) a decision to review national markets in case of non

compliance with timing limits or market analysis62, (iv) a decision to define a transnational

market63, as well as for (v) technical issues on number portability64 and on the European

57 See Article 3 and 4 of the Framework Directive. 58 Article 4 of the Draft Regulation. This ranges from draft measures of NRAs submitted under the Article 7

procedure, identification of trans-national markets, numbering issues, etc… 59 Article 8 (3) of the Draft Regulation. 60 Article 5 of the Draft Regulation. Phase II decision refers to decisions adopted by the Commission under

Article 7 (4) and (8) of the Framework Directive. 61 Article 5 of the Draft Regulation. 62 Article 6 of the Draft Regulation. 63 Article 7 of the Draft Regulation.

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emergency call number 11265. The EECMA will have the power to make decisions only in

relation to the issuance of right of use for numbers from the European Telephone Numbering

Space (“ETNS”)66. However, the Commission keeps the right to grant those rights of use to

undertakings.

Therefore, excluding the issuance of ETNS numbers, none of the opinions of the EECMA

will be binding for the Commission or the NRAs:

− The Commission is obliged to “take the utmost account” of most of the opinions

that the EECMA provides. Yet, it remains that those opinions will be non-binding

vis-à-vis the Commission. As stated above, the CFI confirmed that the obligation

to “take the utmost account” is not of a compulsory nature67.

− The NRAs are not obliged to follow the opinions of the EECMA. Although, the

Commission suggests in the explanatory memorandum to the Draft Regulation

that the majority voting rules of the EECMA will allow the EECMA to take

decisions that would be binding on its members68, it remains that, unless the

Commission formally encompasses such decisions, NRAs will not be obliged to

apply them.

(continued…) 64 Article 8 (4) of the Draft Regulation. 65 Article 9 (2) of the Draft Regulation. 66 Article 8 (1) of the Draft Regulation. 67 Case T-109/06, Vodafone España, 12 December 2007 (not yet reported); Case T-295/06, BASE, 22

February 2008, (not yet reported). 68 The Explanatory Memorandum to the Draft Regulation (p.6) states that “The option of an enhanced ERG,

with voting rights in order to take majority decisions, has also been examined. Notwithstanding the difficulties of implementing a commonly acceptable system of votes, such a body would not be in a position to issue decisions that were binding on its members.” A contrario, this suggests that the EECMA may issue binding decisions on the NRAs.

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It stems from the above that, under the Draft 2010 Framework, the EECMA cannot be

qualified as a regulator. As such, this may reflect EU precedents. Indeed, it has been argued

that the establishment of a EU regulator enjoying legislative, executive and quasi-judicial

powers is contrary to the Meroni case law69, since it requires complex evaluations by that go

beyond the scope of discretion that an agency can legally enjoy70.

Furthermore, because the EECMA does not qualify as a EU regulator, it is questionable

whether it will be in a position to fulfill the objectives that were assigned to it (namely

fighting (i) the lack of consistency in the application of EU rules, and (ii) the regulatory

fragmentation of the internal telecommunication market71), any better than the ERG has done

so far. In this regard, it is interesting to note that all the issues identified by the Commission

to dealt with by the EECMA (namely (i) fixed/mobile termination, (ii) geographic

segmentation, (iii) data roaming, and (iv) voice over IP72) are likely to be solved by the ERG

before the adoption of the Draft Regulation. Indeed, Commissioner Reding herself requested

that these issues “be resolved already soon during 2008” by the ERG73.

In conclusion, the EECMA’s role under the Draft 2010 Framework needs to be clarified. The

current draft entrusts it with less power than what would ordinarily be expected from a true

regulator. If one agrees that it should not be an EU regulator, an alternative would be to

structure the ERG as a true network of regulators that would mirror the EU’s experience of

69 Case 9/56, Meroni, ECR [1957/1958], p.133. 70 See D. Geradin and N. Petit, « The development of Agencies at EU and National levels : conceptual

Analysis and proposals for reform », Jean Monnet Working Paper 01/04, p.12 available at www.jeanmonnetprogram.org.

71 See Explanatory memorandum to the Draft Regulation, p.2. 72 V. Reding, “The EU Telecoms Reform 2007 : Better, more consistent rules for effective competition and

sustainable investment”, 28 November 2007, SPEECH/07/65. 73 V. Reding, letter of 6 December 2007 to the ERG, available at:

http://ec.europa.eu/information_society/policy/ecomm/tomorrow/erg_discussion/index_en.htm .

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the European Competition Network (“ECN”). Indeed, there is no reason why the system for

ex ante regulation should diverge from that applicable for ex post regulation.

Nevertheless, as it currently stands, the EECMA essentially adds another layer of soft law

that only increases further the regulatory uncertainty in the sector.

B. The lack of control of the Commission’s action as a EU regulator

While the Draft 2010 Framework does not give regulatory powers to the EECMA, it clearly

gives such powers to the Commission. Indeed, the Draft 2010 Framework greatly increases

the Commission’s role in regulating the electronic communication markets by providing it

with the following powers:

− Veto for Remedies. The Commission’s veto powers are extended to remedies74.

− Imposition of remedies on national markets. The Commission will have the

power to require NRAs to impose a specific remedy75.

− Market analysis of national markets after deadline. The Draft 2010

Framework gives a deadline for the completion of NRAs’ market analysis of 1

year (after accession to the EC or of the adoption of the revised Recommendation

on the relevant market if the market has not yet been notified) or 2 years

(following the previous market analysis)76. When these deadlines have expired,

74 Article 7 (5) Draft Framework Directive. 75 Article 7 (8) Draft Framework Directive. 76 Article 16 (6) Draft Framework Directive. Those deadlines raise practical issues. First, it is unclear

whether they refer to the 2007 Recommendation on the relevant market. If this is the case, all markets will have exceeded the deadline of 2 years when the Draft 2010 Framework enters into force. Second, most NRAs’ market analyses cover period over 2 years, so that they might need to be reviewed before their terms.

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the Commission will be entitled to require the NRAs to designate certain

undertakings as SMP and to impose specific remedies77.

− Analysis of transnational markets. The Commission will become responsible

for ex ante regulation of transnational markets. On the basis of EECMA opinions,

it will adopt market analysis, designate SMP operators and impose remedies78.

Furthermore, the Draft 2010 Framework replaces the automatic Article 7 notifications by a

cherry-picking system, whereby the Commission will choose the markets it is willing to

review and comment. This modification of the 2003 Framework mirrors the withdrawal of

the automatic notification of agreements under Article 81 EC Treaty that took place in 2004

(so-called Modernization Package) and is in line with a mature system of regulation based on

self assessment by NRAs.

The above additional powers allow the Commission to avoid using soft law and hard law

tools to regulate markets. For example, these powers would arguably allow the Commission

to (i) regulate roaming as a transnational market and impose obligations including price

control 79, and (ii) review and impose specific quantified cost-oriented MTRs, as part of the

cost orientation obligation it may impose at national level.

However, as currently drafted, the Draft 2010 Framework fails to provide the same

guarantees of judicial protection as those provided for in the 2003 Framework. In particular,

there is no mention in the Draft 2010 Framework of a possibility of appealing against

Commission’s decisions based on its new powers.

77 Article 16 (7) Draft Framework Directive. 78 Article 16 (2) Draft Framework Directive. 79 While roaming markets are national in scope, they have an inherent transnational nature as they concerns

services used when customers move from one member state to another. In this regards, mobile operators have concluded alliances such as Freemove or Starmap to provide roaming on a transnational basis.

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In this case, it is questionable whether all operators will be in a position to challenge those

decisions before the CFI under Article 230 EC Treaty. While the CFI makes clear that ‘if the

Commission exercises its right of veto under Article 7 (4), the procedure does not lead to a

national decision, but to the adoption of a Community act having binding legal effects and an

action may be brought before the Court of First Instance”80, it remains that decision taken by

the Commission other than veto decisions may create difficulties from an admissibility

perspective for both SMP-operators and third parties:

SMP-Operators. The Draft 2010 Framework provides that all Commission decisions

regulating national markets and imposing remedies on those markets will be addressed to the

NRAs. Only the Commission’s analysis of transnational markets will be addressed directly

to the operators regulated. This means that, for transnational markets, SMP operators will be

able to challenge Commission decisions imposing obligations. For other decisions, while the

NRAs will be the addressee of the decisions, it is clear that they will act as a mere conduit for

the imposition of Commission’s decisions. In this case, SMP operators should also be able to

challenge those decisions before the CFI. Indeed, although the CFI’s decisions in Vodafone

España and BASE suggest that a Commission letter under the Article 7 procedure “constitutes

a preparatory Community act in the context of a procedure which leads to the adoption of a

national measure by the NRA concerned”81, it is clear from the case law of the ECJ that a

decision imposing an obligation to a Member States is challengeable under Article 230 EC

Treaty if it leaves no discretion to the national authorities82.

80 Case T-109/06 (Ord.), Vodafone España, 12 december 2007, (not yet reported); Case T-295/06, BASE, 22

February 2008, (not yet reported). 81 Case T-109/06 (Ord.), Vodafone España, 12 december 2007, para. 97 (not yet reported); Case T-295/06,

BASE, 22 February 2008, (not yet reported). 82 Case 113/77, NTN Toyo Bearing, ECR [1979], p. 1185, para. 11 ; Case C-386/96P, Dreyfus, ECR [1998], p.

2309, para. 43. The Court also made clear in Plaumann, that the expression “decision adressed to another

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However, for the sake of clarity, it might be considered whether the text of the Draft 2010

Framework should be amended so as to allow the Commission to impose the remedies on the

national markets directly, as it is the case for transnational markets83.

Third party operator. The question arises whether third parties, such competitors of the

operator designated as SMP and to which remedies are imposed or withdrawn will have

direct and individual concerns to challenge the Commission’s national market analysis.

Under the Plaumann test84, it is very unlikely that such companies would be in a position to

claim direct and individual concern as (i) all competitors of the SMP operators will be in the

same position and (ii) the implementation of the remedy by the SMP operator is not, as such,

automatic85.

It stems from the above that there is some uncertainty as to whether the decision adopted by

the Commission under its new powers will be challengeable before the CFI by other

competitors of SMP operators. In Tele2, the ECJ recognized those operators’ right to

challenge NRA’s decisions addressed to an SMP-operator:

“It follows from all of the foregoing that the terms user

‘affected’ or undertaking ‘affected’ for the purposes of Article

4(1) of the Framework Directive and the term party ‘affected’

within the meaning of Article 16(3) of that directive must be (continued…)

person” of Article 230 EC Treaty also covers decisions addressed to a Member State (Case 25/62, Plaumann, ECR [1963], p.95, para. 106-107).

83 The Draft 2010 Framework already states that the Commission will directly designate SMP operators and impose remedies on transnational markets (See Article 16 (5) Draft Framework Directive). One could however question whether the Commission has the power to impose obligations on undertakings when this is not provided for specifically in the EC Treaty (contrary to Competition rules for instance).

84 Case C-25/62, Plaumann, ECR [1963], p.95 ; Case C-50/00-P, Union de Pequenos Agricultoras, ECR [2002], p.6677.

85 Case C-386/96 P, Dreyfus, ECR [1998], I.P.2309.

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interpreted as being applicable not only to an undertaking

(formerly) having significant power on the relevant market

which is subject to a decision of a national regulatory authority

taken in the context of a market analysis procedure referred to

in Article 16 of that directive and to which that decision is

addressed, but also users and undertakings in competition with

such an undertaking which are not themselves addressees of

that decision but the rights of which are adversely affected by

it”86.

There is arguably no reason why the standard of judicial protection should differ when

appealing Commission’s decisions. Yet, this interpretation was given for appeals against

NRA s’ decisions on the basis of the 2003 Framework and its extension to appeals against

Commission’s decisions might be contrary to the ECJ’s case-law on individual and direct

concern under Article 230 EC Treaty.

In view of the above, the author believes that the Draft 2010 Framework should be amended

so as to make clear that decisions of the Commission under its new powers could also be

subject to an appeal by “any user or undertaking providing electronic communications

network and/or services which is affected by the decision of the Commission”87.

86 Case C-426/05, Tele2 Telecommunication, judgment of 21 February 2008, para. 58 (not yet reported)

(emphasis added). 87 Article 4 (1) Framework Directive. Note that Article 35 of the Draft Regulation already provides for a right

to appeal decisions of the Board of Appeal of the EECMA and/or of the EECMA itself to the ECJ pursuant to Article 230 EC Treaty.

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IV. Conclusion

The history of the regulation in the field of electronic communications clearly shows the

shortfalls of soft law and hard law regulations. The absence of effective application of

regulation has resulted in significant losses of opportunities. The full competitive potential

opened by several legislative/regulatory developments over the past decades has not

materialized. This was the case for limited competition that arose from the liberalization of

value added services in the early 1990’s, as well as from the unavailability of truly

competitive ULL/bitstream access regulations in spite of the adoption of the ULL Regulation.

In particular, the 2003 Framework did not provide adequate tools for ex ante regulation at the

EU level by the Commission. Therefore, the Commission has used soft law and hard law

tools to regulate markets while avoiding judicial control. This led to disparate, contradictory,

possibly illegal and illogical regulation for both MTRs and roaming.

The Draft 2010 Framework does not set up the EECMA as a true EU regulator, but assigns

the Commission a toolkit which will allow it to accomplish this task. The Commission’s new

powers should reduce the Commission’s current over-reliance on soft law and regulations,

and replace it by tailored market analysis subject to judicial control. A full system of judicial

protection requires however a modification of the Draft 2010 Framework to align judicial

control of Commission’s decisions on the one applicable to NRAs’ decisions, in particular to

guarantee judicial protection for users and competitors of SMP operators.

Of course, the above assumes that there is an inherent value in having a full system of judicial

protection88. It has been alleged that the possibility of appealing NRAs’ decisions provided

88 The ECJ already highlighted the fact that the 2003 Framework currently “organizes a full system of judicial

protection” in Vodafone España and BASE. (Case T-109/06 (Ord.), Vodafone España, 12 December 2007, (not yet reported); Case T-295/06, BASE, 22 February 2008, (not yet reported)). The author believes that the same system should be achieved in the Draft 2010 Framework.

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for in the 2003 Framework has restricted speedy implementation of NRAs decisions89 .

However, one should note that most suspension rulings in appeals against NRAs’ decisions

resulted precisely from the national Courts’ criticisms towards NRAs’ blind reliance on soft

law issued by the Commission and the lack of thorough analysis90. Furthermore, the ECJ

rejected a similar argument in the Tele2 case, pointing to the fact that appeals do not delay the

adoption of a decision91. Finally, it is a fundamental principle of EC law that the Community

is “based on the rule of law, inasmuch as neither its member states nor its institutions can

avoid a review of the question whether the measures adopted by them are in conformity with

the basic constitutional charter, the Treaty”92.

89 Communication from the Commission to the Council, the European Parliament, the European Economic

and Social Committee and the Committee of the Regions on the Review of the EU Regulatory Framework for electronic communications networks and services, COM (2006) 334, point 5.3.2.

90 In the Explanatory note to the 2007 Recommendation on the relevant market, the Commission notes for instance that “The decisions of some national appeals bodies have highlighted the potential bargaining that may occur due to countervailing buyer power. Whilst not stating that the level of termination rates is the result of a bargaining process, these decisions point to the need to fully examine the issue of countervailing buyer power on a case-by-case basis when analysing the existence of SMP on this market”. Some decisions of national appeal bodies are made available by the Commission at the following address: http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/article_7/national_judiciaries/index_en.htm.

91 Case C-426/05, Tele2 Telecommunication, judgment of 21 February 2008, (not yet reported). 92 Case 294/83, Les Verts, ECR [1986], p. 1339, para. 23. (emphasis added).