Europe Plans to End Roaming and Create a Single Telecommunications Market

The European Commission is expected to announce next week its plans to lower communications costs within Europe and better integrate the regulation of telecommunications services across the region.

While an initial draft of the proposals was circulated at the beginning of the summer, we have reviewed a revised draft of the proposals and have analyzed their impact on MVNOs, unified communications and cloud-based services. Changes in the proposals made over the past few months are discussed below.

Immediately below is a high-level summary of the proposals and their potential impact. A detailed review of the proposals follows the summary.

Impact on MVNOs and advanced communications services If they are adopted in their present form, the Commission’s proposals will have a variety of consequences for mobile virtual network operators (MVNOs), unified communications and other services: Retail price controls on mobile roaming will continue with lower caps. However, beginning next year, mobile providers will no longer be able to charge roaming customers for receiving calls. Communications providers generally will not be able to charge more for international services within Europe. This would apply to per-minute and other per-unit costs as well as any monthly or one-off fees. If a provider decides to impose a higher charge for international service, the provider will need to be ready to show an objective justification for the higher charge, such as higher costs. Business services will be subject to the pricing requirements the same as consumer services. The Commission has made no distinction among different kinds of retail offerings. Consequently, the rules apply equally to M2M providers, MVNOs targeting businesses and unified communications for the enterprise.  Pressure on wholesale roaming costs will continue, but European regulators will rely less on direct rate regulation. The Commission’s apparent abandonment of aggressive wholesale cost controls (and of alternative roaming providers) suggests that mobile network operators (MNOs) will have more flexibility on wholesale costs. Instead, Brussels appears to be focusing on roaming alliances as the mechanism to lower wholesale roaming costs for MNOs and MVNOs. An “alternative roaming provider” market seems less likely. Plans to allow customers to select a different provider for roaming services than their home network seem undercut by the latest Commission proposals. While MNOs are still required to give access to their networks on “reasonable terms” and provide an off-the-shelf network access contract (in the form of a “reference offer”), mobile operators will no longer have to let their subscribers switch to a new roaming provider under the Commission’s proposals if they are part of a “roaming alliance”. A new “single authorisation” system will allow a provider to have a home jurisdiction, including a home regulator. A patchwork of national regulations will still apply (particularly customer protection requirements), but some regulatory burdens, such as registration requirements, liability for regulatory taxes (e.g. fees to fund the regulator and any universal service contributions) and the annual reporting obligations associated with such taxes, will be limited outside the home market. With the single authorisation system, communications providers may have some flexibility to decide which national regulatory regime will be most favorable as their home jurisdiction. In addition to the usual considerations of where a provider needs to have a physical presence and how to minimize income taxes, whether a home regulator is sufficiently resourced and willing to help defend its local communications providers in disputes with other EU regulators will become important. New Net Neutrality provisions seem unlikely to have an effect on how operators and device manufacturers manage communications apps on their networks and platforms. Consumers will have the right to terminate a subscription after 6 months. The remaining amount of any handset subsidy can be recouped, but no termination penalties can be charged. Phones must be unlocked at no additional charge once the subsidy is repaid.  Consumer contracts will need to include new disclosures on unlocking phones, contract term, early termination penalties, security breach response, services for disabled end-users and limitations on the provision of emergency services. New requirements to prevent bill shock will also be required.  Business customers must explicitly waive the early termination rights and mandatory contract disclosures; otherwise, they will apply by default.

A single market for communications services
The European Commission has been working in recent months on creating a single market in telecoms services within the 31-country European Economic Area (EEA). The changes are intended to:

• Reduce roaming and other charges for consumers and business users,
• Simplify market entry and compliance burdens for regional service providers, and
• Help Europe catch up to other regions in the rollout of 4G, next generation fibre investment and advanced services.

Europe currently has a patchwork of national telecommunications markets with national telecommunications regulations that are interpreted, administered and enforced by national telecommunications regulators. Due to this fragmentation, there are more than 100 telecom providers in an economic region that is only somewhat larger than the United States.

The fragmented regulatory environment has made it more difficult for telecom companies to offer services across Europe. It has also impeded industry consolidation, which European officials believe has held back the realization of scale economies, reduced profitability and discouraged investment. From a subscriber perspective, the lack of a single European telecommunications market means that the cost of voice calls and mobile data services are high when subscribers travel to other parts of the European Union as international roaming rates apply.

More integration but national markets preserved
While prior European legislation (through a series of Directives) has created a common framework for national telecommunications regulation, the European Commission wants to go further than simply harmonizing legal requirements under national laws. Building on regulations on mobile roaming that were first adopted in 2007, the Commission wants to introduce specific rules to govern services provided across national borders in Europe.

The Commission’s proposals do not create a super-regulator in Brussels and do not eliminate national telecommunications laws and regulations. National regulators will continue to be responsible for their national markets and the service providers operating in their country; however, regulators will be forced to coordinate more closely with each other, and European institutions such as the Commission and BEREC will gain greater powers to ensure that this coordination takes place.

Important parts of the proposals relate to standardizing spectrum assignment for wireless services and virtual access products for fixed broadband, but these topics are outside the scope of this note.

Roaming caps extended
A major focus of the Commission is to make charges for cross-border communications within Europe the same as domestic communications charges. The Commission’s proposals extend but also modify existing regulations that place limits on the amount MNOs can charge customers for roaming:

• The existing caps on retail roaming prices would be reduced further:
  
  • For making a roaming voice call, the maximum price would be reduced to 24 eurocents per minute and decrease to 19 cents per minute on July 2014. 
  • For receiving a roaming voice call, the maximum price would be reduced to 7 cents per minute. Beginning in July 2014, operators will not be permitted to charge for receiving a roaming call.
  • For roaming data, the Commission has backed away from its initial proposal to extend the retail price cap until 2018. A cap of 20 cents per MB will apply from July 2014 through June 2017.
• Current caps on wholesale roaming charges would be left in place. The Commission originally proposed a maximum price of 1.5 cents per MB. This has been abandoned, presumably due to opposition from the largest MNOs.

Roaming alliances vs. alternative roaming providers
The Commission also would like mobile operators across Europe to create ‘roaming alliances’ in hopes of lowering roaming charges and bringing international calling costs closer to those of domestic calling. The Commission appears to be backing away from existing plans to allow mobile customers to pick who provides them with voice and data services when they roam internationally.

• Later this year, mobile subscribers will have the option to select a different company than their home mobile network to provide services when they travel internationally. The Commission had hoped to create more competition in roaming prices by creating a separate market for roaming that would include ‘alternative roaming providers’. 
• Under the Commission’s proposals, incentives would be created for MNOs to form roaming alliances. If an MNO joins an alliance and offers roaming charges in line with domestic charges, alternative roaming providers will not have an opportunity to provide services to the MNO’s customers.
• The terms and conditions of these alliances would be subject to review by European authorities, which suggests that the regulators will have a substantial say in the prices charged at the wholesale level.

General controls on intra-Europe international charges
The Commission’s cost control proposals go beyond roaming. Other measures to equalize retail pricing would extend to fixed services and presumably all other forms of electronic communications:

• Generally speaking, higher charges would not be permitted for any communications sent to other European countries. A communications provider would need to have an objective justification for any difference between domestic and intra-EU international charges.
• In particular, the Commission expects that international calling within Europe from fixed lines would be charged the same as domestic long-distance calls. 
• International calls from a mobile phone would be subject to existing price controls under the EU’s Roaming Regulation. 

A ‘single authorisation’ to offer services throughout Europe
The Commission’s proposals would create for the first time something similar to a “country of origin” principle for communications services in Europe.

• Communications providers would have a single home regulator. A single registration with the home regulator would be all that would be required to offer services anywhere within the 31-country European Economic Area. Stated differently, once a communications provider is authorized to provide services in one EEA country, it is authorized to offer services in all other EEA countries.
• Interestingly, not all EEA countries require registration for communications providers. The Commission’s proposals would appear to require the UK, for example, to create a registration system.
• Registration would be required where the communications provider has its “main establishment” – defined as the place where the main decisions are taken as to the investments in and conduct of the provision of electronic communications services or networks in the European Union.
• In a change from earlier proposals, the Commission appears to have decided against any minimum revenue requirements for a communications provider’s “country of origin” (i.e. home Member State). This should mean that communications providers have flexibility in picking their home country for regulatory purposes.
• The telecom regulatory regime (and regulatory philosophy) of a particular country will be an important factor in selecting a home country. Traditional low tax jurisdictions, such as Ireland, Luxembourg and the Netherlands, will likely be considered along with business-friendly countries such as the UK.

A patchwork of national regulations will still apply (particularly customer protection requirements), but some regulatory burdens, such as liability for regulatory taxes (e.g. fees to fund the regulator and any universal service contributions) and the annual reporting obligations associated with such taxes, may be limited outside the home market.

It appears that national regulators will rely on the home regulator to ensure that a communications provider complies with national regulations in all of the EEA countries in which the provider operates. Consequently, it will be important whether the home regulator is sufficiently resourced and willing to help defend its local communications providers in disputes with other EEA regulators over foreign compliance issues.

Country-of-origin systems are already the basis for cross-border regulation within the EU in the broadcasting and audiovisual media services sectors. While there have been certain challenges in applying this model to video-on-demand services over the Internet, a country-of-origin system can work in practice and would simplify the process for providing communications services in multiple European countries.

Net neutrality
The Commission’s proposals include protections on “open Internet access”—also known as “Net Neutrality”. However, the latest revisions to the proposals make it clear that such protections only apply to internet access: “End-users shall be free to access and distribute information and content, run applications and use services of their choice via their internet access service.” How this principle applies to mobile platforms in which there is a huge difference between native apps and browser-based features remains to be seen.

There are also new disclosure requirements for traffic management practices, data speeds, and volume limits and throttling.

Scope of regulation
It is worth noting that the Commission’s proposals do not include any changes addressing which services are considered “electronic communications” and which services and applications are outside the scope of regulation. The existing definitions of the regulatory framework will continue to apply.

Next steps
The European Commissioner responsible for telecommunications, Neelie Kroes, is expected to release the European Commission’s “Single Telecom Market” proposals next week in the form of a draft Regulation.¹ How much of the European Commission’s proposals will be adopted should become clearer over the next several months.

The draft Regulation will need to be approved by both the European Parliament and the Council of the European Union. The deadline for taking action is May 2014, when the term of office ends for both the European Commission and European Parliament. As the proposals will take the form of a Regulation, no amendments to national law will be required for implementation and the reforms can become effective within several months of their approval.

For more information about our communications practice, please contact Bob Stankey (robertstankey@dwt.com) or your usual DWT contact.

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FOOTNOTE

1 Proposal for a Regulation laying down measures to complete the European single market for electronic communications and to achieve a Connected Continent.