Telecommunications networks and services which shift vast amounts of data at very high speeds underpin the operation of the internet. This note examines the regulation of telecommunications in a general sense. It focuses, though, on particular aspects of telecommunications services as they affect the operation of, and access to, the internet. These include:
Local loop unbundling and broadband access (see Glossary), which are relevant to the achievement of lower cost and higher speed internet access to the home;
Unmetered internet access, which also promotes greater use of the internet, because it removes the incentive to log off quickly;
"Voice over Internet Protocol (VoIP)", which allows voice communications to be made over IP packet-switched networks (including the internet) rather than conventional circuit-switched networks, and so is likely to lead to much cheaper communications;
Broadcasting over the internet; and
Mobile telephone services, with particular emphasis on third generation (3G) (see Glossary) services which allow "rich" content (such as video or multimedia) to be accessed via 3G mobile phone handsets.
The regulation of telecommunications services varies significantly from one jurisdiction to another throughout the world. There is considerable variation even within the European Union, where such regulation is, in principle, harmonised. The EU is in a state of transition at the moment following the introduction of the new EU framework which came into force in July 2003 and has still not been fully implemented in some member states (see box, New EU legal framework for telecommunications). Despite this, the objective of regulation is always the same: to set up a structure for the telecommunications industry which will encourage investment and the provision of new services (and so limit the ability of existing market participants to abuse their market power). To varying degrees throughout the world, this objective must take account of other public policy concerns, such as the need to ensure that telecommunications services are available throughout the country for a reasonable price (the so-called "universal service" obligation).
This note considers the regulation of telecommunications services in the following ten jurisdictions: Australia, Brazil, Canada, France, Germany, Italy, Spain, Sweden, the UK and the US. North America differs significantly from the rest of the world either in the way that it deals with regulatory issues or else in its priorities. In some areas (for example, the internet) North America seems to be more advanced than the EU and the rest of the world, while in others (such as mobile telephony) its regulatory system seems significantly less sophisticated.
The following issues are examined:
The regulatory framework of the telecommunications industry.
The extent to which telecommunications operators have powers to access land in order to build, access or maintain their networks.
The regulation of internet and broadband services (see Glossary).
The regulation of mobile telephone services.
The regulation of interconnection charges and retail prices (see Glossary).
Reference should be made to Practice note, Access to the internet (www.practicallaw.com/A25217) for an explanation of technical terms which are used in this note or the accompanying Country Questions but are not defined in the Glossary to this note.
Most countries have chosen to create a sector-specific regulator for the telecommunications industry. Usually this body is given responsibility for the technical arrangements in the industry, such as arranging the numbering plan or allocating radio frequency spectrum (see Glossary). The same regulator is usually also responsible for regulating competition in the industry and so for adjudicating on disputes between the incumbent telecommunications operator and any new entrants. There are, however, some exceptions to this. In Australia, for example, the Australian Communications Authority is responsible for licensing and technical issues while the Australian Competition and Consumer Commission (ACCC) regulates competition and access issues specific to the industry. (In addition, the Australian Communications Industry Forum (ACIF) has been formed by the industry to promote industry self regulation. A key function of the ACIF is to develop consumer and industry codes of practice.) In the US, by contrast, the Federal Communications Commission (FCC) has authority over telecommunications services, but must share this with various state-based regulatory agencies. The UK has traditionally had several different regulators with separate jurisdiction over telecommunications, radio frequency spectrum, broadcasting and content, but in December 2003 all of these functions merged into one all-encompassing "Office of Communications" (OFCOM). (The responsibility for competition matters is shared concurrently with the UK’s competition authority, the Office of Fair Trading.)
Generally, the sector-specific regulator has a degree of independence from any government department, and hence (at least in theory) from political intervention. The extent of this independence varies very considerably.
(See Country Question 1.)
It is generally not possible to provide telecommunications services in any jurisdiction without adhering to some form of specific rules or regulations. Often these take the form of individual licences issued to operators which contain special terms and conditions. In other cases a less administratively onerous regime of "general authorisations" has been introduced. Where this applies an operator will often need only to notify the regulator that it proposes to offer the services - no application is needed and the regulator has little or no ability to prevent the operator from offering such services.
One of the concerns of the European Commission prior to the introduction of the new EU framework was the significant divergence between member states in the implementation of the previous licensing directive (Directive 97/13/EC). The Authorisation Directive provides that (with the exception of licensing for radio frequency spectrum and numbers) only general authorisations will be permitted. The aim is to make it as easy as possible to set up and provide services throughout the region. With the exception of the UK, most of the EU countries surveyed provide for some form of notification to the regulator either before starting to provide services or shortly afterwards.
Across the non-EU jurisdictions surveyed there are two different methods by which the relevant regulations determine whether or not a licence or authorisation is required:
In the first category, licences are needed to offer services whether or not the service provider also owns or operates telecommunications infrastructure. This method applies, for example, in the US, Brazil and Canada.
In Australia, the owners of the transmission infrastructure (such as fibre optic or copper lines) which is used to supply services to the public are required to obtain a carrier licence from the regulator. Australia is unique amongst the countries surveyed in applying this test to the owners of the transmission infrastructure, irrespective of whether or not they are actually providing the service.
(See Country Question 2.)
A package of new EC telecommunications directives was required to be implemented into the national law of member states no later than 24 July 2003. The new framework has as its general aim the continued liberalisation of the EU telecommunications market and the creation of a more integrated regime. The approach moves away from the specific regulation of voice telephony to encompass the broader field of electronic communications networks and services - including fixed and mobile telecommunications networks, networks used for terrestrial broadcasting, satellite networks and internet networks, whether these are used for fax, voice, data or image transmission. The approach represents an attempt to expand and future-proof communications regulation. The new package comprises four directives as well as a decision on radio frequency spectrum and a decision establishing the European Regulators’ Group (ERG). These are (in the order in which they are discussed below):
Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (OJ L108/33, 24 April 2002) (Framework Directive).
Directive 2002/20/EC on the authorisation of electronic communications networks and services (OJ L108/21, 24 April 2002) (Authorisation Directive).
Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities (OJ L108/7, 24 April 2002) (Access Directive).
Directive 2002/22/EC on universal service and users' rights relating to electronic communications networks and services (OJ L108/51, 24 April 2002) (Universal Service Directive).
Decision 676/2002/EC of 7 March 2002 on a regulatory framework for radio spectrum policy in the European Community (Radio Spectrum Decision).
Decision 2002/627/EC of 29 July 2002 establishing the European Regulators' Group for Electronic Communications Networks and Services (OJ L200/38, 30 July 2002) (ERG Decision).
The new package also includes a directive on data protection in electronic communications (see Practice note, Data protection: Collection of personal data for marketing purposes (www.practicallaw.com/A25225) and Cookies (www.practicallaw.com/A25225)) and a regulation on unbundling of the local loop (see The local loop).
The aim of the Framework Directive is to create a common regulatory framework for electronic communications networks, electronic communications services and associated facilities. An important feature of the Framework Directive is that it alters the mechanism for assessment and the definition of significant market power (SMP). Under both the Access and Universal Services Directives, National Regulatory Authorities (NRAs) can impose on operators with SMP certain obligations, for example in relation to providing cost-oriented pricing. Under the previous regime, operators with more than a 25% share in specified markets, for example fixed, mobile and leased lines, were presumed to have SMP. The new definition of SMP is more in line with the traditional competition law concept of dominance which has generally been considered to exist somewhere over 40% of market share. Member states are required to carry out an analysis of relevant markets to determine whether the particular market is effectively competitive or not. On 11 February 2003, the European Commission adopted a recommendation on product and service markets which identified relevant product and service markets within the electronic communications sector whose features justify regulation. On 12 July 2002, the Commission also published guidelines for market analysis and the assessment of SMP. NRAs must, while taking the "utmost account" of the recommendation and the guidelines, define relevant markets appropriate to national circumstances and carry out their own assessment of relevant markets. If an NRA determines that a market is effectively competitive, it must not impose any sector-specific obligations on undertakings in that market and must withdraw any that are in place. If it determines that a market is not effectively competitive, it must impose sector-specific regulations.
The Directive also provides that NRAs must conduct national consultations (Article 6) and notify the European Commission and other NRAs (Article 7) and allow a minimum of a month for any representations. The Commission can also require member states to withdraw draft measures in certain key areas, for example, the definition of markets and designation of undertakings with SMP.
The Authorisation Directive provides for a move away from individual licences for providing communications services, to a system of general authorisations. The European Commission felt that the previous Licensing Directive (1997/13/EC) left too much discretion with member states to use individual licences. It wanted to remove the divergence between the licensing schemes of different member states, so that a service provider wishing to provide communications services and/or to establish a communications network would be authorised under a general authorisation in each member state (except in the case of licensing of radio frequency spectrum and numbers, which are both limited resources). Notification procedures must also be simplified. Member states may require businesses to submit a notification, but may not require them to obtain an explicit decision: they can start operating upon notification. The notification need be no more than a statement of the intention to start the provision of a network or services, the minimum information required to identify the provider and a short description of the network or services to be provided. Administrative costs may also be reduced as a result of other measures in the Authorisation Directive.
In addition, the previous Licensing Directive permitted a variety of conditions to be attached to authorisations and licences whereas the Authorisation Directive has introduced limits on the conditions which can be imposed on service providers.
The aim of the Access Directive is to lay down a framework of technology-neutral rules which can be applied to a specific market to address problems relating to access and interconnection. The Directive deals with wholesale relationships between providers of networks, services and associated facilities. Under the Directive, "access" means making facilities and/or services available to another undertaking for the purpose of providing electronic communications services. This includes access to network elements, physical infrastructure, software systems, number translation and mobile networks (in particular for roaming purposes) and interconnection. The basic principle is that interconnection of, and access to, networks should be agreed on the basis of commercial negotiations. If this does not happen, regulatory intervention will be warranted, but such regulatory intervention should be on the basis of market analysis. All undertakings that are authorised to operate electronic communications networks for the provision of publicly-available electronic communications have a right and an obligation to negotiate interconnection on commercial terms. If an operator is designated as having SMP in a relevant market (see Framework Directive), the NRA may impose additional obligations regarding:
Transparency, whereby the undertaking may have to make information such as technical specifications and prices publicly available, and may be required to publish a reference offer.
Non-discrimination as between different operators (including its own downstream business).
Accounting separation.
Granting access to, and use of, specified facilities and/or services.
Price controls, including an obligation to set cost-orientated prices.
The Directive establishes a clear set of tests which must underpin any obligation to supply access and sets out the obligations which may be imposed. However the decision as to which particular obligations are imposed is left to the individual NRA.
The Directive also provides that in certain specified cases, for example to ensure end-to-end connectivity, NRAs can impose obligations on undertakings that control access to end users, without a finding of SMP.
The aim of universal service is to ensure that those telecommunications services which are used by the majority, and which are essential to full social and economic inclusion, are made available to everybody upon reasonable request, in an appropriate fashion and at an affordable price. This Directive aims to adapt and modernise existing provisions on universal service, to create a process for reviewing the scope of universal service obligations, and to carry forward current measures to ensure the availability of leased lines. It provides that:
Universal service obligations will continue to exist, but will be extended to include, for example, access to data communications such as the internet via the public switched telephone network (PSTN) from a fixed location.
Member states will be required to find the most efficient means of guaranteeing universal service obligations, including designating different undertakings to provide different services or different elements of the same service, and may use tendering or auction methods to allocate all or part of universal service obligations.
Users and consumers will have specific rights as regards, for example, transparency and information on standard tariffs and quality of services. The obligation to provide additional facilities (such as tone dialling, calling line identity and itemised billing) will apply to all public access operators, subject to technical feasibility and economic viability.
The Radio Spectrum Decision aims to ensure the harmonised availability and efficient use of radio frequency spectrum. Previously, international negotiations on the use of radio spectrum took place at the International Telecommunication Union (ITU) and the European Conference of Post and Telecommunications Services. Member states negotiated in these bodies on an individual level without co-ordinating their positions. The aim of this Decision was to ensure the effective co-ordination of EU interests in international negotiations by creating a policy structure. It established a Policy Group consisting of senior member states’ representatives to provide guidance to the European Commission in matters relating to radio spectrum, such as methods for granting rights to use spectrum, and the valuation and efficient use of spectrum.
The ERG (www.erg.eu.int) comprises the heads of all the NRAs within the EU and was set up to advise and assist the Commission in consolidating the internal market for electronic communications networks and services. It aims to provide an interface between the NRAs and the Commission. The Commission is not a member but has the right to attend meetings. The work of the ERG is very similar to that of the Independent Regulators’ Group which was set up in 1997 as an informal group of national regulators to share experience. The two groups have agreed a joint work programme.
Under the new EU framework, fees may cover only the administration costs of the sector-specific regulator. NRAs are required to publish a yearly overview of their charges.
(See Country Question 3.)
The extent to which telecommunications operators are granted special powers to access land in order to build, access or maintain their networks varies considerably, even within the EU. In Brazil, for example, operators are not granted any special powers to access land. Instead they must negotiate such rights with the individuals, companies and municipalities that control the land (although they do have special powers in relation to the sharing of infrastructure with other public utilities, such as gas and power).
In most other countries operators are given special powers, albeit to varying degrees. In Canada, the regulator has the ability to authorise carriers to enter public land (but not private land) in order to construct, maintain or operate facilities. The regulator can also require carriers to permit other operators to access their infrastructure.
In contrast to this relatively cumbersome process, operators in many countries are given a general right to access land, subject to limitations. In Australia, for example, licensed carriers have the power to enter land, but only for the purpose of installing and maintaining designated "low-impact facilities" (this designation applies to cables and ducting but not to new mobile telecommunications towers).
In the UK, Italy and France, operators are given special rights to access both public and private land. In the UK and France operators are given rights of way or easements. Usually a "reasonable" fee must be paid to private landowners in return for access, with the right to go to court (or the regulator) if no agreement can be reached.
Other countries differentiate between public and private land. In Germany, for example, operators are given free use of public land. In Spain, the holder of an authorisation has a right to make use of public land but if it wishes to make use of private land, it must begin expropriation proceedings.
It is clear, therefore, that there are wide variations between the rights of access to land granted to telecommunications operators in the jurisdictions surveyed. In relation to public land, most (but not all) countries do grant some special rights to operators. In relation to private land, however, there may be, on the one hand, no such rights or a requirement to obtain individual court orders in each case or, on the other hand, wide powers to override private landowners.
(See Country Question 4.)
Under this heading, consideration is given to the impact of regulations relating to:
The means by which users are able to gain access to the internet (see The local loop and Unmetered internet access).
The services which may be provided over the internet, including:
voice telephony services (see Voice over IP); and
broadcasting (see Broadcasting over the internet).
The provision of access control devices (or television set-top boxes) (see Access control devices).
The term "local loop", or "last mile", refers to the fixed copper wires which link a local telephone exchange to the homes of customers. The term "wireless local loop" (WLL) refers to the use of technology which enables operators to bypass these copper lines and provide a connection to homes directly by means of a fixed radio link. The "unbundling" of the local loop is a process by which the incumbent operator is obliged to offer to other operators (whether by outright sale or some form of leasing arrangement) the use of individual copper lines from the local exchange to the customer's house. The other operator then attaches its own equipment to those lines and uses them to provide certain services, usually broadband services, which facilitate the more efficient delivery of "rich" content (such as video or multimedia) to users by providing high speed access to the internet. The unbundling of the local loop requires (in contrast to the WLL) the co-operation of the incumbent operator, but it does not require the installation of any new infrastructure. The WLL and the unbundling of the local loop are clearly related, in that they both offer alternative means of allowing new entrant operators to provide broadband services directly to the homes of their customers.
Unfortunately, in most countries surveyed, neither of these options has yet produced the desired result of stimulating competition in the local loop and promoting the take-up of broadband services by users, although the US is a notable exception and there are early signs of an improvement in the situation in the EU.
In most countries, radio frequency spectrum suitable for use with WLL technology has been allocated, but so far it has either not been used at all or has not been used significantly. For example in Spain users of technologies based on WLL are less than 0.1% of the broadband market. In Brazil, there are operators who use this technology, but with poor results. There is a limited exception to the commercial failure of this technology in France, where there are currently seven WLL broadband operators (though the licences of a number of others have been revoked). Also, in Australia a number of service providers have recently launched wireless broadband service offerings in parts of Sydney’s inner city.
(See Country Question 5.)
With respect to the unbundling of the local loop, then, the position in most countries is that the incumbent operator is theoretically obliged to provide new entrants with access to its local loop. In the EU, the relevant regulatory framework is provided by Council Regulation 2887/2000/EC of 18 December 2000 on unbundled access to the local loop, which has been in force since 31 December 2000 (OJ L336/4, 30 December 2000). This requires notified operators to meet reasonable requests from third parties who are authorised to provide communications services under national legislation for unbundled access to their local loops and related facilities, under transparent, fair and non-discriminatory conditions. Notified operators may only refuse requests if they do so on the basis of objective criteria relating to technical feasibility or the need to maintain network integrity. They must set prices for unbundled access to the local loop and related facilities on the basis of cost orientation.
Initially, few, if any, new entrants began by providing services by this means. However, in its 10th Report on the Communications Market, the European Commission reported that there had been an increase of 110% in unbundled local loops (fully unbundled and shared lines), from 1.8 million in July 2003 to more than 3.8 million in July 2004. In France, the details of the scheme were initially subject to legal proceedings. However, in 2003 the French market started to develop and now tens of thousands of local loops are unbundled in France each month. In the UK, OFCOM has refocused attention on this area. There has been a series of price cuts for local loops, and towards the end of 2004 OFCOM reported that there were early signs that this was leading to an increase both in the take-up of loops and in broadband service innovation.
In the US, however, both the use of WLL technology and the unbundling of the local loop are far more advanced. Several companies have begun to provide broadband WLL services and satellite operators have introduced a two-way broadband service that is accessible from practically any point on the continent. Also, incumbent local exchange carriers are required to provide competitors with unbundled access to elements of the local network. The FCC has set out pricing rules for this, although these are currently subject to judicial challenge.
(See Country Question 6.)
An issue which was much debated between 2000 and 2001 was whether or not residential consumers should have access to the internet on an "unmetered" basis. This means access upon payment, typically, of a flat-rate fee that does not vary according to the amount of time spent online. In the EU, a campaign was launched to require incumbent operators to offer a fixed-rate (unmetered) internet access interconnection service. Although this campaign took a long time initially, it was ultimately successful in most countries.
The UK was the first EU country to offer such a service, known as FRIACO (flat-rate internet access call origination). FRIACO proved a useful model for other EU countries when they were setting their own local equivalents.
Almost all the countries surveyed have now introduced a wholesale unmetered internet access service, which in turn means that retail unmetered services are available. The exception is Brazil, where unmetered access is only available for broadband.
Most states in the US require operators to charge a flat rate for unlimited local use of the internet.
Unmetered internet access has never been an issue in Australia, since local calls are charged at a fixed rate irrespective of their length, and this has enabled ISPs to offer dial-up access on the same basis. However, it is common for users to be charged on the basis of the amount of data downloaded (though not the amount uploaded). This is the result of Australia's "pairing" arrangements with ISPs, which are usually based in the US.
In fact, over the last couple of years dial-up markets in the EU have remained relatively static as service providers have concentrated on broadband.
(See Country Question 7.)
"Voice over internet protocol" (also referred to as voice over IP or VoIP) refers to the provision of voice telephony services based on internet protocol (IP) technology which uses a packet-switched method, rather than the more conventional circuit-switched method (the distinction between packet-switched and circuit-switched technologies is explained in Practice note, Access to the internet: Methods of internet connection (www.practicallaw.com/A25217)). In other words, it allows telephone calls or video conference calls to be made over digital data networks rather than via telephone exchanges. IP technology is increasingly being used by telecommunications operators for the provision of ordinary voice services. Voice over IP should be distinguished from "voice over the internet", which refers only to the particular subset of voice over IP that uses the set of networks known as the internet. The use of IP networks to carry voice and other services has wide-reaching implications for the telecommunications industry. It has been predicted that the entire PSTN will eventually be replaced by a new network based on IP, although any such transition would take several years.
The European Commission is currently considering the extent to which VoIP services should be regulated. It has been trying to balance its desire not to stifle competition and the potential development of new services against a number of consumer protection issues, including the need to maintain the widespread availability of emergency services and the importance of maintaining the general availability of the network. Although at the time of writing the Commission is still consulting on its proposals, it seems to be leaning away from imposing traditional PSTN obligations on all new telephone-like services, and towards encouraging providers to find new technical solutions while ensuring that consumers are kept fully informed.
Within the new framework, electronic communications services such as VoIP services are divided into a number of different categories: private electronic communications services, public electronic communications services and publicly-available telephone services (PATS). Each of these categories is regulated to a greater or lesser extent. PATS providers are subject to an enhanced level of regulation, most of which is concerned with consumer protection.
The key elements of the definition of PATS are that it is a service:
available to the public;
for making and receiving national and international phone calls;
that gives access to emergency services;
through a number or numbers in a national or international telephone numbering plan.
Current issues relating to PATS include:
The definition of PATS includes the provision of access to emergency services. On a literal interpretation of this definition a provider can avoid having to comply with any relevant PATS obligations by choosing not to offer access to emergency services. This means that there is a disincentive for providers to offer access to emergency services which is clearly contrary to the general public policy of making access to emergency services as widely available as possible.
Where VoIP services fall within the definition of PATS, should providers be subjected to the full range of regulation which applies to PATS providers? In some cases this may cause problems: where certain VoIP providers provide access to emergency services, the service provided may be of a reduced quality because of the location independence of VoIP technologies. A VoIP provider may not be able to supply the emergency services with the location of a user if the user is calling from, for example, a wi-fi hot spot.
What about services which do not fall within the definition of PATS, because, for example, they do not provide access to emergency services, but have the look and feel of a traditional "publicly available telephone service"? What, if any, obligations should be imposed on service providers to ensure that consumers are properly informed about the services they are using?
What number ranges should be available to VoIP providers? In principle it is desirable that geographic numbers should be available, but there may not be enough numbers in the numbering plans of some member states.
(See Country Question 8.)
"Access control devices", or set-top boxes, are the devices which commonly sit on a user's television set and are used to control the channels to which the user is given access. The more sophisticated ones, and especially digital set-top boxes, allow a range of services which make use of the ability to provide an interactive service. Because of the risk that set-top boxes could act as a "bottleneck", giving the businesses which control them the ability to determine which services users are able to access, they are the subject of specific regulation in many countries.
In the EU, Directive 95/47/EC on the use of standards for the transmission of television signals (OJ L281/51, 23 November 1995) (Advanced Television Standards Directive) has been repealed and the provision of access control devices is now subject to the Access Directive. The Access Directive carries over the main provisions of the Advanced Television Standards Directive. The objective is to try to ensure that a broadcaster's use of the conditional access operator’s services should not put it at a competitive disadvantage. The Access Directive requires that providers of access control services must comply with particular conditions aimed at preventing them from abusing their control of such devices. These conditions include a duty not to discriminate against other service providers in providing technical services to allow access to the device, and an obligation to keep separate financial accounts relating to their activities as conditional access providers. The Access Directive allows the extension of these obligations to other gateways, for example electronic programme guides.
Similarly, in the US there are FCC regulations designed to "assure the commercial availability" of set-top boxes. The object is to ensure that customers can purchase or lease set-top box devices from manufacturers and retailers who are not affiliated with the companies providing services over them.
(See Country Question 9.)
Some countries impose restrictions or regulations on broadcasting over the internet, over and above the general rules which apply to the content of any media.
In Australia, some internet broadcasting services may be prohibited if they amount to a scheme designed to circumvent content-restrictions placed on "datacasters" under Australia's new licensing regime for the provision of "datacasting" services (broadly defined as services that use the broadcasting bands to deliver content, data, text, speech or music to end users). However, the Australian government failed in its attempt to auction datacasting frequencies, and it remains to be seen whether the regime will be retained in its current form.
Although there is generally no specific regulation of internet broadcasting in the EU, legislation in Italy requires operators of websites that provide news to the public to register in the "Register of Publishers" and to comply with the relevant regulations.
In Canada, on the other hand, internet services which appear to constitute broadcasting have been specifically exempted by the Canadian Radio-television and Telecommunications Commission from regulations that apply to broadcasting and telecommunications generally.
(See Country Question 10.)
Since radio frequency spectrum is a scarce resource, there is a natural limit on the number of operators who can offer services in the market for the provision of mobile telephony services. The typical number is around four or five (whereas in many countries there are well over 100 operators of fixed telephone networks). For this reason, mobile telephony markets are commonly subject to specific regulations which are designed to prevent operators from abusing their oligopolistic market position. The most significant areas of regulation are considered below, in addition to the status of spectrum allocation.
An essential feature of all telephone services is that a customer connected to one network is always able to call a customer of another network (whether fixed or mobile). In order to achieve this, the various network operators must set up interconnection arrangements between themselves. Calls between customers of different mobile networks must be transferred from the originating caller’s network (interconnecting network) to the terminating (receiver’s) network (access network), and to enable this to happen, the two networks must be connected. Interconnection involves the access network carrying the interconnecting network’s calls and there are usually termination charges imposed on the interconnecting network. The regulation of interconnection generally is discussed below under Interconnection.
The extent to which there are restrictions on the prices which mobile telephone operators can charge, either to end users or to other operators for interconnection services, differs across the countries surveyed.
At EU level, interconnection arrangements are subject to the Access Directive, which requires operators of public communications networks to negotiate interconnection with each other for the purpose of providing publicly-available electronic communication services.
There are generally no restrictions or controls in the EU on the retail prices which mobile operators can charge end users, except for those which may apply as a matter of competition law if there is an abuse of a dominant position in a particular market. As regards the interconnection or wholesale market, mobile operators who are designated as having SMP may be required to offer a cost-based interconnection service. In some countries, such as the UK, there are also specific controls on the wholesale price which those mobile operators can charge to others for terminating (that is, receiving) calls.
Other countries do not have such a consistent position. In Australia and the US, there are no restrictions or controls on the rates that mobile carriers can charge customers, nor are there restrictions on their interconnection prices. In Brazil, both retail and wholesale prices are constrained by the National Telecommunications Agency, ANATEL.
(See Country Question 11.)
In most countries, including most EU member states, mobile operators must offer mobile number portability (MNP) to their customers (that is, the ability to switch from one mobile operator to another without changing the customer’s telephone number). MNP is now required by the Universal Service Directive (see box, New EU legal framework for telecommunications).
In the US the FCC required MNP in the top 100 markets by November 2003, and other markets are required to meet 2004 deadlines.
In Brazil, MNP will be required as soon as technical conditions allow.
In Canada, by contrast, there are no requirements for mobile operators to provide number portability to their customers unless the operator is approved as a local exchange carrier, and so far there is only one such operator.
(See Country Question 12.)
This part of the note considers:
How far radio frequency spectrum has been allocated in the countries surveyed, in particular that part of the spectrum which is suitable for use with 3G mobile telephone services.
The extent to which it is permissible to transfer or sell a licence for spectrum.
In all the countries surveyed it is necessary to have a separate licence to use radio frequency spectrum, but there are variations in the methods by which spectrum is allocated, the extent to which the necessary spectrum for 3G mobile telephone services has already been allocated and the rights to which a licensee is entitled.
In 2000, the allocation of 3G spectrum attracted much negative publicity, due to the inflated prices which were paid in the auction process, especially in Germany and the UK.
Despite criticisms of the allocation process, all the countries surveyed have allocated spectrum suitable for use with 3G mobile telephone services (by means of auction, "beauty contest" or some other method combining the two) with the exception of the US, Canada and Brazil. This seems likely to lead to the introduction of 3G services in Europe and elsewhere prior to their introduction in North America and Brazil. 3G is still a considerable way off from being regarded as mass-market and this is true not only in the countries surveyed here but in most of the world, with the exception of Japan. In Europe, launch dates have already been postponed in France and Spain.
(See Country Question 13.)
The Framework Directive provides that member states may make provision for undertakings to transfer rights to use radio frequencies with other undertakings. This is in line with the stated intention of many European governments to ensure that spectrum is allocated in the most efficient way possible to the operators who value it most highly.
In Italy, Spain, Brazil and Canada, it is possible to transfer spectrum, but only with the prior consent of the appropriate regulator (who will check to ensure that the transferee is a suitable person). In Germany, the NRA may allow for newly allocated frequencies to be traded and the UK introduced spectrum trading in certain bands at the end of 2004. The US has introduced a system of spectrum trading, although the FCC may require a party who wants to transfer a licence to demonstrate that it did not acquire the licence for the principal purpose of speculation. Australia has the most liberal regime for spectrum transfer, allowing spectrum licences to be freely traded without the need for prior consent from any regulator.
(See Country Question 14.)
"National roaming" refers to the ability of the customers of one mobile operator in any given country to make use of the network of another operator in the same country, while "international roaming" enables the customers of a mobile operator in one country to use the network of another operator in a different country. Operators have much less of an incentive to agree national roaming than international roaming, because national roaming agreements are reached with competitors and, naturally, operators are reluctant to do anything which enables competitors to improve their services. International roaming agreements, on the other hand, are not usually reached with competitors. For this reason, national roaming is specifically regulated in some countries.
There is little consistency in the regulation of this area. In many countries, such as Brazil and the US, national roaming is required by the regulator, that is, at least one operator is obliged to offer roaming services to others. In other countries such as the UK, at least one current second generation (2G) (see Glossary) operator is subject to a licence condition requiring it to offer national roaming services to a new entrant 3G operator.
In other countries national roaming is not obligatory, although it does exist (by means of ordinary commercial agreement) in countries like Canada and Germany. In Australia, the regulator has indicated a readiness to introduce regulations requiring roaming if no commercial agreement can be reached.
(See Country Question 15.)
The term "mobile virtual network operator" (MVNO) refers, broadly, to a business which does not own any of its own network infrastructure, but which provides services to customers in its own name using another company's infrastructure. To do this it must do more than merely resell the services of a "genuine" mobile operator. The best-known example of such an operator, in many countries, is Virgin Mobile. The issue of the regulation of MVNOs is therefore related to that of national roaming since, in both cases, one company makes use of another's network in order to be able to provide a service.
In most countries there is no specific regulation of MVNOs. In Italy, the regulator has determined that existing operators may be obliged to offer service to MVNOs from 2010.
There are other countries, such as the UK, where regulators have considered the issue but decided not to compel existing operators to offer service to MVNOs (although, of course, operators are free to reach normal commercial agreements with them). Elsewhere, however, there are no regulations in respect of MVNOs and the issue has not been explicitly considered by regulators.
(See Country Question 16.)
Interconnection is the process by which traffic on one telecommunications network is connected to another network. Since the fixed telecommunications market in most countries is dominated by one incumbent operator, the regulation of interconnection is often thought necessary in order to ensure that the incumbent is not able to prevent the emergence of competition. Retail price controls, by contrast (where they exist), are not intended to enforce competition, but to ensure that the incumbent does not exploit its monopoly position by charging excessive prices. This leads to a tension, in that the lower the level of retail prices, the less incentive there is for new operators to enter the market.
In Europe, under the new framework, interconnection is governed by the Access Directive. The Access Directive applies to all forms of communications networks carrying publicly-available communications services whether used for voice or data. The Directive goes further than mandating interconnection between networks. Access includes the provision of wholesale services suitable for use by service providers without their own infrastructure and also access to such facilities, for example co-location. Under this new framework, interconnection is a specific type of access implemented between public network operators.
The regulation of interconnection covers three main areas:
Obligations to provide cost-based interconnection charges.
Obligations to publish interconnection prices and apply them on a non-discriminatory basis.
Obligations to offer new services.
Under the Access Directive, where an operator is found to have SMP in a relevant market, the NRA can impose obligations relating to cost recovery and price controls. This includes obligations for cost orientation of prices and obligations regarding cost accounting systems. NRAs must ensure that, where the implementation of a cost accounting system is mandated in order to support price controls, a description of the cost accounting system is made publicly available and compliance with the system is verified by a qualified independent body.
In general, other countries also have systems under which the regulators are involved in setting interconnection prices. In Brazil, for example, the National Telecommunications Agency (ANATEL) sets a price cap for interconnection, but operators then negotiate whatever price beneath that cap they can achieve. Operators in Australia have no specific obligation to offer cost-based interconnection, but the regulator has taken the view that interconnection pricing should be cost-based when considering disputes referred to it. In the US, each state regulatory authority approves interconnection rates set by the local exchange carriers, and in Canada legislation provides that interconnection rates must be "just and reasonable".
(See Country Question 17.)
Many countries also attempt to ensure that the incumbent cannot abuse its wholesale market position by requiring it to publish its interconnection prices and apply them on a "non-discriminatory" basis. In practice this generally means that all competitors are charged precisely the same price for the same service. In the EU, where an operator has "significant market power" in a relevant market, the NRA may impose an obligation to charge its competitors on the basis of a "reference offer" (RO) (Article 9(2), Access Directive). This sets not only the prices, but also the other non-pecuniary terms and conditions, relating to each interconnection service. The Directive requires national regulatory authorities to ensure that the RO is published in an appropriate manner.
The position is different in Australia, where interconnection prices are not published but are determined by individual negotiation between the incumbent operator and the new entrant. If, as is common, the two cannot reach agreement, the dispute may be referred to the regulator. However, since each dispute is settled confidentially and separately, the system has led to complaints from new entrants that it enables the incumbent to delay and obstruct the introduction of competition. Recently the system has been changed to allow the regulator to jointly determine disputes.
In Canada, interconnection prices are published and must be pre-approved by the regulator. In the US, carriers in each state must file their prices with the state regulatory authority.
(See Country Question 18.)
A third aspect of interconnection regulation concerns the existence of an obligation on the part of operators to offer new interconnection services when requested to do so by a new entrant. Such an obligation can be a very significant mechanism, enabling new entrants to offer entirely new services at the retail level to the public.
The Access Directive provides that an NRA may impose obligations on operators with SMP to meet reasonable requests for access to and use of specific elements in situations where the NRA feels that denial of such access would adversely hinder competition. In Germany, however, the incumbent operator is not required to offer new services; instead it must offer competitors access on a non-discriminatory basis to the services which it uses itself and those which it offers to the market. In Spain, although there is an obligation to offer new services, it seems that it will be difficult to enforce this obligation in practice if the service is not included in the operator’s RO (see Publication of prices and non-discriminatory application above). Also, in France, requests for new services must be freely negotiated between the incumbent operator and the new entrant.
In Brazil, an incumbent operator must offer new interconnection services and new access points if technically feasible and reasonably requested.
There is a different system in Australia. Instead of having to show that a request for a new service is not reasonable or could be met by other means (as is the standard in the EU), the incumbent operator, Telstra, is only obliged to provide an interconnection service where that service has been "declared" by the regulator. This will only happen where the regulator is satisfied that making that declaration will promote the "long-term interests of end users". The onus is on the party requesting the service to show that obliging Telstra to offer that service would serve that aim. In practice only a very limited number of services have been declared, far fewer than are listed in a typical European reference offer. This is because, in each case, the regulator is not entitled to declare a service unless it has conducted a full public inquiry to consider the likely effects of declaration and whether those likely effects are in fact in the long-term interests of end users. The result is a much more cumbersome process than is used elsewhere.
(See Country Question 19.)
In general, most of the countries surveyed impose some form of control on the retail prices which incumbent operators can set. Commonly, this takes the form of a "Retail Price Index minus X" (RPI-X) formula, whereby a cap applies to the average price of a whole basket of services (usually including line rental, local calls and long-distance calls). This gives the incumbent operator flexibility to "re-balance" prices so as, for example, to put up local call prices as long as the overall basket price still falls by the requisite amount. The rate at which prices must fall (the level of "X") is set periodically by the regulator.
This RPI-X system is used in most EU countries. Usually, it applies only to the retail prices charged by the incumbent operator and does not apply to the prices offered by other operators.
In Australia, the incumbent operator’s retail prices are controlled, and there is also a general obligation on all carriers to ensure that their customers are able to choose a tariff which includes the provision of local calls on an untimed basis. Most countries, however, impose obligations only on the dominant carrier. In Canada, retail prices must be pre-approved by the regulator (as in the case of interconnection costs), and in Brazil all operators have their retail prices regulated to some extent or other.
The position in the US is unusual in that the FCC does not impose any overall restriction on the retail prices which operators can charge. Each state, though, may impose its own controls, and many do so, depending on the type of service concerned and on the carrier offering it.
(See Country Question 20.)
Helen Kemmitt is a professional support lawyer in the London office of Baker & McKenzie.
Broadband. A term used to describe "always on" technologies which enable large quantities of data to be transmitted at high speeds. Such technologies are particularly important for the provision of "rich" content services such as video or multimedia, as it is impracticable for these to be provided by means of narrowband technologies because of the length of time taken to download such services over narrowband connections. It is not a term of art (a term with a generally agreed precise meaning), and in the UK there has been much debate about the definition of broadband. It can be defined by reference to a minimum speed: for example, a speed of more than 128 kbps (128,000 bits of data per second). Currently, however, OFCOM does not define broadband in terms of speed but, instead, defines it as having three characteristics which distinguish it from narrowband, which are:
It is an "always on" service, so that users do not need to dial up each time they want to access it.
It allows simultaneous use of voice and data services.
It offers faster downstream speeds than dial-up.
Broadband services. Telecommunications services provided by means of broadband technologies.
Interconnection. The process by which operators of one telecommunications network connect to another network to allow communications between the customers of both networks.
Local loop. The fixed copper wires which link a local telephone exchange to the homes of customers (also referred to as the "last mile"). The "unbundling" of the local loop refers to a process by which an incumbent telecommunications operator is obliged to offer to other operators (whether by outright sale or some form of leasing arrangement) the use of individual copper lines from the local telephone exchange to the customer's house.
Narrowband. A term used to describe technologies which are capable of transmitting data at relatively low speeds when compared to broadband technologies. Narrowband technologies are still used by the vast majority of residential users worldwide to gain access to the internet.
Numbering plan. A set of rules and principles relating to the use and management of numbers for telecommunications services.
Radio frequency spectrum. The range of frequencies within the electromagnetic spectrum above the audio range and below visible light which can be used to transmit voice, video and data: 3 kHz to 300 GHz.
Second generation (2G). The generation of mobile telephone services using digital technology which followed the original analogue mobile telephones (known as "1G" or first generation). Currently, this is still the most widely used technology in Europe. Data transmission rates over 2G are slow, at around 9.6 kbps (9,600 bits of data per second).
Third generation (3G). The next generation of mobile telephone services after second generation (2G). 3G technologies permit the transmission of data at up to 2 mbps (2 million bits of data per second). This provides much faster access by mobile telephone to, for example, e-mail and website services on the internet, and facilitates access to broadband services such as video.
xDSL. The generic name for the various types of digital subscriber line (DSL) technologies that allow existing copper lines linking local exchanges to customers' homes or premises to be used for the transmission of broadband services.
