Comments

by the

UNITED STATES COUNCIL

FOR INTERNATIONAL BUSINESS

Views of

The United States Council for International Business

on

The European Commission’s 1999 Review

of the

Telecommunications Regulatory Framework

July 1999

The United States Council for International Business ("USCIB") is pleased to submit these comments on the European Commission’s 1999 review of the telecommunications regulatory framework. The USCIB, representing 300 global corporations, professional firms and business associations, is the American affiliate of the International Chamber of Commerce. It also serves as the U.S. affiliate of the Business Industry Advisory committee Committee (BIAC) to the OECD, and the International Organization of Employers (IOE). As such, it officially represents U.S. business positions in the main intergovernmental bodies, and vis-à-vis foreign business communities and their governments.

The USCIB’s comments follow the outline of issues identified by the Open Network Provision ("ONP") Committee for DGXIII prepared for the meeting of High Level Regulators in Vienna in September 1998.

In general, the USCIB believes that the European Union has made significant progress in liberalizing national telecommunications markets and laying the foundation for competition in these markets. The 1999 Telecommunications Review provides the European Commission with the opportunity to move beyond this initial liberalization and to address the next stage of issues in European telecommunications.

In particular, the USCIB believes that the Commission should focus on two general goals. First, in order to ensure an environment conducive to private-sector investment and competition, the USCIB encourages the Commission to continue its efforts toward harmonization of the European regulatory framework. In the interest of harmonization, the Commission is encouraged to ensure that decisions taken at a national level are consistent with, and remain within, the European policy framework. Second, the Commission should aim to make regulation more flexible and responsive to change. For example, the USCIB supports the continued use of administrative guidance and competitive benchmarks as mechanisms for fostering greater compliance with existing guidelines and directives. Whereas the current regulatory framework involves a legislative process that cannot react quickly to changes in the telecommunications industry, the Commission should now adopt a dynamic set of rules that can constantly evolve to adapt to new market conditions.

1.1 GENERAL ISSUES

1.1.1 Sector-specific regulation vs. Horizontal regulation based on competition rules

The USCIB encourages an eventual migration toward competition principles and away from regulation in the telecommunications sector. However, pro-competitive principles, such as those set forth in the WTO Reference Paper, should remain in force until a given market has become truly competitive.

Governments have two tools available to address market failures. Competition law is traditionally used to address abusive or anti-competitive behavior by an individual or group of companies and is imposed after the fact. Ex ante regulation should be used to mimic competitive conditions where they do not exist and to establish an environment in which true competition can thrive. Ex ante regulation established at the European level can provide guidance to the National Regulatory Authorities regarding effective regulation, which competition case law does not. Examples of ex ante regulation are in the ONP Framework designed to ensure access to a single infrastructure. Finally, ex ante regulation should not be applied in areas where competition is flourishing.

Sunset clauses for the removal of sector-specific regulation may not be practical because they require the difficult task of predicting market conditions at a set point in the future. The USCIB would, however, support giving regulators the ability to remove sector-specific regulation when clearly defined criteria have been met.

1.1.2 Scope of legislation

Convergence

The cornerstone of government policy toward convergence should be maximum reliance on private initiatives operating freely in competitive markets. Regulation of converging markets should be kept to a minimum and should focus, for example, on establishing full competition, ensuring access to essential facilities, e.g. addressing enduring bottlenecks, allocating scarce resources, and achieving limited and well-defined public interest objectives. Traditional forms of regulation should not be automatically applied to new and emerging services.

Once competition within converging sectors is fully realized, the USCIB supports a move away from sector-specific regulation toward the application of general pro-competitive principles applicable to all sectors. Such principles should be technology, product, and medium neutral so as to reduce the burden of regulatory compliance on companies that provide goods and/or services within all of the relevant sectors.

Subsidiarity: Local vs. National Rules

In furtherance of the Commission’s efforts toward harmonization, the USCIB recognizes that regulation at the E.U. level may be necessary in some circumstances in order to ensure a consistent pro-competitive regulatory policy. Some form of pan-European body could usefully perform certain functions where decision-making would be most efficiently carried out by a single entity, such as cross-border licensing, spectrum allocation, and tariff benchmarking.

At the same time, there are many regulatory functions that are best implemented by the national regulators, and these functions should continue to be carried out at the national level. In situations where the national regulators are best placed to render such policy, the USCIB recommends that there be Commission oversight to ensure consistency and transparency among member states. Furthermore, in order to ensure both effective application and harmonization of regulations, parties should have the ability to appeal the decisions of national regulators to a European Commission telecommunications board or other pan-European appellate body.

1.2 SPECIFIC ISSUES

1.2.1 Convergence of Fixed and Mobile Communications

As discussed above, the USCIB believes that the principle that should apply to any converging market is that regulation should be kept to a minimum and be limited to establishing full competition, ensuring access to essential facilities, and allocating scarce resources. Traditional forms of regulation should not be automatically applied to new and emerging services. Where fixed and mobile communications are converged, regulation of both should be consistent.

1.2.2 Access to the End User

All members of USCIB agree that it is essential that competitors to the incumbent operator have access to the end user in order for competition to thrive. However, determining the specific obligations that should apply to an incumbent to provide such access, e.g., whether an incumbent should be required to provide unbundled access to the local loop, is a complex issue that is currently under review by the USCIB. The USCIB plans to share its conclusions with the European Commission when USCIB views have been more clearly defined.

1.2.3 Infrastructure versus Services Competition

The E.U. should support both forms of competition, while taking into full account differences in the development of either type of competition in individual countries (i.e., the E.U. should not undermine established approaches to either services or infrastructure competition), and oppose market barriers erected in the guise of encouraging competition in these areas.

Differential pricing regimes for interconnection based on the level of infrastructure build out may at some point act as a barrier to entry, distort the competitive environment, and deprive consumers of the benefits of vibrant, market-driven competition. The market should be the determining factor in how investors choose to invest; regulators should be indifferent. All policies and regulations should be evenhanded and avoid biasing any investment decisions.

1.2.4 Management of Scarce Resources

Radio spectrum is a finite resource that can only accommodate a limited number of communications users at once. This limitation makes spectrum a resource that requires careful planning and management in order to maximize its value for public and private services. In addition, rapid changes in technology, liberalization of markets, globalization, and the public welfare must all be considered in spectrum management. Other scarce resources that must be managed and fairly allocated are telephone numbering resources, rights of way, and satellite orbital slots.

As a general principle, the USCIB believes that increased reliance on market forces, rather than government oversight, results in the most economically efficient use of spectrum, in the development of the most innovative technologies, and in the universal deployment of wireless services.

Nevertheless, there are specific, essential tasks that the regulator should undertake. These include: maintaining services for the public welfare; ensuring fair competition; protecting networks from interference; and protecting the public’s health and safety. However, other decisions regarding spectrum, such as technologies used, consumer pricing, and network performance, are best left to the marketplace as business decisions.

On a regional and international basis, regulators should coordinate issues related to spectrum usage. To the extent possible, domestic policies should support global systems and seamless international networks, both in terrestrial and satellite systems, without precluding other uses and technologies.

Traditionally, governments have allocated available frequency bands for specific uses before granting licenses to use the frequencies. A flexible approach also means that governments forbear from mandating what particular technology or which equipment an authorized network operator shall deploy.

A regulator faces several considerations when assigning spectrum, in particular assigning licenses quickly and with minimal administrative costs. In addition, the regulator should ensure that the entity that most values the spectrum receives the license to use that spectrum, taking into account public needs. If auctions are used , then proceeds from the auction fees collected should be used by the regulator to clear the allocated spectrum. However, auctions should never be used purely as a means of generating revenue for government; policies that are driven by short-term gains for a country’s treasury will not meet the long-term goal of serving the public’s telecommunications needs. In effect, fees associated with spectrum auctions should be assessed only as a means of promoting the economically efficient use of spectrum.

In the case of global satellite services, and other services that need to be provided on a transnational basis, auctions could seriously inhibit market and technology developments. Satellite service area footprints are not confined to national borders and, accordingly, satellite service operators are compelled to obtain licenses from multiple governments to operate a system. Therefore, any one government utilizing auctions to award a satellite service license creates an immediate high risk of sequential auctions by other governments. This creates an uncertain environment that may deter entry and impede the provision of the satellite service and the development of new offerings.

1.2.5 Universal Service and Access

The USCIB believes that the appropriate means to ensure universal telecommunications service is to rebalance tariffs and to create an environment in which competition can thrive. To the extent that subsidization of lower income or rural customers is desirable, the most effective means to do so is through general tax revenues, rather than charges collected through telecommunications carriers.

Further, the USCIB believes we believe that it would be premature to expand the concept of universal service beyond the prevailing notion of simple two-way voice grade access to public switched telecommunications networks without thorough consideration of all the costs and benefits that may be associated with a more expansive definition.

As a general rule, the USCIB believes members believe that that competition in the marketplace should be relied on in the first instance, and to the maximum extent possible, to provide universal access or universal service. Any financing of universal service must weigh whether subsidies are to be provided to the service provider or to the user and may vary depending upon how the service is defined and should be consistent with fair competition principles. More specifically, USCIB members urge consideration of the following principles in any discussions on universal access and service in the 1999 Review:

Universal Service

·Providers should be permitted to roll out new services in a manner which is economically justifiable and which establishes and strengthens the economic base for such services.

Universal Access

·         The issue of universal access should be considered separately from that of universal service, meaning that an individual’s ability to obtain access to network services is an issue separate from the provision of the services themselves;

·         Any definition of universal access should be technologically neutral, and must consider the benefits to be derived from such access and the cost of implementation. Implementation should only be required where it is technically and economically feasible to do so;

·         Any definition of universal access should be technologically neutral, and must consider the benefits to be derived from such access and the cost of implementation. Implementation should only be required where it is technically and economically feasible to do so

·         To the extent universal access is defined, it should be defined at the national level; and

·         Universal access obligations and opportunities should be reevaluated as markets become increasingly competitive.

1.2.6 Licensing and authorizations for telecommunications services

The USCIB supports a comprehensive review of licensing procedures to ensure that Member States are adhering to the requirements of the E.U. Licensing Directive.

Enforcement

As discussed below, we support the overall framework of the Licensing Directive. . However, there are several European countries that are not in compliance with the terms of the Directive. The USCIB therefore supports a thorough review of member country compliance and stepped-up enforcement of the requirements of the Directive.

Fees

The USCIB supports the E.U.’s strict guidelines regarding fees and charges, such as:

·         the The requirement that fees or charges imposed on undertakings be based on objective, non-discriminatory and transparent criteria;

·         a A strict limitation on fees to cover only the administrative costs incurred in the issue, management, control and enforcement of the applicable general authorization scheme; and

·         the The requirement that fees be published in an appropriate and sufficiently detailed manner so as to be readily accessible and reviewable.

Limitation on Licenses

The USCIB agrees that priority should be given to market access schemes not requiring authorizations or relying on general authorizations. Furthermore, the USCIB agrees that the individual licensing systems should be used only in limited, pre-defined situations. To this end, the USCIB supports the E.U.’s requirements regarding limitations on licenses, such as:

·         the The allowance of market entry restrictions only on the basis of objective, nondiscriminatory, proportionate and transparent selection criteria relating to the availability of scarce resources;

·         the The requirement that individual limits on individual licenses for any category of services only be allowed to the extent required to ensure the efficient use of radio frequencies or for the time necessary to make available sufficient numbers in accordance with EC law; and

·         the The requirement that where a Member State intends to limit the number of individual licenses granted, it must:

·         give due weight to the need to maximize benefits for users and to facilitate the development of competition;

·         enable all interested parties to express their views on any limitation;

·         publish its decision to limit the number of individual licenses, stating the reasons therefore;

·         review the limitation at reasonable intervals; and

·         invite applications for licenses.

Fees should generally be based on the cost of administering a license. However, other mechanisms may be used in the allocation of scarce resources (See Section 1.2.4).

Conditions on Licenses

The USCIB supports a strict limitation on conditions imposed on licensees. The USCIB agrees with the E.U. that conditions must be objectively justified in relation to the service concerned and non-discriminatory, proportionate, and transparent.

One-stop Shopping

The USCIB supports the idea of "one-stop shopping" of for licenses. The USCIB supports the strict time limits imposed on national regulatory authorities for the processing of applications, and the annual reporting requirement for these authorities to the Commission as to the operation of the one-stop shopping procedure, including information on refusals of applications and objections raised to notifications. The USCIB urges the Commission to review whether member countries are following the "one-stop shopping" framework, and to enforce the strict time limits required in the Directive.

Harmonization

The USCIB supports the efforts of the E.U. Licensing Directive toward harmonization of the licensing regimes within the E.U... The USCIB encourages the E.U. to strictly monitor the activities of national regulatory authorities and enforce the requirements of the Directive so as to provide for a harmonized E.U. licensing regime.

Mutual Recognition

The USCIB urges the E.U. to adopt a policy of mutual recognition of the Member States’ licensing regimes. Such a policy would further the objectives of harmonization, and establish a true "one-stop shopping" regime for the E.U...

1.2.7 Internet

Ensuring open competition and maximum user choice in the Internet and electronic-commerce, a sector unencumbered by an historical legacy of regulation and fully amenable to open competition, requires effective application of a continued "hands off" approach by governments in the fullest possible measure. The USCIB strongly supports the broad international consensus for a market-driven, industry-led approach to the development of the Internet and electronic commerce.