Latest Event Updates

The new relevant market recommendation: Kroes playing the last (deregulatory) trump

Posted on Updated on

Neelie-Kroes-007

The European Commission has published the new recommendation on relevant markets, i.e. the document which will guide the national regulators (“NRAs”) in assessing competition in the EU and imposing regulatory remedies such as access to networks, price control, non-discrimination and so on. The European Commission made various substantial changes to the previous recommendation, including withdrawing markets 1 and 2 on retail fixed telephone access and wholesale fixed call origination. While ETNO, the incumbents’ association, has welcomed the new recommendation as a further step on the way of a possible deregulation of the European market, ECTA, representing the alternative operators, has showed some worries but also recognized that some clarifications go in the right direction. Thus, both associations (whose telcos members are mostly affected by the new rules) remained relatively prudent and have not dramatized too much in positive and negative terms.

According to Commissioner Kroes, the partial deregulation inflated by the new recommendation reflects the increasing competition in the market. This opinion is not shared by everyone however: the European regulatory agency Berec stated in an opinion that the deregulatory measures appear to be a bit premature.

When at beginning of 2014 a first draft of the recommendation was published, alternative operators were dramatically alarmed because it was clear that Kroes effectively intended to pursue a deregulatory agenda. Thus, after reactions and critical comments also by other Commissions’s departments and institutions associated to the legislative process, such as Berec and Cocom, the entire reform has been revised. While the reduction of relevant markets remained unchanged, important clarifications have been inserted in the Explanatory Note (the annexed text providing practical guidance) in a way to ensure sufficient flexibility and empowering NRAs to continue to adopt regulation to target competitive problems, also in areas where the Commission wished deregulation.

It is not the first time that an important deregulatory boost announced by Commissioner Kroes ends up with moderate practical results. The reform of fibre networks regulation (i.e. the new NGA recommendation) as well the Single Market Package encountered the same destiny. In all cases Kroes is paying because of her iper-political top-down approach: in 2012 she endorsed a deregulatory agenda in order to meet the financial needs and claims of incumbents operators, but then she failed in finding the market evidence for this approach and, worstly, she missed the support by other Commission’s departments (DG COMP, ECFIN, CONS). Also other institutions such as Parliament, Berec and Council have been quite cold and critical vis-à-vis Kroes’ approach. As a result, all impressive deregulatory initiatives have been watered-down and, what’s worst, the market has encountered an increasing and continuing legal uncertainty. The roaming chaos is an example: the entire Roaming III Regulation (2012) has been affected even before entering fully into force (July 2014) , because the Single Market proposal (September 2013) contained incompatibile proposals.

The impact of the new recommendation will therefore depend on the practical implementation by the NRAs as well as by the attitude of the new commissioner in charge, Oettinger. The deregulation of markets 1 (retail access) and 2 (call origination) may provoke some increase of retail voice prices by deregulated incumbents, depending on the degree of competition in each national market and the ability to alternative operators to provide the same services via ULL or own networks. In this respect, the developments of potential competing OTT services shall be also monitored: it is a paradox, but big telcos such as Orange and Telefonica should thank Skype and Whatsapp for the deregulatory result.

Wholesale access networks was not deregulated, however the Commission loved to see the market to migrate to a model of virtual ULL concentrating all access investments (and related control over services) in the hands of incumbents. This scope was not completely achieved, as at the end the Explanatory Note stated that NRAs are expected to continue mandating physical ULL, because it is usually considered to be the most adequate access remedy, as it ensures alternative operators’ ability to differentiate their retail offers and innovate. The Commission however added that in situations where physical ULL is not technically or economically feasible, NRAs may mandate virtual access products (as some NRAs have already done in the EU).

To sum up, the deregulatory agenda of Commissioner Kroes ended up more in a slogan than a practical achievement. The incumbents industry thanks in any case, because even a vague deregulatory trend is helpful when facing financial analysts and bonds purchasers. However, the emerging opposition of NRAs and governments to the Commissions’ approach opens the doors to a season of future litigations, unless the new commissioner Oettinger will invent something new.

Net neutrality and competition rules are getting closer and closer

Posted on Updated on

JAM

The Competition Directorate of the European Commission announced to have closed an investigation about Internet connectivity market (peering and transit) without finding evidences for abuse of dominant position by the European incumbents which were investigated (likely Deutsche Telekom, Orange and Telefonica).

While the closing of the investigation is a good news for the investigated operators, the Commission makes clear that it will continue to monitor the market and that further interventions in the future are not excluded.

The investigation started after a complaint by a US carrier which contested the peering policies of main European incumbents. The complainant maintained that pricing conditions charged by telcos were abusive. A similar case shad been already dismissed by the French competition authority in 2012, while recognizing that peering policies of telcos may potentially give rise to concerns.

The case at stake has a clear link with net neutrality, although the DG COMP offices are very prudent and they intentionally avoid to mix up their case with the current debate on net neutrality pending in Brussels in the frame of Single digital Market proposal.

To better explain: incumbent telcos may potentially commit abusive practices because at the same time negotiate Internet traffic deals and control end users to which such traffic is directed or requested by (Youtube, Facebook ecc). This market is normally competitive because, should an operator rise the price in abusive way, other operators may simply change carriers, because Internet is made in this way: there are plenty of alternative routes. However, when the Internet traffic in question must be necessarily terminated upon end users (i.e. the subscriber holding the final terminal/device), then counterparts have no alternative: they must accept prices and conditions charged by the telcos controlling the connection to such end users (i.e. selling to them the Internet access). It is a kind of termination monopoly, like for voice.

In the case of the voice termination monopoly, the problem has been solved via regulation: termination must be obligatory ensured at cost-oriented prices. By contrast, in the internet sector termination is unregulated: however, competitive problems normally do not arise, because telcos operates cannot allow themselves to cut Internet traffic terminating to their clients, which otherwise may decide to change ISP in order to get the services they like (imagine a telco saying to his customer: “you will not get Youtube because Google does not pay me what I pretend to connect to your PC“) . However, it seems that peering commercial negotiations are becoming more and more difficult and some European incumbent are trying to charge more expensive prices when peering with counterparts. This may reflect an increasing weakness of competitive conditions in the European market and more strength for the incumbents, at least this may be their perspective. In Italy Telecom Italia decided to de-peer, i.e. they stopped peering at the Internet exchange point in Milan and requested everybody to peer directly with them by paying. The non-peering counterparts had therefore to deliver their traffic directed to Telecom Italia via a third transit operator, a system which may deteriorate the quality of the Internet traffic (because the routing is longer and more complex).

Interestingly, the PR of the European Commission makes clear that incumbent ISP may have interest in creating artificial traffic congestion: “The European telecoms operators which were investigated all provide internet access services to end users and often have an in-house internet transit division. This allows them to charge for interconnection capacity and, in the absence of commercial agreement with certain third party transit operators, may also have the effect that traffic from certain routes becomes congested at the point of entry into domestic networks, causing a deterioration in service quality“.

In other words, congestion for consuming-banwidth services like video streaming (Netflix) may be the result of a deliberate choice of the telco, not of scarcity of capacity. A telco may decide to reduce/limit interconnection capacity in order to force counterparts to pay more for peering. Thus, here the Commission is recognizing that incumbent ISPs may potentially create a net neutrality problem even where it should not exist.

It must be remind that in the recent times Netflix made various paid peering agreement (i.e. direct interconnection) with US ISPs like Verizon and Comcast in order to facilitate the delivery of their traffic to the related American subscribers. Although the details of the transactions ara not public, there was the suspects that Netflix was forced to made these agreement to respond to artificial congestions provocateur by the same ISPs.

The European Commission did not find abuses in the present investigation, however a clear signal has been sent to incumbents ISPs: their Internet peering policy will be closely monitored in the future.

Net neutrality in the age of bankers

Posted on Updated on

punishing-bankers

Should banks and financial institutions be considered like OTTs an therefore charged for the simple use of telecom networks and Internet?

This questione came to me today at the yearly FT-Etno conference, an event most self-referential than a birthday party. At the end of a panel discussion about telecom investments, some bankers were inquired about the net neutrality debate in the EU. Their frank response was: “Well, Internet is like a motorway, the owner of the infrastructure has control over it and therefore it must be entitled to charge the users depending of the traffic”.

The response of the bankers was not accidental, it was clearly aimed at supporting the traditional telco’s vision about net neutrality with regard to the possibility to charge OTTs and other Internet service provider (Google, Netflix, Apple ecc). However, the bankers probably underestimated the fact that the correct parallelism with motorways does not bring to their conclusions: by contrast, in the motorway business tolls are charged upon drivers, eventually depending on the size of the cars, not on transportation services or cars manufacturers. Companies like DHL (a service provider) or FIAT (a car manufacturer) do not have to contribute to the investment for the construction of the motorway: their cars (the equivalent of bits) just pay the toll at entrance and that’s all, they do not have to pay a double/additional bill just because just their business is passing through the motorways. In other words, the motorway business works exactly in the way NN supporters believe Internet should work: no fast/slow lanes, while charges are levied only upon users, eventually depending on their traffic usage, not on OTT, content providers just because their business is Internet-based.

One should not exaggerate too much against bankers and financial guys trying to explain how the Internet works, maybe it was just an accident. However, the idea according to which Internet providers should be charged for the simple fact that they run a business over the Internet open the doors to unthinkable (for the bankers) consequences: all the business of banks and financial institutions is ran over the Internet, billions of economic transactions and payments are managed thanks to networks of telcos and access providers. Should banks be charged for that? If one think that Google and other OTTs should pay, I believe that HSBC and financial institutions should do the same, for the same reasons…..

#OMGoettinger! Good or bad news for the Digital Agenda?

Posted on Updated on

00028057

Today Commissioner Jean Claude Junker announced the structure of the new European Commission, that will manage and execute European policies in the next 5 years term (starting from November 2014). The new structure can be found here.

As regards the Digital Agenda, the portfolio has been assigned to the German candidate Oettinger, who was holding the Energy directorate in the current Commission’s term. The choice of Oettinger is somehow a surprise, although the German press had already whispered this possibility one week ago. In the past days, rumors indicated the UK candidate to get Digital Agenda (together with the Internal Market portfolio), while other informal news indicated Cyprus, Slovenia or Estonia to get the task.

Interestingly, the task of Oettinger, named “Digital Agenda and Society” will be shared with the Estonian VP Andrus Ansip who will be responsible for “Digital Single Market”. For the time being, it is not clear how this shared competence and related coordination will work. Probably, rules of procedure will need to be revised and adapted accordingly, and one could suspect that an important negotiation will take place in the next weeks. In the past, cluster/grouping of commissioners have never been successful, since each commissioner tend to manage his/her portfolio as a own backyard. Thus, it will be up to the President Junker, and mainly to his head of cabinet Selmayr, to make sure that this coordination brings value and results rather than internal guerrillas and inertia. Whatever the result will be, it is clear that this kind of organization reinforce the role of the President in terms of coordination and influence over all European policies.

Apparently, the offices of DG Connect have escaped the dismantlement which had been suggested by many rumors in the last weeks. It is clear that the German candidate did not accept a reduction of offices and competences. By contrast, DG Connect has been reinforced by absorbing various units of DG market, the most relevant in the matter of copyright. On the other side, since the current focus of DG Connect is upon the establishment of a Digital Single Market, some adaptations may be expected in order to facilitate the coordination with the offices of Ansip, who in fact does not own a real portfolio/organization (like the other VP of the new Commission, he will be supported by the Secretariat). More details on the shift of competences between Directorates General are available here.

One could now wonder whether the appointment of Oettinger may be a good news for the market, or for some stakeholders in particular. The hashtag #OMgoettinger is already circulating in Twitter. Alternative operators may fear that this commissioner, being German, could be sensitive to the ambitions of national champions and therefore more inclined to the views of Deutsche Telekom; on the other side, incumbent operators may be suspicious about somebody coming from the energy sector, where structural separation occurred effectively.

Thus, it is difficult to anticipate evaluations about the expected views of a new commissioner simply on the basis of his/her past record. In 2006 Viviane Reding was not expected to shake the sector, but then she did it, with various striking proposals in the area of international roaming, structural separation, mobile termination, which created conflicts with dominant operators.  In 2010 her successor, Neelie Kroes, was expected to crash small and alternative operators for the benefit of incumbents. By contrast, in the first 2 years mandate she did not take any relevant action in this respect. Then, when in July 2012 she launched a contested reform welcomed only by incumbents, this change appeared driven mostly by accidental and financial circumstances, rather than by a coherent industrial view. 

 

 

Telecoms investments in the EU: the controversial data of the European Commission

Posted on Updated on

_45769959_kroes

The European Commission published a Report on the telecommunications market in the EU, providing both economic and regulatory information with regard to the each Member States as well as to the EU in its entirety.

The report show strong discrepancies within the EU, especially with regard to BB penetration and NGA roll-out. However, the overall feeling of the Commission seems  positive: “… investment in the field starts to grow again, data traffic is growing quickly, together with an increase in VoIP calls“.

The Commission remarks a decline of revenues in the period 2010-2012 (from 327 to 323 billion). The report does not specifically analyze the background for such trend. However, it seems to me that the revenue’s decline is due to a combination of factors: on one side, it is the result of previous regulatory decisions (price decrease for mobile termination and international roaming, in particular), on the other it is caused by market trends as substitution of traditional cash-machine services such as voice and SMS by corresponding free Internet services (VOIP, chats, ecc). The emergence of Internet mobile access has not compensated yet the value destroyed by the OTT concurrence.  One could argue whether such figures are positive or not for the telecom industry: for sure, this is the sign that the time for the easy-money is gone and telecom operators must now face a fierce competition. The new reality is particularly hard for historical incumbents and dominant mobile operators which for ages have relied on high margin services such as PSTN voice and sms. La festa è finita. The consumers seem to be the winner of this trend, because the decrease of revenue of telecom operators basically means that the price of many basic communications services has fallen (in some cases to zero).

More controversial are the data about the investments. In the last years the Commission repeatedly maintained that telecom investments in the EU were slowing down, and this failure justified a radical regulatory change announced by Commissioner Neelie Kroes in July 2012. Despite of that, the data of the current telecom report show that investments in the sector have been stably growing (in the period 2010-2012) from 38 to 42 billions. The fact that European BB market was healthier than expected had been confirmed also by the European Parliament as well as by Berec in its critics to the Connected Continent proposal of Commissioner Kroes.

If the above is not challenged, one would wonder on which basis the European Commission in 2012 changed radically its regulatory agenda, since the main problem to fix – the huge lack of investments – did not exist.

To remind the facts, in July 2012 Commissioner Kroes announced that she intended to “stabilize” the cost of the traditional telephone networks (the ones based on copper and builded over 50 years ago with money of tax payers during the monopoly era) in order to secure cash-flow to incumbents and provide them with sufficient money to invest in new fibers networks. At the same time, the higher costs of the traditional copper network had incentivized new altnets to desist accessing that network while building new ones. In other words, the stabilization (namely: increase)  of the copper network price would have somehow encouraged both incumbents and altnets to invest in new fiber networks.

The strategy of the Commission was however challenged by many: first, with copper networks become even more rentable, incumbents would have stopped or slow down investments in fibers, in order to avoid cannibalization of the copper profits. Secondly, the matter is quite tricky with Altnets, since the equation “build or buy” is too simplistic. The increase of copper price would have probably helped some fiber deployers, but many Altnets would have been unable to make the with because too expensive.

In truth, Kroes’ move in 2012 had nothing to do with investments, it was rather aimed at securing cash-flow for historical incumbent operators, with the scope to protect them from the financial crisis and from extra-Europena take-over. The lack of investments claim was just an excuse to justify a dramatic regulatory overturn which, at the end, just helped big telecom operators to surf and survive the financial storm.

The data retention tsunami: how EU Member States are reacting to the annulment of the data retention directive

Posted on Updated on

ona_l

 

Following the annulment of the Data Retention Directive in April 8, 2014, by the Court of Justice of the European Union, European Member States are hardly starting to face the consequences of that.

As stated in my previous post on the matter, the European decision did not make national data retention legislations (whether or not enacted as implementation of the annulled directive) automatically invalid. However, because of the principles laid down by the European court, most of such national legislations are at risks, because they impose data retention obligations in a too general and far-reaching way. This conclusion is shared also by a study commissioned by the Greens Group at the European Parliament which can be found here.

In fact, in §59 of the sentence the European judges stated that “blanket” data retention legislations are not allowed, they must be selective and focussed:

Moreover, whilst seeking to contribute to the fight against serious crime, Directive 2006/24 does not require any relationship between the data whose retention is provided for and a threat to public security and, in particular, it is not restricted to a retention in relation (i) to data pertaining to a particular time period and/or a particular geographical zone and/or to a circle of particular persons likely to be involved, in one way or another, in a serious crime, or (ii) to persons who could, for other reasons, contribute, by the retention of their data, to the prevention, detection or prosecution of serious offences.”

To time, Member States have hesitated in taking actions, also because of the lack of guidance from the European Commission, which is sharing its part of responsibility for this messy situation. To time, only Denmark made a legal analysis whether the European decision could somehow affect their data retention legislation, but then they concluded that there was no reason to act.

In June, at a recent closed meeting of EU Justice and Home Affairs ministers, the Council’s Legal Services is reported to have stated that paragraph 59 of the European Court of Justice’s ruling on the Data Retention Directive “suggests that general and blanket data retention is no longer possible“. Therefore, should Member states not take actions, the matter will be likely submitted by individuals to a national courts, which will take the decision instead of the government, as it did just happen in Austria. In other words, today’s judgement of the Austrian Constitutional court is a clear reminder to most European member States that postponing a decision on this matter is not a good strategy. Italy is one the country mostly at risk, because their national legislation is just a copy & paste of the annulled directive.

Austria

On June 27, 2014 the Austrian Constitutional Court has declared invalid most parts of the Austrian law on data retention. This is the first national decision taken after the important sentence of the European Court of Justice which, on April 8, 2014 annulled the European Directive on data retention (Directive 2006/24/EC).

Austrian ISPs have to stop retaining and providing information to the Austrian authorities about data retained under the data retention regime by the end of the day following the publication of the decision. ISPs will however still be allowed to retain traffic data for their own legitimate purposes (billing, fraud prevention etc.) for a certain amount of time. Such data could still be accessible by public authorities for public securities reasons.

A source of Austrian ISP industry declared “very positive” from an ISP-angle is that the system implemented for the exchange of information with law enforcement agencies (so called “Durchlaufstelle” / “DLS”) will remain in place and will be used for the exchange of information about traffic data ISPs are still allowed to retain.

Slovakia

On 23 April 2014, the Slovak Constitutional Court preliminary suspended effectiveness of the Slovak implementation of Data Retention Directive. Although the case is already pending for before the Court since October 2012, the Court decided to issue this preliminary measure and accept the case for the further review only now. The preliminary suspension of effectiveness means that the Slovakian retention laws are still formally valid, but have no legal effect until the Court decides on the merits of the compliant. The Court, however, suspended only provisions that are mandating data retention itself, while leaving provisions on access to those information intact for now. This means that ISPs will soon lose any legal obligation to store data about users. Any storage of  personal data of users will thus need to be limited to general privacy regime.

Slovenia

On July 3, 2014 also the Slovenian Constitutional court annulled the national data retention legislation for reasons similar  to the Austrian case. The decision is available here (only in Slovenian language, sorry): https://www.ip-rs.si/fileadmin/user_upload/Pdf/sodbe/US_RS_ZEKom-1_3julij2014.tif

In nuts, the Slovenian Court found the local data retention legislation to be disproportionate for the following reasons:
– massive and un-selective retention of data constitutes a breach of rights of a large proportion of population, while no grounded justification was provided for that;

- no justifications and grounds were provided for the selected retention periods (8 months for internet related and 14 months for telephony related data);

- the use of retained data was not limited to serious crime.

Romania

the Romanian data retention law was declared unconstitutional by the Constitutional Court on July 8, 2014. The ruling applies to all provisions of the law. The argumentation of the judgement is expected to be published at the beginning of August.

According to the court, the data retention law is suspended for 45 days and operators no longer have to retain data. If the government and parliament do not resolve the constitutional issues within 45 days, then the law will be annulled permanently.

UK, Sweden and Danemark

These countries show a different trend.

On July 17, a new data retention law came into force in UK, the Data Retention and Investigation Powers Act 2014 (DRIPA). The new legislation substantively re-enacts the mandatory data retention provisions of the UK 2009 Data Retention Regulations, which was based on the provision of the annulled European Directive. The rules will continue to empower the Secretary of State to give data retention notices to public telecommunications operators ). However, instead of the previous fixed 12 month period of retention, the current retention period may vary subject to a maximum 12 months. The notice may specify different periods for different types of data. The notice may relate to an operator or description of operators. Complaints against the new regime has been already announced.

In Danemark, the Parliament commissioned a study on the lawfulness of the local data retention legislation and reached the conclusion that it fully comply with the minimum proportionality requirements set out in the CJEU ruling.

A similar study was carried out in Sweden upon initiative of the government. On June 12, 2014 an expert group appointed by the Ministry of Justice concluded that the Swedish legislation on data retention is lawful by maintaining that, unlike the repealed directive, such provisions contain clear rules on the conditions for providing access to retained data. The assessment is still preliminary and a final report is expected by October 1st, 2014. As a consequence of this intervention, most of the Swedish operators have resumed data retention. PTS, the Swedish regulator, had initially announced that it would stop the enforcement of the data retention law – at least until the investigation by the expert group had been carried out. Several ISPs had subsequently stopped retaining data and even started to erase already stored data

 

 

 

AGCOM releases the first copyright enforcement results

Posted on Updated on

Immagine

Today in London, at the International lntellectual Property Enforcement Summit, prof. Angelo Cardani, the Chairman of Italian Regulator AGCOM, reported the preliminary results of the Copyright Enforcement Regulation which recently (March 28, 2014) entered into force in Italy. The regulation is quite a unique measure in Europe – since no other telecom regulator is entrusted with copyright enforcement powers in the EU – and has been highly contested by civil society, ISPs and consumers associations, while plauded by the content industry. Experts have released different views on the matter. Likewise, the Regulation encountered different feedback at international level: while an official advisor of the United Nations argued that the measure may be dangerous for freedom of speech, the US administration welcomed the regulation and apparently because of that it dropped Italy down from the black list of “pirate” countries.

Various recourses for the annulment of the regulation are pending with Italian courts and a decision may be adopted quite soon before the end of June. A legal description of the Copyright Enforcement Regulation can be found here.

Prof. Cardani defended the regulation declaring that “no Armageddon happened“. He maintained that the measure was necessary to protect the creative industry because the judiciary remedies are not sufficiently quick. He informed the audience that  41 complaints have been filed so far with regard to photos (15), movies (11), music (7), books (4) and digital newspapers (1), video games (1). The authority started 28 proceedings, two-thirds (13) of these were closed as a result the spontaneous removal of the content. In 8 cases, the Authority adopted sanctions, ordering also the blocking of pirate sites’ DNS addresses. Most serious infringements concerned the illegal downloading of music and movies.

The data released by prof. Cardani have been made public with a PR of AGCOM.

It is still premature to make a complete assessment of such results. Probably, such outcome will be analyzed by AGCOM to eventually refine the Regulation. For instance, it is clear that many claims have been filed with regard to individual, and non massive, infringements (while the Regulation was deemed to deal only or mainly with large-scale and commercial infringements). Most of the requests concern pictures, i.e. a creative works which are not highly discussed  in the piracy debate. The web-blocking measures have been imposed with regard to websites hosted abroad, however is not clear whether substantial attempts have been made in order to ask foreign police to shut down such servers and avoid web-blocking (Prof. Cardani said that international cooperation is still a problem). Web-blocking was ordered at DNS level rather than at IP level, in order to avoid over-blocking.

Remarkably, in the last weeks various ISP were informed by AGCOM about pending proceedings which could result in web-blocking. AGCOM suggested ISPs to impose a block even before a final decision was adopted. Mostly ISPs rejected this approach and experts have argued that such anticipated blocking could be legally risky.