The new European regulatory framework for electronic communications and perspectives 27th january

Part One: existing framework Background to market opening Telecommunications regulation Main provisions of the existing framework

Background to market opening The European liberalisation process: market opening in 15 countries 1987 : telecommunications green paper 1988 : liberalisation of terminal equipment 1990 : liberalisation of most services 1 January 1998: complete liberalisation The act of 26 July 1996, which liberalises infrastructures and the public telephone service, lays down three principles: Anyone is free to engage in telecommunications activities A public telecommunications service must be provided The regulation function is independent of the operation function

Telecommunications regulation Set up on 5 January 1997, ART is a collegial institution (5 members who may neither be dismissed nor re- appointed) ART is an independent administrative authority and a state institution In association with the minister in charge of telecommunications, ART is responsible for regulating the sector. To this end, it must foster: Fair competition for the benefit of consumers Provision and financing of all elements of public service Employment, competitiveness and innovation Recognition of the interests of the French regions

Main provisions of the existing framework (1) Certain activities require individual authorisation Creation and operation of a public network Provision of a public telephone service Provision of services using radio frequencies Creation of an independent network ART allocates numbering and frequency resources and manages the national numbering plan Interconnection and network access constitute the core of the regulatory system Operators conclude interconnection agreements with each other ART designates the SMP operators (more than 25% market share) on four markets defined by law SMP operators are subject to stricter access and interconnection obligations: As an SMP operator on the retail fixed telephony and leased line markets, France Telecom must publish an interconnection catalogue approved by ART As SMP operators on the national interconnection market, Orange and SFR must apply cost-based pricing for their interconnection tariffs. Specific provisions for access to the local loop

Main provisions of the existing framework (2) The law provides for the provision of a public service whose main component is the universal telecommunications service Universal service includes the provision of a quality telephone service to everyone at an affordable price, a universal directory, public payphones, technical provisions for the disabled and social tariffs France Télécom is the operator responsible for providing the universal service The cost of the universal service is estimated by ART and its financing is shared between the operators Certain retail tariffs are subject to approval by the minister of telecommunications, further to a public opinion issued by ART Universal service tariffs Tariffs of services for which there are no competitors on the market ART has powers of ex-post regulation Settlement of disputes Penalties

Part two: the new framework Presentation of the directives "Framework" directive "Authorisation" directive "Access" directive "Universal Service" directive "Personal data" directive "Competition" directive "Radio Spectrum" decision

Presentation of the directives (1) Background 10 November 1999: publication of the European Commission communication entitled "Towards a new framework for electronic communications infrastructure and associated services - The 1999 Communications Review" and organisation of a public consultation on this document. 12 July 2000: publication of five proposed directives of the European Commission ("Framework" "Authorisation", "Access", "Universal Service" "Personal Data" directives). Adopted texts Four directives adopted on 7 March 2002 ("Framework" Directive, "Authorisation" Directive, "Access and Interconnection" directive, "Universal Service" directive) to be transposed by 24 July 2003 A decision concerning frequencies adopted on 7 March 2002 ("Radio Spectrum" decision). The "Personal Data" directive of 12 July 2002 to be transposed by 31 October 2OO3 The "Competition" directive of 16 September 2002 to be transposed by 24 July 2OO3 The European regulation of 18 December 2000 relative to unbundling of access to the local loop, originally included in the review. It was adopted more quickly than the other texts.

Presentation of the directives (2) Adopted texts (cont'd) Commission Guidelines of 11 July 2002 on market analysis and the assessment of significant market power, under the Community regulatory framework for electronic communication networks and services Recommendation of 11 February 2003 relative to relevant product and service markets within the electronic communications sector liable to ex ante regulation under the "Framework' directive Objectives of the new framework Take account of growing competition Take account of technological convergence Important consequences for regulation Confirmation of the principle of sectoral regulation Creation of a harmonised framework for networks, independent of content carried Transition to a regime of general authorisations Consideration of the wide range of competitive situations on the different markets (definition of relevant markets and operators "with significant market power") Reinforcement of the Commission's harmonising role

"Framework" directive General provisions Introduction of the notion of "electronic communications" (art 2) Definition of the general objectives of regulation (art 8) Reinforcement of cooperation between NRAs and the Commission Framework for information exchange (art 5) Creation of the European Regulators' Group (decision of 29 July 2002) Creation of the Communications Committee (COCOM) Market analysis procedures Market power is redefined (art 14) The NRAs define the relevant markets, analyse them and impose necessary obligations upon SMP operators, in collaboration with the competition authorities (art 15 and 16) Operators are required to communicate all necessary information to the NRAs (art 5) Procedure for making draft measures accessible to the Commission and to NRAs in other Member States (art 7.3) Commission's right of veto over certain measures (art 7.4) Consultation mechanism (art 6) When an NRA intends to take measures having a significant impact on the relevant market, it must consult the interested parties Power of NRAs to settle disputes (art 20 and 21) Miscellaneous provisions Obligations of separate accounts and structural separation for certain undertakings Rights of way and encouragement of facility sharing Harmonisation measures for managmenent of scarce resources Harmonisation measures relating to standardisation

"Authorisation" directive Establishment of a general authorisation regime for electronic communication activities (art 3) Regime of rights of use for radio frequencies and numbers (art 5) Member States may introduce secondary trading in frequencies (art 5) Rights of inspection and powers of sanction of the NRAs (art 10) Charges and fees (art 12 and 13) Transitional provisions for existing authorisations (art 17)

"Access" directive Definitions of access and interconnection (art 2) Access means the making available of facilities and/or services to another undertaking for the purpose of providing electronic communications services Interconnection is a specific type of access implemented between public network operators General rights and obligations (art 4) Right to negotiate access and interconnection Obligation for network operators to negotiate interconnection With regard to access and interconnection, NRAs are empowered to intervene at their own initiative or at the request of the parties involved In the light of the market analyses performed, NRAs are empowered to impose, amend or withdraw obligations on SMP operators (art 8) List of obligations that NRAs are empowered to impose on SMP operators (art 9 to 13) Existing obligations are maintained (art 7) Provisions specific to local loop unbundling (art 12) Provisions relating to conditional access systems (art 6)

"Universal Service" directive Definition of universal service (art 3 to 10) Procedures for the provision of universal service (art 8) Financing of universal service (art 12 and 13) Monitoring of universal service retail tariffs (art 9) Obligations specific to certain SMP operators Monitoring of retail services, tariffs in particular, when there is no effective competition on the market and when access and interconnection obligations are not sufficient (art 17) For SMP operators on the retail leased-line market, obligation to provide a minimum set of leased lines and obligations relating to conditions of provision (transparency, non-discrimination, cost orientation) (art 18) SMP operators on the market for connection to the fixed telephone service are required to propose a carrier selection and preselection offer (art 19) Provisions relating to end-user interests and rights (art 20 to 29) Contracts, price transparency, service quality, interoperability, operator assistance and directory enquiry services, numbering Number portability (art 30) Portability of geographical and non-geographical fixed numbers Mobile number portability Procedures for settling disputes between operators and consumers "Must carry" obligations

Part three : Access and interconnection in the new framework To define obligations to operators concerning wholesale markets and retail markets, the NRA must conduct an analysys: To identify the relevant market; To determine which operators are SMP; To determine the remedies to be applied in order to adress the competition issues. The remedies must be justified, proportionate and respect the general objectives that the Commission has defined in the framework directive: Ensure an effective competition; Ensure that the competition is not hindered or altered; Encourage efficient investments.

Part three : Access and interconnection in the new framework The Commission has pre-identified the 18 markets that NRA has to include in its analysys. The NRA can identify other markets. The 18 markets include the following wholesale markets: Interconnection: Departure, transit and termination services on public fixed networks; Departure and termination on mobile networks; Interconnection of leased lines Access Access to public fixed network (unbundling of the local loop) Access to mobile networks Trunk leased lines

Part three : Access and interconnection in the new framework The NRA must determine operators which can have dominance in the market. It can be single or collective dominance. This must be established with an approach coherent with the general competition law (more complex than the 25% law). A « dominant » player can act regardless of competitors and consumers, that means has a position of increasing its profit if not regulated.

Part three : Access and interconnection in the new framework Remedies are identified following the analysys of a wholesale or a retail markets. Intervention on wholesale markets must be preferred to those on retail markets. List of remedies: Transparency (RIO, transmission of contracts to the regulator); Non discrimination; Accounting separation; Access obligation; Price control and cost orientation.