OVER-THE-TOP SERVICES, THE LIKES OF SKYPE, WHATSAPP, FACETIME AND SIMILAR APPS, TO FACE EUROPEAN TELECOM REGULATION FOR THE FIRST TIME — RULES EXPECTED TO BE ANNOUNCED SEPTEMBER 14

Article courtesy of special guest:  Erik DeHerdt, Of Counsel to Marashlian & Donahue, PLLC – International Regulatory and Information Privacy Law Attorney
 

1.Introduction

Likely in the course of this week, the European Commission will propose a new telecoms legislation.

One of the most controversial parts of the legal overhaul is whether the telecoms law will be extended to Over-The-Top (“OTT”) players like WhatsApp and Skype for the first time. In addition, the new rules will keep certain safeguards to enhance competition in compensation for light touch or even no-regulation for high performance network roll-out by incumbents. Finally, the Commission is also expected to build its spectrum policy around the 5G narrative and reviews the scope and associated obligations on universal service.

It results from the draft documents leaked in August that the upcoming reform is expected to affect all stakeholders, including US telecom operators already present on the EU market as well as American online service providers such as WhatsApp, Skype and Facetime.

2.Extension of telecom rules to Internet players

In its proposal, the Commission aims to address a level playing field by streamlining the current sector specific requirements and to safeguard a fair competition environment, and hence to impose certain obligations to OTT’s. 

The public consultation preceding the new proposal showed that sector specific rules for Internet services are largely accepted, divergences exist rather regarding the exact scope and magnitude of rights and obligations. Sector specific rules include obligations related to e.g. contractual rights, transparency, quality of services, contributions to the universal service funds, access to emergency services (“112”), the provision of caller location information, payment of taxes and compliance with specific data retention obligations. Also incumbent operators have pushed for the Commission to extend telecoms laws to Internet services as well.

The Commission seems to have heard those arguments to a large extent and proposes a mix of deregulation and application of a limited set of sector specific rules to OTTs. This new policy implies a dramatic change in how US Internet companies were being supervised by national regulators. Many US online service providers will likely be affected by the new rules.

Services to include in the scope

Evidence from the public consultation showed that OTT communication services can be substituted with traditional telecom services. For the time being pure OTT players are subject to horizontal legislation only, and not to the sector specific obligations even when their services are being used by end-users to cover the same or similar communication needs. The current definition relating to the conveyance of signals results in inconsistent regulatory obligations for similar services. Hence, the definition of Electronic Communication Services (ECN) will be changed.

The new definition will address services that enable direct interactive communication between two or a determined number of natural person. The requirement for interactivity contains the possibility to respond and hence excludes broadcasting, websites and unidirectional information services (eg Twitter). Services that will fall under the new definition are voice services (Skype and WhatsApp), video calls (Facetime), text messaging (SMS, Whatsap, Facebook Messenger) and e-mail (Gmail). It seems that webhosting, Facebook or gaming would not fall under the new definition.

Streamlining sector specific rules

One of the regulatory burdens for the sector, in particular US firms that want to enter or cover the entire EU market or at least the larger national markets, is the lack of harmonization of regulatory obligations across all EU member states.

The Commission therefore intends to lessen the regulatory burden by e.g. limiting the scope of beneficiaries for the universal service, and even considers to completely abolish provisions (contractual information, transparency to be limited to Internet access services only). Other potential candidates for deregulation or simplification are the provision on harmonized numbers (which was never a success anyway) and the obligations related to telephone directory enquiry services.

Whilst this is good news for all communication providers, including OTTs, the latter will now also face regulatory requirements that were typically imposed upon traditional telecommunication services.

Targeted sector specific rules for communication services

If the provision of the communication service is dependent on the use of public resources such as telephone numbers (eg Skype-in or Skype-out), it is logical that the service provider will need to comply with requirements for the use of numbers (eg compliance with numbering plan).

Likely the most significant requirement will be the confidentiality of communications requirement which currently applies to telecommunication services only. Separately from the proposals to revise the telecoms law, the Commission envisages to propose changes to the ePrivacy Directive around the end of 2016. The ePrivacy Directive contains specific obligations for telecom operators beyond the general principles of the new General Data Protection Regulation (Regulation (EU) 2016/679 of 27 April 2016). OTTs are currently only subject to these general principles. Although the exact confidentiality obligations will be part of the review of the ePrivacy Directive (separate from the telecoms rules), it is highly likely that now also Internet enabled services will be subject to the same or similar principle of confidentiality of communications. The rationale – again – is to create comparable regulatory conditions for all substitutable and competing communication services.

Another area where the scope of the telecom rules will likely be expanded concerns emergency services. Currently only providers of communications services providing calls to numbers in national numbering plans are subject to the obligation to provide access to 112 (the EU equivalent of 911). Although OTTs are not able to guarantee a proper routing of emergency communications, they will in the future likely be subject to certain standardization requirements enabling emergency packets to be identified and routed with priority (subject to proportionality and technical feasibility).

In order to address the risk of lock-in and network effect, the Commission also envisages to facilitate switching between different communication services. Switching could be facilitated through a portability requirement which may cover communication specific features such as the possibility for the user to port the contacts and the messaging history when switching between providers.

Finally, also requirements in terms of security and integrity of networks may also apply to Internet enabled services in the near future. Services provide by OTT players are not considered as digital services under the new Directive on Security of Network and Information Systems (the “NIS Directive”) that entered into force in August 2016, but a large number of respondents is of the opinion that security obligations related to telecom should also apply to Internet enabled services.

Rights for communication providers

At the same time, the EU regulatory framework offers providers of communication services certain rights such as access to the (international) e.164 numbering plan and the right to interconnect with other operators. The revision may therefore create opportunities for Internet enables services as well. To the extent that OTTs will be subject to regulatory requirements typical for traditional telecom services, they should also be entitled to benefit from the rights provided in the European telecom regulatory framework.

3.Network Access

Boosting high capacity networks is key to some of the objectives of the Commission’s Digital Single Market policy to address full deployment of e.g. the Internet of Things and speed up introduction of Connected Cars on European highways. Hence the proposed measures aim at enhancing roll-out of very high speed networks (both fixed and mobile) on the one hand with accent on infrastructure competition and retail competition. To compensate this fundamental shift, the Commission also provides a number of safeguards to enhance competition but it is clear that lighter tough regulation will become the norm.

One of the leaked documents revealed that the Commission is pushing for telecoms operators to transition from traditional copper networks to fiber infrastructure. Incumbents will nevertheless not be legally forced to switch to fiber, nor does the reform include a mandatory separation of companies’ telecoms service and network infrastructure businesses. In other words, a policy like UK regulator Ofcom’s earlier in 2016 to force BT to separate its networks business will not become the standard in Europe.

Nevertheless, key for many US telecom operators that will need to compete with local incumbents will be the rules that guarantee that they can access the incumbent’s networks. Without explicit rules protecting these operators against national incumbents, many will not be able to compete. On the other hand, incumbent operators have argued that “ex-ante regulation should be removed as much as possible in favour of a greater reliance on ex-post regulatory oversight.”

In principle regulation based on based on completion law principles and the market power test (Significant Market Power or SMP) remains the starting point for future regulation. In this regard the Commission proposes simplified regulation of access to the copper loop, although lighter touch on remedies or the phasing out of the copper network with appropriate transition periods are not excluded. In addition, a legal regime on symmetric access to non-replicable assets (such as civil engineering or in-house wiring), irrespective whether or not the operator has SMP, will be further developed.

More important for US operators will be the mechanism for the harmonization of technical specifications to enhance competition in cross-border business services. The specifications will likely be determined through enhanced powers to the association of national regulators (BEREC) in consultation with the sector. 

4.Spectrum

A large chapter of the Impact Assessment conducted by the Commission was dedicated on plans to reform how EU countries auction off radio spectrum, despite pushback from national governments who want to protect spectrum sales as they are very lucrative. According to the Commission’s analysis, huge differences between auction prices for spectrum around the EU are fragmenting the European mobile market.

The plan to introduce binding conditions for countries to license out spectrum would “involve some reduction in the current degree of national flexibility,” the Commission admits in its opinion, but is required to introduce spectrum rules that fit for 5G success and support efficient investments.

The European Commission announced in its digital single market plans last year that it wants to harness new powers over radio spectrum policy and force EU countries to follow the same rules for their auctions of spectrum to telecoms companies. The previous plan for an EU wide spectrum policy (under Commissioner Kroes) was scrapped, reason why the Commission is now making another attempt – this time with an incremental approach, more stringent than the previous plan but more focused. In order to promote more license exempt spectrum which meets the flexibility requirements for 5G and IoT purposes, the proposal aims to strengthen the applicability of a general authorization regime as general rule (opposed to the exceptional regime of individual licenses).

In general, telecoms companies seem to back the Commission’s plans to boost its authority on spectrum policy.

5.Universal service

It is not surprise that the sector considers the current regime for the provisions of universal services as outdated and inappropriate to ensure an affordable access to a minimum set of services, including access to broadband.

The Commission wants to ensure that 100% of all homes in the EU have access to affordable broadband with broadband access as guaranteed right for everyone in the EU. The new USO regime will focus on affordability rather than deployment so that every end user is able to have an affordable basic broadband access at a fixed location (which may include satellite or terrestrial wireless technology). Old legacy services such as public payphones, comprehensive directories and directory enquiry services will be removed from the scope.

On the financial side, there seems to be good news for telecom operators at first instance. The Commission backs the position that the universal services should be financed through the general budget rather than sectorial funding as is the case in those EU member states that activated a universal service fund. All telecoms operators will be relieved that the Commission proposal will not require them to pay for those networks. It is, however, unlikely that this part of the proposal will be accepted by the national governments.

6.Background

The EU telecom framework was updated for the last time in 2009. Since then, telecoms companies have pushed for another revision, arguing that the set of rules governing the sector has already grown out of date.

The Commission’s public consultation on regulation of the telecoms sector ended in December 2015. In May 2015, the executive announced that it would overhaul the EU’s telecoms laws to encourage telecoms providers to invest in building high speed broadband internet networks.

The review of the regulatory framework for electronic communications needs to be seen in light of the priority of the Juncker Commission to create a connected Digital Single Market (DSM).

The DSM strategy recognized the importance of the paradigm shifts that the digital sector is exposed to and stated that individuals and businesses should be able to seamlessly access and exercise online activities under conditions of fair competition.

According to the Commission Communication, the DSM Strategy will be built on three pillars. The second pillar specifically focuses on the review of the telecoms framework and states that “The Commission will present proposals in 2016 for an ambitious overhaul of the telecoms regulatory framework focusing on (i) a consistent single market approach to spectrum policy and management (ii) delivering the conditions for a true single market by tackling regulatory fragmentation to allow economies of scale for efficient network operators and service providers and effective protection of consumers, (iii) ensuring a level playing field for market players and consistent application of the rules, (iv) incentivizing investment in high speed broadband networks (including a review of the Universal Service Directive) and (v) a more effective regulatory institutional framework”.

The new rules are expected to be announced as from 14 September 2016.

7.Conclusion

US telecom operators and online service providers will in any event be affected by the upcoming new telecom rules.

Although online service providers may face additional regulatory burden to enter the European market, the new rules may also give rise to new opportunities to climb the value chain. Traditional US telecom operators and ISPs are recommended to conduct an impact assessment as the new rules will provide lighter touch regulation for incumbents, in particular with regard to access products such as leased lines and Ethernet.

If you have any questions about this article, please do not hesitate to contact us.

INTERNATIONAL REGULATORY & INFORMATION PRIVACY LAW SERVICES THROUGH THE COMMLAW GROUP

In partnership with The CommLaw Group, Erik De Herdt and Aztec Consult (a global information technology legal & regulatory consultancy) provide U.S. and multi-national enterprise clients with international market entry, licensure and regulatory/legal compliance advisory counsel. Erik is counsel and managing partner of Aztec Consult, located in Brussels, Belgium. He possesses over 14 years experience in virtually all aspects of international communications & technology law and regulation serving executive officers and cross functional teams in cloud communication providers, telecom operators, technology enterprises and information service providers.

For more information regarding European Union and other international regulations affecting telecommunications and electronic communications services, please contact Jonathan S. Marashlian at jsm@commlawgroup.com or Erik De Herdt at edh@commlawgroup.com.