With an increased emphasis on the Information Society and E-Commerce this summer has seen a flurry of activity on the European front regarding the regulation of communications services. Neil Brown, Partner in the Telecommunications team at Eversheds LLP, provides an insight into the regulatory highlights and the implications of these for communications providers.
The cost of using a mobile phone between Member States has come into increasing focus through the work of Commissioner Reding, who has been vocal in pushing for legislation to require mobile operators to significantly reduce the cost of making and receiving calls between Member States. This has resulted in the implementation of the Regulation of the European Parliament and of the Council on roaming on public mobile telephone networks within the Community ("the Regulations").
Under the new rules, the wholesale charges for roaming (which foreign operators charge the subscriber's "home" network for using their network) will be capped, and so too will the retail amount that mobile customers pay when making voice calls from another Member State. The regulations also cap the price that is charged for receiving calls in another Member State, as well as requiring mobile operators to provide subscribers with free information on the cost of roaming.
The Regulations effectively create a Euro-tariff which mobile operators will have to offer to their customers. If the customer does not already benefit from a special roaming rate the customer will automatically be placed on this new Euro-tariff.
While consumer groups may welcome the proposed Regulation, caution should be exercised when assessing the impact on the industry and consumers who do not use roaming services. The European Regulators Group and the GSM Association have stressed that there may be several unwanted effects caused by these new rules.
Market conditions across Europe are very different and so too are the costs of different mobile operators. A single retail tariff across Europe may have little effect on the established mobile operators with low costs; however, for those with higher costs, e.g., new entrants, the rules may require them to offer certain international services at a loss. Due to the disparity in costs across Europe, the proposed Regulation could threaten the commercial viability of smaller operators, particularly those in emerging markets.
If, as the Commission anticipates, the new rules lead to a significant increase in the use of mobile phones when subscribers are abroad, operators may need to invest in additional infrastructure to increase the capacity on their networks, particularly in holiday "hot spots" around the Mediterranean. There may be tension between the need to invest in expensive infrastructure, while at the same time limiting the operators ability to recover these additional costs from the subscribers who actually use these international roaming services.
This potentially negative effect was highlighted to the Commission by Mobilkom Austria Group in its response to the Commission's proposal. Due to low domestic rates, the Austrian mobile industry is already struggling to earn sufficient revenues to cover its capital investment in the Austrian and Slovenian telecommunications markets. The proposed cap on roaming prices could further impact on the operator's ability to recover its costs. The operator fears that the regulation could dissuade new operators from entering into the market and could lead to an increase in consolidation, reducing the number of smaller players in the market.
Whilst the proposed Regulation is intended to benefit consumers, the price cap could lead to operators making potentially difficult decisions to reduce the availability of international roaming services, particularly for lower spend customers. Alternatively, operators may be forced to increase the prices of non-regulated services (e.g., domestic mobile calls) to offset losses caused by the new Regulation.
The proposed new rules may also conflict with the aims of the existing package of legislation for the communications sector, the New Regulatory Framework, which was introduced in 2003. The underlying principles of the NRF are to refrain from regulation wherever possible and to ensure that any regulation fosters and encourages investment in the sector. The new Regulation represents a major expansion of regulation into an increasingly competitive and innovative market. The new rules could lead to a loss of investor confidence as the return on their investment may be uncertain due to the increased risk, reducing the competitiveness of the EU in relation to alternative destinations for investment.
Whilst the Regulation will be welcomed by those who use their mobiles abroad, this must be balanced against the needs of an industry which is required to invest significant sums to enable these international services to be offered. No-one would argue that any operators who have been allowed to charge their subscribers excessive amounts for making and receiving calls abroad should be prevented from doing so in the future. Whether the Commission's current solution is the best for all users of mobile services and the industry as a whole is something set to be hotly debated, making a smooth passage through the European parliament unlikely.
The Data Retention Directive - The Impact On Pan-European Operators
The recent terrorist attacks on the U.S., UK and Spain have led to the implementation of a number of pieces of legislation across the globe, all aimed at combating and discouraging further terrorist activity and assisting security services to apprehend those responsible. The European Union is poised to move decisively in this direction with the implementation of the Data Retention Directive which is to be implemented in the 27 EU Member States by 15 September 2007.
The aim of the Directive is that the retention of data will assist law enforcement agencies in the apprehension of suspected terrorists and with the detection and prevention of serious crime. The Directive will, however, have serious consequences for communications providers both in Europe and the United States. Compliance with the Directive for Pan-European players will need to be carefully considered, particularly as the implementation of the Directive differs greatly across Europe.
In a nutshell the Directive requires providers of public communications services and networks to retain specific data relating to both fixed, mobile and Internet telephony for between 6 months and 2 years. The data to be retained includes names and address of subscribers (including Internet protocol address), telephone numbers used and duration of the call.
The first hurdle for many providers will be in deciding to what extent the Directive and corresponding national regulations apply to their businesses together with what data they will have to retain. The Directive relates specifically to telephony data generated and processed by public communications providers within the European Union; however, in some Member States the remit of the data to be retained is somewhat wider than provided for by the Directive.
Who is a public communications provider is not defined in the Directive. Communications providers will have to look to the different national regulations on a country by country basis to ascertain whether they are a public communications provider and therefore are going to have to implement a data retention programme. In addition to this the Directive is not clear whether the communications provider must be established in the European Union, or like the Data Protection Directive, merely have a place of business or office in the European Union for the obligation to retain data to be triggered. This may result in a number of U.S. providers who do not have subsidiaries in Europe being caught by the Directive.
The obligation to retain data applies to data which is generated or processed within the EU. The terms generated and processed are to be given the same meaning as the Data Protection Directive and are extremely wide. Therefore, if the data originates, terminates or is processed anywhere in the EU, communications providers may find themselves caught by the new Directive.
Many providers are unconcerned by the retention requirements, particularly as for many established communications providers this data is already being retained, either for commercial reasons or under voluntary codes such as those established in the UK by the Anti-Crime and Terrorism Security Act 2001.
The main problem and cost for communications providers, however, lies in the requirement that retained records are easily accessible and retrievable on request by a law enforcement agency ("LEA"). The data will therefore have to be retained in a manner which makes it easily identifiable and retrievable in the event of an access request by LEA. This will inevitably result in additional costs to the communications provider which may result in increased costs for the end-user and a reduction in competitiveness in the market place. Although previous consultations and drafts of the Directive provided for the EU Member States to compensate communications providers for the cost of setting up a retention and retrieval programme, the Directive is woefully silent on this point. As a result the attitudes of the EU Member States vary considerably. The UK regulations allow for providers to recover costs associated with the setting up and running of a retention and retrieval programme; however, this is not the case in a number of other EU Member States such as Germany.
As ever with the introduction of new legislation, the main question is "what are the consequences of getting it wrong?" The Directive is not specific about what sanctions are to be imposed on communications providers who do not retain data. The Directive does, however, require all Member States to implement the same sanctions in respect of this Directive as were implemented in relation to the Data Protection Directive. The national regulators responsible for enforcing the Data Protection Directive do, however, take very different views of their enforcement obligations, with many such as the Spanish regulator taking a hard-line stance on the abuse of personal data and others such as the UK regulator taking a much more co-operative approach with UK businesses seeking to find a solution before resorting to formal action.
Whilst the intention of the Directive is admirable, the effectiveness of such measures remains to be seen. In the meantime Pan-European operators will need to instigate compliance programmes and bear the cost of implementing retention and retrieval programmes on a country by country basis to ensure that they are and remain compliant with the new Directive.
Neil Brown is a Partner in the commercial practice at Eversheds. He established the Eversheds telecommunications group when the UK telecom market was liberalized in the early 1990s, having pioneered a specialty in telecommunications at Eversheds in the late 1980s. The group is now one of Eversheds' leading sector practices and comprises a multi-disciplinary sector team of around 30 lawyers.
Neil has advised network operators in the fixed, mobile and satellite sectors; service providers; equipment vendors; infrastructure providers, and large scale users of communications equipment and services.
In recent years Neil has been heavily involved in a number of high-profile international network procurement projects in the UK, Europe, and the Far East. Neil is described as a "leader in telecommunications" in the current issue of Chambers Directory of the UK legal profession.