European Parliament and Council: pistols at dawn?

The Bois de la Cambre outside of Brussels was once a regular venue for “pistols at dawn”, and 30 December may yet again be a fateful date.

According to a Press Release from the European Parliament, the Parliament and Council begin conciliation proceedings on the telecoms package on 4 November, which must agree a joint text by 30 December.  If they do not agree a text, or if the text is not passed without amendment by both the Parliament (on simple majority of votes cast) and the Council (by qualified majority), then the telecoms package falls and the whole process must be started with a new proposal from the Commission.

There is one open issue: the question of internet access.  This involves amendments to Article 8 of the Framework Directive 2002/21/EC (as set out in the Parliament’s second reading position paper – see relevant documents here).  In particular, the Council does not accept the Parliament amendments:

in paragraph 4 [of Article 8], points (g) and (h) shall be added:

[4.  The national regulatory authorities shall promote the interests of the citizens of the European Union by inter alia:]

(g)  promoting the ability of end-users to access and distribute information or run applications and services of their choice;

(h)  applying the principle that no restriction may be imposed on the fundamental rights and freedoms of end-users, without a prior ruling by the judicial authorities, notably in accordance with Article 11 of the Charter of Fundamental Rights of the European Union on freedom of expression and information, save when public scrutiny is threatened in which case the ruling may be subsequent.

The Council have yet, as far as we are aware, to make known to the Parliament their objections to this amendment.  It is suspected that the “prior ruling by the judicial authorities” phrase is the stumbling block, but as this has now been introduced (albeit with some controversy over the method) in France’s HADOPI II, the only member state so far with a “three strikes” law, it is a surprise that it continues to hold up the whole telecoms package.

HADOPI II – Danger internautes

It is not often that we resurrect our GCSE/O Level French (or bug our bi- or tri-lingual colleagues – thank you Elora and Emanuela) to read a French language statute, but HADOPI II is an exception. This is the French “three strikes” copyright protection law, nicknamed HADOPI II after the acronym for the Haute Autorité pour la Diffusion des Œuvres et la Protection des droits sur Internet, the new regulatory body created by the law.  The “three strikes” relates to suspending internet access to subscribers who are deemed to have breached copyright, e.g. filesharers, after two previous warnings.  HADOPI I was killed off by the Constitutional Court in June for the lack of any judicial intervention in the procedure to cut off internet access.  HADOPI II was passed by a narrow majority (285 v 225) in the French National Assembly yesterday.  Suspension can be for up to one year, and the subscriber can also be fined up to €5,000.

The only material difference in the new law is the introduction of a judicial step before the final “strike”, but this uses the l’ordannance pénale procedure.  Whilst this is obviously not our specialist area, we understand that this is a light touch criminal procedure.  It means that HADOPI will be able to draft a judicial order, including any penalties, for issue by a magistrate.  The order becomes final after a certain period, unless the defendant appeals the order, in which case there is a trial.

Why is this important in the UK?  Two reasons: the Government has announced that it is looking at similar legislation, and the possible inclusion of a three strikes provision is one of the outstanding matters holding up the passing of the reform of the Framework Directive and the other six-pack electronic communications directives. 

[We would welcome any informed comment on the l’ordannance pénale procedure – is our summary above accurate?]

Charges for CPS set-up: stitch up and screw up?

CPS Timeline

The history of Carrier Pre-Selection (“CPS”) in the UK (as depicted in the timeline above) may be considered to be a bit of a special interest.  However, the conclusions that may be drawn from Ofcom’s review of CPS set-up charges, following a long-running dispute between CPS operators and BT,  may be of wider interest.

BT became subject to a requirement to provide cost-orientated CPS under an SMP condition made under the new Communications Act 2003 regime on 28 November 2003 (the “First Date” labelled on the timeline).  Ofcom ruled in a Determination dated 13 February 2009 that BT had included the retail costs in dispute in breach of that SMP condition.  BT was ordered to reduce its CPS set-up charge by 78p to £1.69 per customer (a reduction of over 31%) from the date of the Determination (the “Third Date” labelled on the timeline).

However, in a Further Statement dated 6 July 2009 Ofcom decided not to order BT to make any repayment of the overcharges, even though in a draft determination included with the February 2007 Determination, it had proposed ordering BT to make repayments from the date when BT ought to have known that the retail costs were inappropriately being included in the CPS set-up charge, determined to be from the date that the current CPS charges were announced (1 November 2007, the “Second Date” labelled on the timeline).

This is a slightly troubling decision by Ofcom.  It appears to imply that there is no strict liability for breach of an SMP condition.  BT, in the absence of any guidance or ruling from Ofcom, was judged to have reasonably included the disputed retail costs in the CPS set-up charges.  Ofcom accepted BT’s subjective view of what was reasonable in November 2003 and November 2007.  Nowhere in the draft or final determinations is the aggregate amount of the CPS overcharges set out.  However, assuming that the overcharge was 78p for each of the 4,000,000 CPS customers in the UK, it can be estimated that the overcharge gave BT a benefit over 6 years in the order of £3m.  Whatever the actual benefit to BT, this must have been a relevant factor for Ofcom in determining whether their approach was appropriate and proportionate.  It is therefore surprising not to see any indication of the BT benefit in the Determination.

Ofcom avoided reviewing the impact of BT’s overcharging, the so called “competitive distortion”, without much justification.  Ofcom also avoided analysing the fact that BT, in recovering retail costs from CPS operators that they were not themselves able to recover, was arguably acting in a discriminatory manner in breach of a more general non-discrimination SMP condition.

It can therefore be argued that in getting away with overcharging CPS set-up costs since 2003, BT has well and truly stitched up the CPS operators. 

It can also be argued that in:

• not providing clear guidance to BT on what costs could be included in CPS charges in 2003; or
• not carrying out the retail costs review promised in August 2005 for 2006; or
• not carrying out a discrimination or “competitive distortion” analysis in the 2009 CPS determinations;

with the result that BT was able to overcharge for CPS and not be required to repay any of these overcharges, Ofcom has screwed up.

If you would like a copy of the CPS Timeline, email us at critique@charlesrussell.co.ukand we will send you the Excel timeline by return.

Our bags are packed; we're ready to go…

We reported over a week ago on the possibility of regulatory holidays sneaking into the Telecoms Package (We’re all going on a [regulatory] holiday…).   Last week (6 May 2009), the European Parliament did its best to get the last word on the Telecoms Package – see the outcome of the second reading. This has given us the first look at the Common Position adopted by the Council.

Don’t try doing a word/phrase search for “regulatory holiday”; nothing as blatant as that has been inserted into the Common Position.  However, have a look at the draft of the amended Article 8(5)(d) of the Framework Directive 2002/21/EC that is proposed:

5.  The national regulatory authorities shall …. apply objective, transparent, non-discriminatory and proportionate regulatory principles by, inter alia:

…

d) promoting efficient investment and innovation in new and enhanced infrastructures, including by ensuring that any access obligation takes appropriate account of the risk incurred by the investing undertakings and by permitting various cooperative arrangements between investors and parties seeking access to diversify the risk of investment, whilst ensuring that competition in the market and the principle of non-discrimination are preserved;

[bold italic text inserted by the Council.]

Anyone care to explain?  Is this the back door to regulatory holidays? It’s a typical example of European late night compromise drafting, so that the article appears to mean whatever you want it to mean (i.e. incumbents will argue that a degree of regulatory holiday is necessary to “diversify the risk of investment” whilst new market entrants will say that access to new non-replicable infrastructure is essential for “ensuring that competition in the market” are preserved).

The Telecoms Package has not been vetoed by the European Parliament, as reported by some commentators.  The Common Position, as amended by the European Parliament, now goes back to the Commission and the Council.  If subsequent trilogues do not lead to an agreed text, the amended Common Position will go to the Conciliation Committee.

We're all going on a [regulatory] holiday…

As is often the case, the devil is in the detail.  Alistair Darling’s Budget speech did not mention Ofcom at any point.  Why would it?  However, there is an interesting statement of intent buried in one of the Budget reports.  Particularly, in paragraph 4.41 of Chapter 4, it states:

In advance of the Digital Britain final report, the Government will review the powers and duties of Ofcom to ensure it can strike the right balance between delivering competition and encouraging investment in the communications infrastructure.

What does this mean?  Does this imply that Ofcom will be pressured to accept that BT be given a regulatory holiday for any broadband roll out?  That is certainly what some sources appear to be suggesting to the Financial Times.

We have also heard rumours that the Council of Ministers may also have included similar wording into the draft revised electronic communications regulatory framework currently going through the EU co-decision procedure. We will have to see what appears in the EU Parliament at Second Reading.

If this means that regulatory holidays are alive and well and living in Europe, then this is a monstrous victory by incumbents, which will arguably put back the liberalisation and development of open competition in the electronics communications sector in the EU by at least three years.  The position in the UK will also be reversed.  No longer will Ofcom’s position as a leading regulator be maintained, and it will destroy the equivalence of access principles developed by Ofcom in its settlement with BT that are considered in many circles to be best international regulatory practice.

Or maybe we are just being too cynical?