Industry goes along with the new European Electronic Communications Code

On 14 November 2018, the European Parliament adopted the final text of the European Electronic Communications Code. After the European Council’s final approval, the rules will come into force, although member states will have two years to transpose them into national legislation.

Luca Schiavoni, Senior Analyst at Assembly comments:

“Stakeholders from all sides of the industry are now welcoming the approval of the code, but the end of the process is just about the only reason why they are positive. Most stakeholders had labelled the final text “a missed opportunity”, and there is discontent across the board: incumbents hoped for a more thorough effort to deregulate, whereas alternative operators warned of the risk of taking competition for granted. Mobile operators also saw insufficient ambition in a code which fails to bring effective harmonisation to spectrum awards, at a time when the era of 5G is on our doorstep.

The need for national implementation means that, once again, there is a very high risk of inconsistency across the EU, which defies the long-cherished idea of a proper single market. The European Commission will be pleased that the Code has been approved on time before the end of its mandate, with elections due to happen in May 2019; however, it will take a few years to understand the real impact of the new Code. Despite the abundant gloom, it is possible to see some winners, and these are the wholesale-only operators which are starting to populate the telecoms landscape in some countries. The rules explicitly limit the regulatory obligations they will face; in turn, the growth of these operators could make the life of many regulators’ much simpler, as they bring some welcome competition in the market for fixed infrastructure.”

Note to Editors

Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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Roaming in the event of no Brexit deal

The UK government today announced in the event that the UK leaving the EU without a deal, the costs that EU mobile operators would be able to charge UK operators for providing roaming services would no longer be regulated after March 2019. This would mean that surcharge-free roaming could no longer be guaranteed.

Matthew Howett, Founder & Principal Analyst at Assembly comments:

“It's important to understand the underlying economics at play. It's not a question of operators simply looking to seize an opportunity to increase revenue. The fundamental issue being that EU mobile operators would be under no obligation to offer UK mobile operators the regulated wholesale prices for access to their networks.

If wholesale prices increase dramatically then there could be no option but to pass those costs through – much in the same way we see with energy providers. However for that to be the case, wholesale prices would probably have to increase dramatically from where they are, or where they were before the regulation came in.

If wholesale prices don't go up significantly, competition between UK operators could still mean no return to the past. Some operators have defined themselves by offering a roam-like-you're-at-home service before the EU regulation came into being. Many have also included destinations outside of Europe, where wholesale prices have never been regulated, including the US, Australia and Asia."

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Ofcom answers calls for predictability and certainty when it comes to full fibre

Ofcom has outlined a package of proposed measures to support long-term investment in full-fibre networks. They include regulating business and residential markets together, plans for unrestricted access to Openreach’s ducts and poles, different regulatory approaches in different parts of the country and extending the duration of regulation from three to five years or more.

Matthew Howett, Founder & Principal Analyst at Assembly comments:

"The Ofcom announcement is part of the wider narrative and background work which seems to have been taking place between government, regulator and industry lately. It's encouraging to finally see more joined up thinking and a collaborative approach. Today's announcement should be seen as a directional document, the detail of which will follow in the relevant market reviews Ofcom carries out. There are things in there that BT and Openreach will be encouraged by, and others that will likely prompt a more critical response. The unrestricted duct and pole access for instance which would allow mobile operators to connect base stations is likely to raise a few eyebrows."

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Openreach cuts wholesale broadband prices to boost fibre uptake

Openreach is today introducing some significant discounts across its national wholesale superfast and ultrafast broadband networks. The discounts go beyond the pricing regulations imposed by Ofcom, and in some cases they reduce wholesale pricing by up to 40%.

Matthew Howett, Founder & Principal Analyst at Assembly comments:

"This can be read more than one way. In one sense it's about Openreach showing the industry and the regulator that they have changed and are implementing the further separation from BT not only to the letter, but also in the spirit of what was agreed. This does seem like a genuine move to get more people onto the fibre network and stave off criticism from those that say the UK falls behind.

It's also about making commercial sense. For Openreach (and others) to invest confidently in Britain's fibre future they need to get a sense of the demand that's out there. Securing large scale orders from customers like Sky, TalkTalk and Vodafone will encourage them to go even further with the build."

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The long-awaited Future Telecoms Infrastructure Review

The Government has set a course to accelerate improvements to the UK’s digital infrastructure by publishing the long-awaited Future Telecoms Infrastructure Review. 

Matthew Howett, Founder & Principal Analyst at Assembly comments:

"Two of the more striking recommendations are plans to allow unrestricted usage of Openreach’s passive infrastructure for the provision of mobile backhaul services and the decision to allow mobile operators far greater use of government buildings to boost coverage across the UK. 

Access to suitable sites for mobile operators has been an ongoing and well publicised problem. Starting with making access to government buildings easier should help speed up deployment and improve coverage – a good example of a low hanging fruit.  

Rather strangely also shoehorned into the document is a suggestion that four networks might be too many to support the level of investment in 5G required, and that as such as Ofcom should monitor and consider the industry structure if the necessary investment wasn’t being made because of competitive dynamics. While it has been suggested that Three and O2 (who recently had a merger blocked) will be buoyed by this news, it’s unlikely to materially change the course of things in either the short or medium term. Both have been quick to assert their 5G credentials and there looks set to be a healthy level of investment in network improvements. Ofcom too is unlikely to be convinced by the need for change unless something drastic materialises."

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Google fine illustrates the EC still needs a new approach to digital markets

The European Commission has today fined Google €4.3bn arguing the company engages in illegal practices regarding the Android operating system in order to strengthen dominance of Google search. The EC notes Google has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store); paid large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and prevented manufacturers wishing to pre-install Google apps from selling devices running on alternative versions of Android that were not approved by Google (so-called "Android forks").

Luca Schiavoni, Senior Analyst at Assembly comments:

"The EC’s fine is quite a slap (around half of Alphabet’s turnover for Q1) but neither this, nor the remedies Google are being required to put in place are likely to structurally alter the market.

Not only does this case resemble a previous one between the EC and Microsoft, which was then ordered not to lock PC customers into Internet Explorer; it also fails to set out structural remedies for a market which almost inevitably tends towards concentration, and therefore is difficult to break up without significant disruptions. End users value interoperability, and so do application developers, which means the case for more competition in the space of operating systems is not so clear. Similarly, search engines are successful because of their algorithm and of the large data pools they can rely on, which creates a spiralling network effect driving users towards the largest providers almost naturally.

Competition authorities are still grappling with questions of how to make these markets more open, and most of them are still at the stage of asking questions. Regulators in the US and Australia are running consultations on how to best oversee online platforms’ activity, and even the EC competition commissioner has today admitted they have not yet decided whether Google is compliant with the order issued in 2017 on vertical search for e-commerce. While regulators figure out how to best approach all these issues, fines help the public coffers – but do not solve any market problem."

Note to Editors

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Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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US net neutrality is dead, long live net neutrality

Today is the day in the US when the FCC’s Restoring Internet Freedom order takes effect. It is the order which repeals the previous Open Internet Order of 2015, and reclassifies broadband as an information service rather than a telecoms service to keep it away from what the FCC calls “heavy-handed” regulation.

Luca Schiavoni, Senior Analyst at Assembly comments:

"The FCC’s ‘Restoring Internet Freedom’ order promises to set businesses free from unnecessary, heavy-handed regulation so that they can go back to investing, innovating, and making customers happy.

Except all might not go as planned, since individual states in the US are reacting to the repeal by passing their own rules, and a good amount of Congress members are keen to overturn the FCC’s ruling. In particular, the bill under discussion in California, which is by and large a refusal of the FCC’s provisions and a re-introduction of the previous ones, is a ticking time-bomb whose consequences are all but unpredictable. There is one thing surely worse than heavy-handed regulation: that thing is a patchwork of inconsistent rules, state-by-state. A nightmare for the telecoms and technology sector, which would face significant trouble in complying with different provisions across the US.

It’s easy to see why the FCC wants to abide by the very American principle that regulation is always bad. However, they cannot be content with simply repealing the Open Internet Order; they need to strengthen competition between ISPs, so that all those rules will not be needed for an open internet. It will be very long before that happens, in a country where most households cannot choose between more than two broadband providers if they want a 25Mbps connection or faster.

Note to Editors

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Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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The wide discontent around the new European Electronic Communications Code is no good thing

On 6 June 2018, the EU announced a political agreement on the long-awaited European Electronic Communications Code. Stakeholders across the board are unhappy; however, the favourable treatment of wholesale-only networks could solve some long-standing problems facing wholesale access regulation over the last 20 years.

Luca Schiavoni, Senior Analyst at Assembly comments:

"Very often, when regulatory measures are widely criticised and seeming leave everyone unhappy, it often means policymakers have probably struck the right balance. This might not be the case with the newly approved European Electronic Communications Code however, which has seen both fixed incumbents and alternative operators alike voicing discontent, and left mobile operators disappointed by the unfulfilled promise of 25-years long spectrum licences.

Perhaps most striking is new retail price regulation to cap intra-EU call rates. Not only does this contradict the principle of a code which should have aimed to reduce regulation; it also intervenes in an area where operators will see a further reduction in revenues, after the introduction of roam-like-at-home, and customers are unlikely to see significant benefits as traditional call and text now have a wide variety of alternatives, often at no cost at all.

Telcos from both sides have also criticised the rules on co-investment, which should have been an incentive for operators to team up and build fibre networks by reducing the regulatory burden on such ventures. Incumbents claimed it isn’t enough, and alternative operators argue it is a dangerous reduction of competitive safeguards.

One winner however does seems to emerge and that is the wholesale-only model. Under the code, wholesale-only networks will benefit from less burdensome regulation. If this results in more wholesale-only networks across the EU, at least it will mean the end of the eternal headaches caused by the existing framework on wholesale access regulation, which has proved very hard to get right and to police across all member states. However, the challenge here will be to ensure that competition at the infrastructure level becomes (and stays) healthy."

Note to Editors

Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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GDPR is almost here, but it will not change the world in a day

The most talked about day of the last two years is almost upon us. The European General Data Protection Regulation (GDPR) will come into force tomorrow, promising much stronger rights and safeguards for users’ personal data. For now, the main effect it has had has been, paradoxically, to irritate the very people it is supposed to protect, due to the deluge of emails we have all received from companies seeking fresh consent. While businesses fear GDPR’s hefty fines, it is likely that regulators at least will be flexible in the first few months.

Luca Schiavoni, Senior Analyst at Assembly comments:

“With the sweeping pace at which technology has progressed in the last 20 years, it is almost unquestionable that the rules needed an update. We will now finally be able to know whether such update has been sensible and effective against the ambitious objectives of the Regulation.

On one front though, things are shaping up for GDPR to be a success: it has triggered a race to the top, rather than one to the bottom, among lawmakers around the world. The necessity to be seen as an “adequate destination” for personal data of EU customers has pushed several countries to adopt legislation accordingly; recent privacy scandals like the one involving Facebook and Cambridge Analytica have sped up this process too, because nobody wants to be seen as careless about the rights of their own citizens (and voters).

Two aspects trigger businesses’ biggest concerns around GDPR: the hefty financial penalties they could face, and the need to extensively document their choices related to data processing. There is no doubt that GDPR compliance will require keeping detailed documentation of how a company goes about data processing; but this also means that, if a company gets that aspect right, it will also be less likely to incur large fines. In the short run, regulators are also likely to give businesses the benefit of the doubt. The French authority for instance has said explicitly it will be flexible in the first months, and others are likely to follow a similar approach”.

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Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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Ofcom completes UK 5G spectrum auction

Ofcom has today announced the outcome of the principal stage of its auction to release airwaves for 4G mobile and future 5G services in the 2.3GHz and 3.4GHz bands. In the auction, Vodafone spent the most of all operators, O2 acquired all of the available spectrum at 2.3GHz and and BT/EE's share of spectrum fell as per the auction rules.

Matthew Howett, Founder & Principal Analyst at Assembly comments:

"Despite Three having made the most noise about the rules of the auction, it was perhaps O2 that had the most to lose, being the operator that probably needed more spectrum the most. The outcome is a particularly good result for them.

Even though the auction raised a fraction of the amount of the 4G auction or even the 3G auction two decades ago, the prices paid are above expectation which shows how valuable these airwaves are to operators, particularly given the emerging hype around 5G. 

However an unsatisfactory outcome in this auction was never going to necessarily spell the end to any one operators 5G future given that the technology will ultimately work across a number of spectrum bands, both new ones and ones already held by the mobile operators."

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Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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The EC’s Digital Tax faces a long road ahead

The European Commission has today launched a new proposal to adapt the taxation system of the digital economy, in which value is created in countries where a business does not have a physical presence. The EC proposes to introduce a taxable “digital presence”, fulfilling one of three criteria (at least €7m turnover per year in an EU country; more than 100,000 users in a member state in a year; or more than 3,000 business contracts in a state in a year). It also proposes an “interim tax”, which will apply to revenues created from online advertising.

Luca Schiavoni, Senior Analyst at Assembly, comments:

"The idea of a digital tax has been a long time coming, and, while it might not be welcomed by big tech companies, it is hardly a surprise. So much so, that some of them were already changing the way they book their income to pay taxes where they make their profit (for example, Facebook started doing it for some countries in 2016).

Today’s proposal of the EC will nonetheless face significant obstacles. Despite many member states’ appetite for a taxation system which allowed them to get more out of big tech, some countries with a lower corporate tax rate will no doubt try to amend it. Other stakeholders are also concerned: EU E-commerce businesses have already warned about a revenue-based tax for digital platforms, which would turn into an export tax for EU SMEs.

The EC is launching this proposal at a time when the OECD has come up with a comprehensive report on the same topic, which points to the risks of economic distortion and higher costs for business. The Commission is trying to act quickly (more quickly than the OECD itself), which is aiming to have an agreement in place by 2020. However, given the wide disagreements, it might end up being a fruitless effort – even the interim tax will have to be agreed upon by member states, which will take time.

Commissioner Moscovici also stressed that the interim tax is not against “GAFA” (i.e. Google, Apple, Facebook, Amazon) or against US firms; however, those companies are likely to be the ones most affected. While on the one hand this strengthens American concerns about tax; on the other it shows the underlying problem of European firms still struggling to compete with the world’s online giants."

Note to Editors

Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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Telecom Italia approves network separation plan

On 6 March 2018, Telecom Italia (TIM)’s board approved a plan to move the company’s fixed network assets into a legally separated entity, which will still be part of the group and will be 100% controlled by TIM. According to the plan, access to the network will be granted through a ‘one-stop-shop’ access point for regulated and unregulated wholesale services for all operators including TIM, delivering a 'fully neutral and equivalent' model.

Luca Schiavoni, Senior Analyst at Assembly comments:

“Several factors contribute to TIM’s decision. It is perhaps striking that, despite the currently changing political landscape in the country, the board decided to approve the plan without waiting for a new government to take power. On the one hand, this is because nearly all the main political parties in Italy have taken the stance of the need to have a separated fixed network, which means that political pressure for this to happen would have likely continued under the new parliament. On the other, the market in Italy is evolving in such a way, that it is now a good time for TIM to make the spin-off.

In particular, the rise of wholesale-only provider Open Fiber has, for the first time since the liberalisation of Italy’s telecoms market, put significant pressure on TIM’s future wholesale revenues, currently around €2bn per year and forecast to decline by about a third by 2022. Alternative operators quickly warmed to Open Fiber’s arrival on the market, which is now starting to give them an alternative to TIM’s network. For years, these operators have raised concerns about access conditions and TIM’s way to satisfy their access requests.

For now, it is hard to make predictions about ownership of the network. TIM will be the sole owner for the time being, though political pressure and changes in market conditions could result in new investors (both private and public) coming into the netco. It will take at least one year before things become clearer on this front.”

Note to Editors

Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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Stakeholders unhappy with spectrum deal as part of the EECC code

On March 1, 2018, the European Commission, the EU Parliament, and the EU Council reached a preliminary agreement on parts of the forthcoming European Electronic Communications Code, related to spectrum policy. The agreement includes the availability of spectrum for 5G in the EU by 2020; a 20-year period of ‘investment predictability’ for spectrum licences; and enhanced coordination and peer review of planned radio spectrum assignment procedures.

Luca Schiavoni, Senior Analyst at Assembly comments:

"Thursday’s agreement obviously brings the EU one step closer to having a framework for 5G – a drum which policy makers and the industry have beaten hard in the last few weeks, particularly in Barcelona at MWC. However, there is little to cheer about, as once again the distance between different institutions has emerged, and compromises mean nearly everyone is unhappy.

The 20-year period for licences’ length is probably too little, too late, and is certainly seen as such by the industry, whose appetite was whetted by the EC through a promise of 25-year long permits in the initial proposal. Governments, on the other hand, tried to push for a 15-year period, as they have an interest in retain more control on the resource and its frequency of award.

Some stakeholders, such as ETNO, have already voiced their discontent, and they are likely to be joined by others. They very much have a point – progress in 5G deployment in other regions, such as the US, shows that investment is key, and requires a favourable regulatory environment. EU institutions maintain they want 5G commercially available by 2020, though it is currently unclear whether they will even be able to ensure the necessary spectrum awards will have taken place by that deadline."

Note to Editors

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Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

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Tech companies should take down illegal content in one hour

The European Commission issued today a set of “operational measures” to tackle illegal content online. This also includes terrorist content and hate speech. Tech companies are recommended to follow a “one-hour-rule” to take down terrorist content and to implement faster detection systems, including automated ones. Tools should also be shared with smaller companies. Businesses will have to submit information to the EC about their compliance with this Recommendation within three months.

Luca Schiavoni, Senior Analyst at Assembly comments:

“Today’s Recommendation from the EC is not binding, but certainly has the practical effect of strongly steering these companies’ takedown processes and making them stricter. Pressure has been mounting on these companies to take action against terrorist content and abusive speech, as show by the flurry of activity around the issue of 'fake news' in several countries.

On their side, the main social networks are already taking action, as they have understood they cannot ignore the problem if they want to avoid prescriptive regulation. Twitter and Google are implementing technology to detect bad content and fake accounts, and Facebook is poised to do something similar in the coming months.

The main problems are likely to arise for smaller online platforms, for two reasons: they are less likely to be on the regulators’ radar, and they generally have reduced financial capabilities to invest in the implementation of similar instruments. To this end, it is sensible that the EC has recommended the industry share best practices and technology; and we could see more of what recently came out of the UK government, which invested in a technology solution to detect terrorist content and wants small platforms to adopt it.

Note to Editors

Comments can be attributed to the relevant analyst at Assembly.

Assembly is an independent research firm focused on the analysis of regulatory, policy and legislative developments that affect communications markets and the wider digital economy.

To speak to the analyst for additional comment contact:

press@assemblyresearch.co.uk
+44 (0)7786 625 456