Marta Cantero (Postdoctoral Researcher, University of Helsinki | FiDiPro Project)
The building of a Digital Single Market for telecommunications is one of the main priorities of the current European Commission.[i] Yet, the achievement of an actual single market for telecoms is still far from becoming a reality. The designed (multi-level) regulatory model for telecommunications places sector-specific National Regulatory Authorities at the core in the system for the implementation of the EU regulatory framework for telecoms. Moreover, the enforcement of the framework corresponds to the Member States under the national procedural autonomy. However, in order to preserve the legal integrity of the EU rules, the consistent application of the EU telecoms framework and the achievement of its policy objectives builds on a sector-specific supervisory mechanisms that grants the European Commission greater powers to monitor the different regulatory approaches of national regulators: Articles 7 and 7a of the Framework Directive.[ii] These articles put in place a consultation and monitoring system of a post-legislative nature that aims at consolidating the internal market for telecoms based on a combination of hard and soft law techniques, but is this system up to the task?
This brief post examines a pending case (Case C‑28/15, Koninklijke KPN NV and Others v Autoriteit Consument en Markt) that highlights the deficiencies of the market-consolidating mechanism put in place.
In a nutshell, the case deals with a clash between the Dutch telecoms regulator, which issued a regulatory decision implementing a Commission Recommendation on termination rates,[iii] and the Dutch Trade and Industry Appeals Tribunal, which overruled the National Regulatory Authority’s (NRA) decision in the context of a procedure of judicial review following the appeal of the regulatory decision by some market telecoms operators. In particular, the national Court required the NRA to deviate from the Commission Recommendation on the grounds that there were no reasons for justifying a modification in the methodology used for calculating caps on termination rates.
However, this is the second time that the regulatory decision following the Recommendation is contested in front of the national court in The Netherlands. Already in 2010, the Dutch regulator (at that time OPTA, now ACM[iv]) issued a decision in line with the guidance provided in the Commission Recommendation on termination rates. That triggered an initial response by the telecoms operators, who appealed the regulatory decision. In very broad terms, and leaving aside further competition concerns and issues of market analysis that were also object of the plea, the Court, upholding the appeal, argued that despite the Commission’s Recommendation on termination rates, conditions on the national market remained unchanged and, therefore, there was no reason to adjust the methodology for cost calculation in accordance with the Recommendation. Essentially, the court concluded that the inefficiencies in retail pricing cannot be resolved by imposing a “more invasive measure” at wholesale level, given that the retail mobile market was already considered competitive.[v] As a result, the Court established new cap prices for termination rates and compelled the regulator to take a new decision setting the relevant rates on the basis of a different cost-methodology than that suggested by the European Commission. As part of the consultation procedure enshrined in Article 7a Framework Directive, the national regulator notified the European Commission the new decision compliant with the court’s judgment. In view of the Commission, that decision could create a barrier to the Internal Market. This led to the opening of a Phase II investigation under Article 7a procedure. Such a situation placed the NRA in the middle of a “tug-of-war” between the European Commission and the national judiciary. At that time, the national regulator could do anything but to give effect to the judgment of the highest administrative court in The Netherlands. However, two years later, in the context of a new market analysis, the regulator –perhaps pressured by the Commission’s investigation under the 7a procedure– issued a new decision following the European Recommendation. As expected, the new decision was again appealed in front of the national court. However, on this occasion, the national court decided to refer the case to the European court for preliminary ruling.
Issues at stake
In brief, the national judge asked the European court to clarify the discretion of the national judge[vi] to depart from a EU Recommendation on the basis national legal and factual(!) circumstances. The national court also seeks clarification as to the competence of the national court to assess the proportionality of the NRA’s performance within the context of the judicial review of regulatory decisions (Article 4 of the Framework Directive). Accordingly, the case addresses three fundamental legal (and institutional) tensions: 1) the legal and factual effect of soft-law; 2) the institutional and substantial limits of the judicial review of the activity of the national regulator; and 3) the proportionality of the NRA’s regulatory activity when giving effect to a EU Recommendation in a situation where the factual circumstances of a national market remain unchanged (reflecting a clash between the national regulator and the national judiciary).
So far, we do not have a final Judgment from Luxembourg. However, the analysis of the recently issued Opinion (28th April) already provides warnings about the institutional problems that this case entails, in particular, for those other NRAs in Europe that are facing a similar situation and that, therefore, are awaiting a decision.
In the Opinion, AG Mengozzi holds that, despite its non-binding nature (para. 54), the national court has to “take into consideration” the Recommendation on termination rates (para. 57). Moreover, he also posits that the national judge must act with “extreme caution” when deciding to depart from the methodology suggested by the Commission (paras.53 and 64). Advocate General also considers that it is not a problem of incompatibility of the national law with the EU legal provisions. In particular, he states that he finds (para. 72)
“very difficult to conceive that the national law, as it has stated that court, namely, as proceeds from Union law, requires, by its wording and its capacity, departing from the calculation model recommended by the Commission”
However, and given that that does not mean that there is only one appropriate model to give effect to the provisions contained in the Access Directive[vii], Mengozzi acknowledges, the specific characteristics of the Dutch market could lead the national court to depart from the recommended model (para. 75).
The second part of the Opinion focuses on the assessment of proportionality of the regulatory decision in accordance to the regulatory objectives to be pursued by NRAs under the Framework Directive as part of the judicial review. In Mengozzi’s view, the scope of judicial control of the regulatory activity reaches the proportionality assessment (paras. 80 and 84). As to this proportionality assessment, he holds that, in his view, following the Recommendation would entail a presumption of proportionality with the EU regulatory objectives enshrined in Article 8 of the Framework Directive; namely, promotion of competition, contribution to the development of the Internal Market, and promotion of the interests of the citizens of the European Union. This is important because the regulator’s justification to impose an obligation in a regulated market (wholesale) was based on the effects to be produced on a non-regulated market (retail). Accordingly, when it comes to the burden of proof, and given that it would require the demonstration of an impossible (or excessively difficult to provide) evidence, he concluded that the national court cannot require the NRA to sufficiently prove the effective achievement of the regulatory objectives (paras. 92 and 96).
Harmonizing the Internal market under a multi-level governance structure is not an easy task, and this case overly illustrates the difficulties that such endeavor entails. The underlying issues that the case involves can be summarized as follows:
1. First, should the European court follow AG’s Opinion it would mean that the national judge, when deciding on the appeal, can overturn the analysis performed by the regulatory authority, as it already did with the first national ruling; i.e. the national judiciary would be acting as a de facto regulator. This results in an institutional conflict that slows down the integration of the telecoms market –the case has been ongoing since 2010. In my view, this judicial spillover raises the question as to whether the intervention of the national judiciary into the regulatory activity needs to be balanced against the principles of equivalence and effectiveness in the context of the implementation of a non-binding instrument.
2. Secondly, the case casts doubts on the effectiveness of the sector-specific supervisory mechanism put in place under Articles 7 and 7a procedures of the Framework Directive, and the limits and actual effect of soft law as an integration tool.
3. Thirdly, the multi-level governance design upon which the sector is build raises the question as to whether the national court should be entitled to determine the effective influence of national regulatory measures beyond the domestic marketplace. If the ECJ agrees with the Opinion, it would be for the national judge to decide on the effect of a national measure on the Internal Market – something that should belong to the ECJ. This calls for further answers concerning the viability of the telecoms market, as a fast-paced market, to coexist with divergences in Europe or, rather, whether the regime should be upgraded (e.g. more formal powers to the European Commission or the creation of a European Telecoms Agency, something that has failed so far).
4. Finally, the related problem of building a single market for telecoms under a multilevel governance system. Given the relevance of the case for other NRAs around Europe that are facing similar situations, most of the regulatory decisions from European NRAs involved investigations initiated by the Commission under the abovementioned Article 7a procedure are on hold until the case is decided.
The case addresses classic and timely questions about the role and legal effect of EU soft law. In particular, when it comes to the effectiveness of soft law mechanisms for market-integration purposes; which is perhaps the most interesting aspect of the case.
Whatever the final outcome will be, it will have remarkable consequences for the current configuration of the telecoms institutional and procedural framework. One possibility is that the European court does not allow the national judiciary to depart from the Recommendation. In such case, it would mean that there is no room for domestic adaptation and Article 7a procedure would then help to boost non-binding decisions from the Commission. However, the other possibility is that the court follows AG’s interpretation. In my view, allowing departure from the Recommendation would render Article 7a procedure ineffective, provided that the national court would define to what extent the effect on the Internal Market of a national regulatory decision is sufficient so as to justify a mandatory compliance with a non-binding European instrument.
Photo credit: ispreview.co.uk
[i] Political Guidelines for the next European Commission – A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change (15 July 2014), Jean-Claude Juncker.
[ii] Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), as amended by Directive 2009/140/EC and Regulation 544/2009.
[iii] Without much elaboration on the technical details, termination rates are the rates which telecoms networks charge each other to deliver calls between their respective networks; i.e. how much mobile phone operators can charge to connect calls on each other’s networks. The Commission Recommendation aims at harmonizing the costing methodology used in the calculation of price caps for termination rates; Commission Recommendation (2009/396/EC) of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU. OJ L 20.5.2009, pp. 67-74.
[iv] OPTA (Onafhankelijke Post en Telecommunicatie Autoriteit, "Independent Post and Telecommunications Authority", in English) was replaced by a single “super watchdog” body: the Netherlands Authority for Consumers and Markets (‘ACM’) after the merger of the Netherlands Competition Authority (NMa), the Netherlands Consumer Authority, and the Independent Post and Telecommunications Authority of the Netherlands (OPTA). ACM became operational as of 1st April 2013.
[v] CBb Judgment of 31st August 2011, 18.104.22.168.
[vi] Interestingly, the national court poses question(s) of the legitimacy of the court to deviate from the Recommendation, but it does not refer to the NRA’s discretion to not follow the recommended costing methodology, which is the situation in some other Member States.
[vii] Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive).