The 1999 Communications Review

Comments from Antelope Consulting

on the

1999 Communications Review

These brief comments focus on a few specific proposals of the Review. Antelope Consulting has had particular involvement over the past decade with these issues while working with consumer groups(1).

In policymaking, ensuring adequate representation of the interests of consumers, and especially of disadvantaged groups of consumers.

Reviewing the appropriate level for universal service.

Defining affordability of basic service.

Representation of consumer interests

The fast-changing environment, and the Commission proposal to deal with it by a minimal legally binding framework coupled with flexible soft law, pose an insoluble dilemma for consumers. Given that legal changes take many months if not years to put in place, flexible soft law seems the only way for regulation to keep pace with the industry. But to create and maintain an entire body of communications soft law fully reflecting consumer needs would require a high level of informed consumer input. This would go well beyond anything seen in Europe to date, and in most countries (and certainly at European level) beyond the resources that the consumer movement can itself provide.

As mentioned already, there is no complete solution to this problem. It is not usually possible to hold the market back, and even if it were possible this is not generally in consumers’ interests. However two steps could and should be taken to safeguard the position of consumers.

The principle should be established that regulations intended to protect consumers may only be dismantled after open consultation and rigorous testing, showing that the most vulnerable groups will not suffer as a result. For example:

pressure for rentals to cover line costs must not be allowed to drive consumers with low use and low incomes off the network

pressure for call charges to vary in real time must not lead to charges that are higher than consumers reasonably expect(2).

Governments should provide extra resources as needed to support the independent advocacy of consumer views at whatever level is felt appropriate – local, national or European. It is not enough just to send bodies to meetings (though that is a start). The people concerned must have access to technical expertise, consumer research and grassroots opinion, as well as the opportunity to develop views in concert with others.

These steps will be of particular importance for proposed reviews of the scope of universal service – the views of people who are not yet connected to the telephone network, or whose connection is insecure, are vital when considering policy changes.

Scope of universal service

When it was first formulated, the Commission’s universal service policy represented a step forward for many consumers in Europe. The intention to achieve common minimum service standards at affordable prices for all was, and remains, a worthy one.

Unfortunately, that same policy is now holding back some countries from improving the minimum level of service that is available to everyone. The proposal to limit the scope of shared universal service funding to its current level(3) means that the common minimum service standard may become the ceiling as well as the floor, leaving no room for national flexibility or experimentation.

Already within the existing membership there is a wide spread of national affluence, as well as varying patterns of habitation and culture. It is already recognised that universal service standards should be appropriate to local conditions. In a future enlarged EU, the spread will be much greater and flexibility even more important.

Luckily, the rationale for limiting the scope of shared funding(4) itself points to a way forward. The intention is to avoid undue burdens on operators, such as might constitute barriers to market entry. In the face of unknown net costs for universal service obligations, the limit was originally defined in terms of the service to be delivered (voice telephony). But any burden arises from the size of the net costs, not from the service provided. And in all but one member state, it now appears that the net costs of delivering universal voice telephony are regarded as low enough not to need shared funding. Logic would therefore suggest:

Agreeing a level of shared funding which does not significantly impede entry or otherwise distort competition (this might be of the order of 1% to 2% of industry turnover);

Permitting member states to redefine universal service obligations with shared funding up to the agreed level(5).

This would allow a useful element of national flexibility while maintaining the common market principle. Universal service funding of this order would not at present allow for the rollout of broadband access, but it might, for example, permit the establishment of public internet access points or selective assistance for private internet access.

Affordability of basic service

In response to requests from consumer organisations, the Review announces the intention of issuing more specific guidelines on the meaning of affordability of basic service. This is much to be welcomed. Affordability, while intuitively simple, when analysed is a complex notion involving household resources, degrees of need or want, and consumer choice as well as pricing(6).

Consistency of approach throughout the existing Union is plainly desirable. However, it must be borne in mind that enlargement will bring into the Union new members where affordability will have a very different emphasis. Within the existing membership, household telephone penetration is already high and there is a growing emphasis on debt prevention and payment mechanisms as important aspects of affordability, as well as on actual price levels.

In several states that are likely to become members within the life of the proposed new regime, household telephone penetration is much lower than in the EU, and/or the price of basic service is currently well below any plausible cost level. Price rebalancing to meet EU accession requirements may put line rentals out of reach of many households. This problem has not yet been fully addressed. Dealing with it in any given country will probably call for elements of different approaches in parallel, including consideration of:

Limitation of the rate of increase of residential rentals.

Different tariff options for existing and new subscribers.

Introduction of new debt prevention and payment mechanisms to help existing subscribers remain on the network, as well as enhancing its appeal to new subscribers of modest means.

Complementary public access strategies to make telephony accessible to households who will not be able to afford their own phone for some time.

Notes:

(1) The term "consumers" here means residential and small business consumers.

(2) Though lower charges could be permitted.

(3) That is, in essence, to voice telephony.

(4)The following suggestion does not imply agreement with this rationale; it is a way of working within it.

(5) Presumably, shared funding above this level could continue provided that it was limited to the current scope, ie voice telephony. This policy may however be tested by the accession of new member states where USO net costs could be significantly higher than among the current membership.

(6)Pricing alone is never enough to determine affordability – consumers’ resources and requirements must also enter the picture. Strangely, many member states are using prices at 1.1.98 as their benchmark for future affordable pricing.

Claire Milne
Antelope Consulting

Tel/fax: +44 20 8505 9826
Email: claire_milne@compuserve.com