the European Commission (DG XIII)^*

APPENDICES

March 1997 London

1. Context

The Commission is currently preparing proposals for the regulatory framework governing the telecommunications industry for the time when the liberalisation process will have been completed. From the institutional perspective, this requires definition of the respective roles for national and Union regulatory authorities.

In addition, many industry participants have identified the need to streamline enforcement of the regulatory framework and called for an authority at European level The Report on "Europe and the global information society" ("Bangemann Group Report") argued for such an authority, without however seeking to define its remit.

2. Background to the study

The future organisational structure for regulation of telecommunications in the EU must balance various policy objectives, which will form a set of benchmarks against which to judge any future regulatory environment:

• Any future structure should enable effective supervision of the telecommunications industry and ensure a consistent and efficient application of the regulatory framework. This will involve striking an appropriate balance between what should be done at a European level and what is best left to national regulatory supervision. This balance may well vary in different policy areas, such as the application of competition rules, frequency policy or licensing of infrastructure and services.
• Any future structure should facilitate the development of pan-European services and networks, as well as the trend towards convergence of different technologies and markets.
• Any future structure will have to take account of the present framework for regulatory co-operation between national regulatory authorities on a European (CEPT) and worldwide (ITU) scale.

3. Requirements

In the light of these considerations, the study will examine regulatory and legal issues associated with the creation and operation of a regulatory authority at a European level. The study will in particular focus on:

• The study should identify what are considered by market players to be the current or emerging core regulatory issues which would best be dealt with at a European rather than a national level. This might address issues such as:
• licensing and resource management (including fixed and radio-based infrastructure, frequency and numbering issues);
• issues resulting from divergent licence conditions and styles of regulation; interconnection issues;
• co-operation and restructuring within the telecommunications industry and between telecoms and other industries.

• The Study should consider in the light of the survey, and of experience in other jurisdictions, the practical and operational problems which could result from splitting of regulatory responsibilities between a European level authority and national and/or pan-European bodies. Whilst focusing on the telecommunications sector illustrations from other relevant sectors might be considered.
• The Study should also consider potential problems resulting from different levels of regulatory supervision for different parts of the Information Society, as well as possible approaches to overcome this. One example, could be the situation where the licensing conditions for pan-European new telecommunications services was supervised at a European level, whilst content related issues linked to cable television continued to be regulated at a national level.

The Commission has already launched a study on current regulatory structures in some of the main telecommunications markets outside the Union, viz. the United States, Canada and Australia. The results of that study may be useful in addressing the issues of a possible European level authority, given the federal structure in those countries.

• The legal basis for such a regulatory authority, both under the existing EC Treaty and in the perspective of possible changes to this Treaty following the 1996 intergovernmental conference.
• The activities which under those legal bases could be delegated to the authority and whether current legal structures would allow such delegation? What regulatory tasks must legally be retained by the Commission, and what activities could usefully be carried out either by national regulators or by non-Union bodies at a European level?
• In the light of these legal considerations recommendations for possible approaches to overcome the barriers and issues identified in parts 3.1 and 3.2.

This legal analysis should be undertaken in the light of the general principles of Community law, including subsidiarity and proportionality. Account should also be taken of the relationship of any regulatory authority at a European level with other Community institutions, with Member States’ regulatory authorities and with international bodies in the telecommunications area

The study is likely to be carried out by a firm or consortium of firms with extensive regulatory and legal expertise, in particular in the telecommunications sector but not limited to that sector. The contractor should have confirmed experience of regulatory work at the level of the Union, in at least some of the Member States, and ideally also in some of the main jurisdictions outside the Union.

4. Conclusions

The study should draw conclusions from the analysis and present the legal issues which are likely to arise if a regulatory authority at European level were to be instituted for the telecommunications area. The study could also identity the various tasks which could be entrusted to such an authority and any particular issues associated with some of these tasks.

The study is not intended to make recommendations on the merits of whether or not such an authority at a European level should be created as a matter of policy, but may recommend particular approaches to be followed if such an authority were to be established; such recommendations might suggest different approaches for different regulatory issues. The Study is not intended to review existing policy lines followed by the European Union, nor to comment on their merits.

Austria

Dr. Singer, Ministry of Transport and Science.

Robert Springer, IBM Austria.

Ernst Strommer, Austrian Railroads.

Michael Sprinzl, Division for Transportation and Telecommunications Policy, Employers Association.

France

C. Hacker, Charge du bureau des affaires economiques et reglementaires/ Affaires europeennes et multilaterales, France Telecom.

M. Louvet, Reglementation des Reseaux, France Telecom.

J.M. Linois, Chef du Service des Affaires Internationales, DGPT.

S. Petroff, Telecom Development Manager, Eurotunnel.

G. Chauveau, Charge de Mission, SIRIS.

R. Deshayes, IT Manager, Credit Lyonnais.

Germany

Bernhard Spohr, Division Head, Regulatory Affairs, Deutsche Telekom.

Mr. Sanders, Deputy Head, Policy Issues, Ministry of Post and Telecommunications.

Dr. Karl-Heinz Neumann, Director of Regulatory Affairs, RWE Telliance.

Dr. Karl-Heinz Strache, Mannesmann Mobilfunk GMBH

Dr. Thomas Ehrmann, Vebacom.

Dr. Thomas Mellewigt, Vebacom.

Greece

Mr. G. Skarpelis, General Director, Telecommunications Networks, OTE S.A.

Mr A. Lambrinopoulos, President, National Telecommunications Committee.

Mr. N. Manasis, Business Development Manager, Panafon Hellenic Telecommunications Company S.A. Also, Chairman of the GSM European Interest Group and Vice Chairman of the GSM MoU Association.

Dr. P. Tzortazakis, Managing Director, FORTHnet S.A.

Mr. V. G. Cassapoglou, Advocate, Secretary General, Hellenic Telecoms Users Association.

Italy

Claudio Boreggi, Vice-Director for Strategy, Planning and Control, Telecom Italia SpA.

Romano Righetti, Director-General, Directorate for Regulation and Service Quality, Ministry of Post and Telecommunications.

Michele Concina, President and CEO, Albacom SpA.

Bruno Lamborghini, Senior Vice President, Olivetti-Telemedia Group.

Roberto Pesce, Head, Telecommunications Services, Fiat SpA.

Netherlands

Hans Kraaijenbrink, Director of European Policy and Regulation, PTT Telecom.

Fokko Bos, Deputy Head, International Policy Division, Policy Affairs Directorate, Ministry of Transport.

L. Titre, Technological Policy Division, Policy Affairs Directorate, Ministry of Transport.

J. Broere, Frequency Management, Policy Affairs Directorate, Ministry of Transport.

David Reibel, General Counsel in Charge of Legal Aspects, Esprit Telecom.

Frans Lijnkamp, Regulatory Counsel, Unisource.

B. de Ruiter, Vice President Government & Intercompany Relations, Unisource.

Hein Albeda, Policy Officer, ConsumentenBond.

A. de Liefde, Director, BTG.

Spain

Jose-Alberto Blanco Losada, Subdirector General of Strategic Planning, Telefonica de Espana, S.A.

Enrique Carrascal Gonzalez, Subdirector of Access Networks Department of Network and Service Planning, Telefonica de Espana, S.A.

Maria Nieves Tapiador, Telefonica de Espana.

Pedro L. Alonso Manjon, Chief of Support Staff to the Director General, Direccion General de Telecomunicaciones.

Ignacio Menendez de Luarca, Director of Business Development, Retevision.

Jose Ramon Fernandez Antonio, Director of Planning and Finance, Retevision.

Jose Maria Sobrino las Heras, Director of Plans and Studies, Retevision.

Carlos Lopez Blanco, Secretary to the Board and Head of Legal Affairs, Airtel Movil, S.A.

Victor Gonzalez Munoz, Assistant to the President, Airtel Movil, S.A.

Luis Camarena Checa, Director of Marketing, BT Telecomunicaciones.

Antonio Llobet, Assistant Director General, Asociacion Espanola de Usuarios de Telecomunicaciones (Autel).

Bruno Soria, Technical Director, Asociacion Espanola de Usuarios de Telecomunicaciones (Autel).

Sweden

Claes-Goran Sundelius, Director, National Regulatory Affairs, Telia.

Johan Martin-Lof, Director International Affairs, Telia.

Curt Andersson, Deputy Director General - Director of Licensing and International Affairs, Post & Telestyrelsen -National Post and Telecom Agency.

Anders Frederich, Head of Section, Coordination, Post & Telestyrelsen -National Post and Telecoms Agency.

Ola Silberman, Company Lawyer, Tele2.

Jorgen Nilsson, Manager, Business Strategy, Tele 2.

Alan Wright, Business Development Manager, France Telecom Nordphone AB.

United Kingdom

Larry Stone, Head of EU Affairs & European Regulation, British Telecommunications.

Fiona Hope, Senior Adviser, European Regulation, British Telecommunications.

Caroline Varley, Director of Services Competition and International Affairs, Oftel.

Andre Sheehan-Evett, European Regulatory Officer, International Section, Oftel.

Julian Farrel, Communications and Information Industries Division, Department of Trade and Industry.

Christopher Holmes, Communications and Information Industries Division, Department of Trade and Industry.

Mike Dodds, European Telecommunications Section, Communications and Information Industries Division, Department of Trade and Industry.

Gareth Locksley, Mercury and Cable & Wireless Europe.

John Saxton, Martin Dawes.

Other survey respondents

Nick White, Vice Chairman, INTUG.

Mel Read, Member of the European Parliament.

Hartmut Seibel, Regulatory and Legal Counsel, Hermes Europe Railtel.

Otto Bjorklund, Head of Representative Office, Nokia.

Marcel de Sutter, Secretary General, Association of Private European Cable Operators (APEC).

Fact finding interviews

Yves Mongelard, Deputy Head of Office, European Radiocommunications Office (ERO).

Jean-Yves Montfort, European Telecommunications Office (ETO).

The purpose of this note is to provide guidance to those people undertaking interviews as part of the study of the issues associated with the creation of a European Regulatory Authority. In particular, we need to ensure that the output of the interview process is precisely geared to the objectives of the study, as related to us by DG XIII. It is important, therefore, that all interviewers read this note when conducting their programme of interviews.

The European Commission has emphasised that the interviewers need to obtain as much hard evidence and as many reasoned arguments as possible so as to enable the prospective benefits (advantages) and costs (disadvantages) associated with a pan-European regulator to be assessed. To produce the requisite information, it will be necessary for interviewers to ask penetrating questions and to probe interviewees’ responses, in addition to collecting any relevant supporting material. This is turn means that interviewers will need to ensure that they have thought in advance about the potential implications of the creation of a pan-European regulator, including its role vis-a-vis national regulatory authorities (NRAs) and existing European bodies, and have an understanding of what the major issues are in each of the areas covered by the questionnaire.

To help in this process, we have:

• attached the terms of reference of the study;
• attached a note from Denton Hall, which summarises the nature and activities of existing European telecommunications organisations;
• briefly discussed, in a later section of this note, some of the main issues which appear to us to be relevant. Interviewees are, however, encouraged to go beyond our list and to identify any additional issues which they regard as being relevant.

What the Commission does not want is a litany of complaints about NRAs, and their lack of independence, with the concomitant conclusion that a pan-European regulator is required in order to perform the role of regulator of the regulators. The primary objective of this study is to examine the case for creating a pan-European authority, assuming that NRAs will become both independent and effective.

We have therefore defined the regulatory framework which can be expected to exist in the absence of a pan-European regulatory authority. This provides the benchmark against which the benefits of creating such an authority need to be assessed. The regulatory framework in the absence of a pan-European regulator is assumed to have the following elements:

• the NRA in each Member State is independent and effective. Thus, the case for a pan-European regulator does not rest on the fact that, at present, NRAs in many countries are not independent;
• existing European bodies perform many of the functions which might be undertaken by a pan-European regulator. In particular, the following bodies need to be borne in mind when considering the potential role of a pan-European regulator:

• bilateral negotiations between Member States, e.g. on international accounting settlements.

Put succinctly, the purpose of the study is to identify whether the creation of a pan-European regulator would lead to net benefits (after taking account of the costs involved) compared to a framework which consists solely of a combination of independent and effective NRAs, existing telecommunications institutions which operate at a pan-European level, and bilateral negotiations between Member States.

The central question to be addressed is what would the creation of a pan-European regulator offer that can not readily be provided by the framework defined above? Bearing in mind that the regulatory framework will need to cope with the increasing globalisation of telecommunications companies and the prospective development of trans-European networks (TENS), it would appear that such an authority might have a role to play in relation to:

• operation of networks and the provision of services that transcend national boundaries;
• interconnection of networks in different countries;
• co-ordination of the use of scarce resources (numbers and radio frequencies) in order to facilitate service provision and inter-operability at a European level;
• ensuring that regulatory principles and practices are sufficiently harmonised to prevent the emergence of regulatory "havens" and opportunities for companies to exploit differences between countries in regulatory conditions;
• resolution of disputes between entities in different Member States.

It will be necessary, as part of this study, to identify the potential importance of each of these possible roles for a pan-European body, and hence the potential benefits. Equally, it will be necessary to consider the problems and costs, which might arise from the creation of such a body, and their potential importance. A view will also be necessary on the extent to which a pan-European regulator would replace or augment the activities of existing supra-national bodies and committees.

Appropriate interconnection arrangements are essential for the creation of a competitive telecommunications market. However, there is as yet no consensus on what constitutes the correct basis for setting interconnection prices. In this context, it is important to note that the proposed Interconnection Directive is compatible with a variety of alternative pricing regimes and systems for costing and recovering universal service obligation costs.

This suggests that one possible role for a pan-European regulator would be to draw up and secure the implementation of a harmonised set of principles on which to base interconnection charges and universal service payments. The benefits and costs of this would have to be compared with those relating to the system in the proposed Interconnection Directive, whereby the Commission, in consultation with the ONP Committee, can issue recommendations on cost accounting systems relating to interconnection, and can draw up guidelines on the costing and financing of universal service.

Secondly, a pan-European body could act to resolve disputes, particularly where the parties concerned are operating under authorisations provided by different Member States. Again, however, it will be necessary to consider the benefits and costs of such an arrangement with those of the dispute resolution procedure in the proposed Interconnection Directive (which involves the Commission in consultation with the ONP Committee) combined with genuinely independent NRAs.

A third area, in which there may be a role for a pan-European body, is in setting accounting settlement rates. The existing system of rates bears little relationship to underlying costs and there are strong grounds for arguing that it should be replaced by an alternative, more cost orientated structure. In practice, there are likely to be a number of problems in moving towards a fully cost orientated structure, not the least of which is the existence of different costing methodologies in different countries.

In examining this issue it will again be important to compare the potential advantages and disadvantages of a pan-European regulator with other alternatives such as the continuation of bilateral negotiations. For example, which approach is likely to lead to the most rapid reduction of charges (both between individual countries and for the EU as a whole) and which is least likely to result in distortions in traffic patterns and the location of economic activity?

There are strong arguments for common standards both within individual countries and between countries. In particular, their adoption can generally be expected to result in reductions in:

• research and development costs;
• production costs;
• testing costs.

Common standards are likely to benefit manufacturers and hence operators and customers. In addition, harmonisation of standards may help to facilitate the development of competition. On the other hand, it may take time to develop an appropriate standard and, in some cases, an operator may wish to introduce a new technology before a common standard can be agreed.

While there is a clear role for a body to set standards it should be recognised that such a body, namely ETSI, already exists in Europe. As a result, it needs to be considered whether a pan-European regulator is needed in this area or, conceivably, whether ETSI might be incorporated within such a body, although the existence of non-EU members of ETSI would appear to make this difficult.

There is a strong case for harmonisation of the use of radio frequencies within the EU, where this is feasible, since:

• this reduces interference costs;
• enables manufacturers to achieve economies of scale in equipment provision.

However, as in the case of common standards there already exists a European body in this area (ERO). The potential role of a pan-European regulatory body in the area of spectrum allocation and management therefore needs to be evaluated in this context.

Numbering is a shared resource across Europe and the importance of European wide co-operation on numbering of telecommunications services is widely recognised and indeed the Council passed a resolution on this issue in 1992 (Council Resolution 92/C318/01; OJ 1992 C318/2). The European Numbering Office (ENO) was established in 1994 to allow the opinions of interested parties to be taken into account and for the Commission to be involved where necessary. Harmonisation is a key issue and the prospective net benefits of a pan-European regulatory body, with a remit in this area, will need to be considered.

The proposed Licensing Directive should facilitate the provision of pan-European services and infrastructures and enhance the development of competition. In particular, it contains provisions relating to:

• harmonisation of licensing conditions and procedures;
• reliance on general authorisations which largely remove the need to apply for individual licences;
• one-stop shopping procedures, via ETO, which enable a single application to result in individual licences in different Member States.
• a dispute resolution procedure involving the proposed EUTC.

These provisions in the proposed Directive should help to generate significant economic benefits. Any move towards pan-European licensing and harmonised conditions and procedures is likely to result in the more rapid introduction of competition, which in turn may lead to dynamic efficiency benefits and a more rapid move towards cost-reflective pricing. Secondly, pan-European licensing is likely to result in a reduction in transaction costs relating to licence applications and administration.

Again, what we need to identify is how a new pan-European regulatory body would improve the situation and whether the benefits would outweigh the costs.

Competition regulation at the European level is currently the responsibility of the Commission (DG IV). Given the existence of a pan-European regulator, a key issue would be the separation of powers between such a body and DG IV and between it and NRAs, bearing in mind the principle of subsidiarity. Again the question that needs to be answered is what would a pan-European regulator offer in terms of benefits and at what cost.

A further area to consider is the implications of the convergence of telecommunications and broadcasting. If a pan-European regulator were to be established, should it deal with both telecommunications and broadcasting and should it be restricted to issues relating to access and transmission, or also regulate content. Again, the pros and cons of different solutions, with and without a new pan-European body, will need to be considered.

A pan-European regulator could conceivably play a role in the implementation and enforcement of directives. However, the potential role is likely to diminish substantially with the creation of genuinely independent NRAs. The interaction and respective roles of the NRAs and the pan-European regulator is a key area that the study will need to address.

Creation of a Regulatory Authority at the Level of the European Union

At present Member State National Regulatory Authorities (NRAs) are the bodies responsible for carrying out most of the EC telecommunications implementation work. The Commission is examining whether this is appropriate in the long term or whether there is a need for a pan-European regulatory authority. In particular, the Commission would like to understand how regulation can best keep pace with developments in the telecommunications industry, such as the globalisation of telecommunications operators and the introduction of trans-European networks and services.

The aim of the interviews is to discuss, with the interviewees, the arguments for and against having various regulatory activities carried out at a European rather than a national level. In considering which activities might be best carried out by pan-European regulation, interviewees should not be constrained by what is allowed under current European treaty arrangements.

• which elements of the activity do you think should be handled at the European level?
• why do you think each of these activities should be handled at the European level?
• what would be the relationship and distribution of functions between ETSI and the new European-wide telecommunications regulator?

• which elements of the activity do you think should be handled at the European level?
• why do you think each of these activities should be handled at the European level?
• what would be the relationship and distribution of functions between the European Radiocommunications Office (ERO) and the new European-wide telecommunications regulator?

• which elements of the activity do you think should be handled at the European level (e.g. freephone and premium rate number harmonisation)?
• why do you think each of these activities should be handled at the European level?
• what would be the relationship and distribution of functions between the European Telecommunications Office (ETO) and the new European-wide telecommunications regulator?

• allocating and issuing licences;
• the setting of licence conditions; and
• the monitoring of compliance with licence conditions?

7. Implementation and enforcement of Directives (e.g. ONP)

• customer protection, i.e. dealing with complaints by users and service providers
• regulation of price levels and price structures
• funding and enforcement of universal service obligations (USO)
• issues relating to number portability

As discussed in Chapter 6 of the Main Report, the breadth of membership of a European Regulatory Authority might extend to non-EU countries. It is helpful to review the pan-European telecommunications bodies whose membership already extends to non-EU Member States, the mechanisms by which EU Member States transferred their sovereignty to them, and how these pan-European bodies are linked to the EU, if at all. A description of pan-European telecommunications bodies is provided in Chapter 2 of the Main Report.

1.1 ERC/ERO

The Convention for the Establishment of the European Radiocommunications Office (ERO) is dated 23 June 1993 but only came into force on 1 March 1996, replacing the former MoU establishing the Office.

In becoming a Contracting Party, States had the choice of either signing the Convention prior to 1 March 1996, to take effect from 23 June 1993, or acceding to the Convention after 1 March 1996.

Article 18, "the Rights and Obligations of the Contracting Parties", states:

ERO does not, therefore, take any sovereign powers away from the Member States or the Community.

There is a direct link between both ERO and the ERC by virtue of an MoU and Framework Contract between the ERC and the Commission, under the terms of which the Community may sponsor work requirements. These are generally studies which are intended to facilitate the development of European telecommunications policy. We were unable to obtain a copy of this document, but consider a similar document below in the context of ECTRA.

ERO/ERC have co-ordinated their work, particularly with ETSI, via MoU’s which specify procedures for close collaboration in the development of standards for systems or equipment on the one hand and the harmonisation of frequency bands and regulatory requirements on the other. Further, there is a joint ERC/ECTRA/ITU Group which prepares for ITU Council meetings and Plenipotentiary Conferences.

We understand that the Commission is currently working on a report to the Council on the implementation of ERC Decisions, the idea being that these Decisions will become binding agreements to which the Member States will commit themselves in writing.

1.2 ETSI

The ETSI Statutes, adopted on 21 November 1990, state that representatives of the Community and EFTA shall enjoy special status as "Counsellors" at both the General Assembly and the Technical Assembly. Article 17 states that ETSI shall establish close working relationships with other European standards bodies.

The Statutes do not address the question of sovereignty or obligations under the EC Treaty.

1.3 ECTRA/ETO

ECTRA signed a Memorandum of Understanding with the European Commission on 9 September 1994, the same day on which, in accordance with the MoU, ETO signed a Framework Contract with the Commission. Under the former, the Commission will give "due consideration" to any relevant ECTRA outputs, "in particular Decisions or Recommendations"; the Commission and ETO meet regularly to discuss pertinent telecommunications issues, and they agree a yearly programme of work to be contracted out to ETO.

A number of Committees at the Community level are involved in telecommunications, and these are briefly considered or referred to below.

2.1 The ONP Committee

Created by Articles 9 and 10 of Directive 90/387, the ONP committee is an advisory committee comprising representatives of Member States, and is chaired by a Commission representative. Acting in an advisory role, it assists the Commission in relation to Open Network Provision issues. The Committee has an advisory, a regulatory and a conciliation role (the last function is being discussed under Section 4.3.2 of the Main Report). The ONP Committee’s advisory and regulatory roles are managed under procedures I and III(a) respectively of Council Decision 87/373/EEC (the "comitology" procedures). According to both procedures, the representative of the Commission on the Committee submits to the Committee a draft of the measures to be taken. The Committee must deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The procedures then diverge: so according to the advisory function, the opinion is recorded in the minutes, and each Member State has the right to ask to have its position recorded. The Commission "shall take the utmost account of the opinion delivered by the Committee and "it shall inform the Committee of the manner in which its opinion has been taken into account".

According to the regulatory function, in the case of decisions which the Council is required to adopt on a proposal from the Commission, the Opinion is to be delivered by a weighted majority (as laid down in Article 148(2)). The Commission "shall adopt the measures envisaged if they are in accordance with the opinion of the Committee". If they are not, or if no opinion is delivered, "the Commission shall, without delay, submit to the Council a proposal relating to the measures to be taken. The Council shall act by a qualified majority". According to variant (a), as laid down in Directive 90/387, if the Council has not acted within 3 months after the date of referral to it, "the proposed measure shall be adopted by the Commission".

The regulatory function of the ONP Committee only applies in relation to rules for uniform application of the essential requirements, rules on standards necessary to ensure the interoperability of trans-frontier services and amendment of the annexes of certain ONP Directives. Although the role is therefore narrow, the Council’s first common position on the Voice Telephony Directive was rejected by the European Parliament (under the "co-decision" procedure) because the European Parliament does not have any involvement in decisions taken under regulatory committee procedures. This problem has now been overcome by an inter-institutional agreement (a "modus vivendi") which ensures that the European Parliament is able to give an opinion when the Commission presents measure to committees of Member States representatives.

Similarly, the Economic and Social Committee recommended that the Community Telecommunications Committee proposed under the (now aborted) proposals for mutual recognition of licensing (see below) should have regulatory functions, but the Commission resisted this decision in order to avoid a further comitology debate with Parliament.

2.2 The Approvals Committee on Terminal Equipment

This Committee was established by Directive 91/263 to advise the Commission on draft measures taken under the Directive - particularly the conversion of telecommunications standards into common technical regulations. The Commission is obliged to take "the utmost account" of the Committee’s opinion.

2.3 The Licensing Committee

The Commission’s two proposals of 1992 and 1994 on the mutual recognition of licences (see Appendix 9) focused on the creation of a Community Telecommunications Committee, to have a broader role than the two committees mentioned above. The draft Directives envisaged a similar advisory role, though the Economic and Social Committee recommended a regulatory role under the guidelines set out in Council Decision of July 13, 1987. This was rejected on the ground of inevitable resistance from Parliament and the Member States, and, indeed, the two proposals have been superseded by a new proposal (see Appendix 9). The Proposed Licensing Directive includes the creation of a Licensing Committee to assist the Commission on licensing issues. In the Common Position on the Licensing Directive, the Council changed the name of European Union Telecommunications Committee into the Licensing Committee. At second reading, the European Parliament has adopted an amendment including within the review provisions in the Directive the need to examine the possible consolidation of the various committees established in Community telecommunications legislation.

2.4 Senior Officials Group on Telecommunications

This group was set up by the Council on 4 November 1983, but much of its work has been taken over by the High Level Committee (see below) and it has not met for four years.

2.5 The Joint Committee on Telecommunications

This was initiated in June 1990, with the aim of establishing a dialogue in the telecommunications sector at EC level.

2.6 The High Level Committee

This Committee was recognised as a permanent forum by Council Resolution 93/C 213/01. It consists of the heads of the NRAs who meet to discuss issues of general policy - it is jointly chaired by DG IV and DG XIII.

2.7 National Regulatory Authorities

The other relevant bodies are the NRAs, but it is beyond the scope of this Study to include an analysis of their functions.

As mentioned in Section 5.3 of the Main Report, Community agencies in other sectors provide limited guidance as to the form and functions of a European Regulatory Authority, but a review of the various bodies is useful in identifying some operational difficulties that a European Regulatory Authority may encounter.

Trade mark law across Europe was harmonised by the Trade Marks Directive of 21 December 1988, and has been implemented in every Member State except Ireland. The next steps were the creation of a Community-wide trade mark and an office to manage the new system. Provision was made for both of these steps in Regulation 40/94, known as the Community Trade Mark Regulation, adopted by the Council on 20 December 1993. The new system allows for the protection of trade marks in all the countries of the EU by means of a single filing. The new office is known as the Office for Harmonisation in the Internal Market (Office of Harmonisation).

Simply put, once the application is sent to Alicante, the Office of Harmonisation will do two things. It must establish whether the mark is registrable within the terms of the Regulation (e.g. it must be distinctive, and not consist of a generic or customary term), and it must draw up a search report on any other conflicting Community Trade Marks, while the national trade mark offices of the Member States will search their own registers. This should be completed within three months, and the application, provided it has not been withdrawn as a result of the searches or on absolute grounds, will then be published. Other companies will then have three months in which to challenge registration.

The Trade Marks Directive has removed several barriers to trade created in particular by differences in national laws. But others still exist, such as the problem of conflicting marks being owned in different Member States by unconnected enterprises; the fact that a trade mark owner can choose a different mark for different countries; and the fact that voluntary assignment can fragment a trade mark right among different enterprises. Also, the harmonising law will still operate in the context of varying legal systems and traditions, and linguistic differences will result in a proposed trade mark receiving different treatment at the hands of different national registries. These problems may be overcome by a Community Trade Mark.

From a wider perspective, this development is an important one in the consolidation of the internal market, and continues the trend towards decentralisation for areas in which it is perceived that greater efficiency can be achieved in terms of administration and management.

Problems are foreseen and have been experienced: there was much argument over where to site the Office of Harmonisation and which official languages to use. There will be cost disadvantages because different languages will be used, and the Office of Harmonisation is in Spain but the translations are to be carried out in Luxembourg. The original five-language rule was watered down after complaints from the Belgians and Dutch, and the rule will now be that applications can be made in any of the 11 official languages of the EU, but any opposition proceedings or challenges to the mark after it has been registered must be made in one of the five working languages of the Office of Harmonisation. This could cause problems if the two languages are not widely used within the EU, such as Greek and Spanish (one of the five working languages), and there is scope for companies to use languages tactically to ensure that proceedings are conducted in their native language.

Another potential problem is that companies have already expressed concerns about fees. First, it will not be cheap despite the fact that the Office of Harmonisation is non-profit making. For example, the filing fee will be Ecu 975 and the registration fee will be Ecu 1100. Secondly, and perhaps more seriously, the Office of Harmonisation will only accept payment in Ecu, and at present it seems that it will require the payments to be made into a bank in Alicante, which could place a considerable administrative burden on companies.

There could be problems where there is a prior trade mark in a Member State, as this will prevent the registering of a Community Trade Mark - so national registering in each State would still be required. Further, as the market becomes ever more integrated, brands will have to work equally well in several languages - what is acceptable as a mark in one language may be a fairly ordinary word in another. Other problems could arise when new countries join the EU.

Ultimately, particularly given that the system is not mandatory, it may not have much impact on European integration. Predictions of the volume of applications are low. In the first year, the vice-president of the Office of Harmonisation expects only 15,000 applications. The UK registry of trade marks has stated that, over time, it expects to lose no more than 20% of foreign applications (which make up half of UK applications).

The Regulation has as its basis Article 235 of the EC Treaty:

The significance of the choice of a Regulation as the legislative vehicle is that under Article 189 of the EC Treaty such legislation is directly applicable in all Member States, ie it has uniform effect throughout the EU and has automatic legal force without the need for intervening national legislation.

The Preamble to the Regulation provides an insight into the extent of the powers granted to the Office of Harmonisation:

The relevance of the Office of Harmonisation to the creation of a European Regulatory Authority is discussed in Sections 4.4.2d and 5.3 of the Main Report.

In 1990 the European Air Traffic Control Harmonisation and Integration Programme (EATCHIP) was launched, managed by the 17-member Eurocontrol on behalf of the European Civil Aviation Conference (ECAC). The ECAC is an inter-governmental organisation whose aim is to promote the continued development of a safe, efficient and sustainable European air transport system; there are currently 33 member states. An important development has been the establishment of a Central Flow Management Unit at Eurocontrol in Brussels, which will be fully operational in April, and is intended to play an increasing role in managing traffic flows across Europe and in further reducing delays. Also established under the auspices of EATCHIP was the En Route Strategy, which is intended to develop radar coverage across Europe.

In September 1994, the European Parliament approved a resolution submitted by the Transport Committee on the harmonisation of Air Traffic Control (ATC), and the Council Resolution on 24th October 1994 considered the same topic. On 6th March 1996, the Commission issued a White Paper entitled "Air Traffic Management - Freeing Europe’s Airspace" which discusses the possibility of establishing a single Air Traffic Control body. The Parliamentary Resolution on the 1996 Intergovernmental Conference states that "the Treaty should provide for an integrated common transport policy including powers in air traffic control".

The Council Resolution states that an efficient aviation sector in Europe requires significant progress to be made in the sphere of air traffic control/management, and calls for the Commission to give this special priority. The Transport Committee resolution states that the current anachronistic fragmentation of the European ATC system, with management at national level, is based on principles which are now obsolete and inadequate. This situation, combined with the increase in summer traffic and the French air traffic controllers’ strike (which was itself a result of the shortcomings of the ATC system), led to serious inconvenience last summer and will deteriorate further with increased demand due particularly to the third stage of air transport liberalisation to take effect.

The Committee calls on the Commission to act as soon as possible on the harmonisation and integration of the European ATC system and the establishment of the basic framework for a single unified system covering the entire community air space and controlled by a single Community Civil Aviation Authority. It feels that the problems of energy saving, noise reduction and environmental protection should be an integral part of community ATC policy; that a flexible use of air space will achieve better co-operation between civilian and militiary authorities, allowing civilian utilisation of military air space; and that harmonisation would facilitate the free movement of citizens of the EU.

The Association of European Airlines has had a blueprint for a single European system on the table since 1989, and they argue that it would save the airlines and their customers millions of dollars and thousands of wasted hours, and would provide room for growth instead of slow strangulation.

According to the White Paper, at present, air traffic management is the responsibility of individual countries. Inter-state cooperation exists in the form of different organisations (Eg. the European Civil Aviation Conference (ECAC), Eurocontrol (the European organisation for air traffic safety) and the International Civil Aviation Organisation (ICAO)) working in parallel which duplicates resources. These organisations are based on government-to-government decision-making processes which the Commission perceives as ineffective. Furthermore, the various organisations are lacking in the power necessary to implement the technical programmes, and the European Community has no formal status in any of these organisations. Inadequate capacity in air traffic control systems has caused a high proportion of flight delays since mid-1994 at a cost of some ECU 2000 million.

The harmonisation process is at a very early stage so any problems are mainly in the future. Certainly there would be political difficulties in developing a single European ATC, since it would involve ceding sovereignty of airspace to the new body. There would also be extremely demanding organisational problems. Christopher Chataway, chairman of the UK’s Civil Aviation Authority, told the European Aviation Club in Brussels in October 1995 that the present situation is "a collection of very complicated businesses operating in 34 different and highly political environments. It is unlikely that the political and management genius exists to run all these organisations as a single entity."

The White Paper states that there is a need to have a central authority with a specific mandate and with the appropriate means to set up a single ATM system. The Paper explores three options to achieve this: a monolithic structure having all regulatory and operational control, a regulatory framework limited to the Community, or a broader European solution.

The Commission rejected arguments in favour of a single structure combining regulatory and operational functions, maintaining that the two functions should be kept separate as far as practicable. It considers that the two areas are very different, one requiring legal and administrative competence and the other based on technical knowledge and management proficiency. As to a framework within the EU only, the Commission feels it does not have the particular expertise in ATM and that a new executive body will have to be set up to prepare the decisions and monitor developments. This will be difficult to justify given that other organisations are already working in this field and the tasks of the new body will coincide largely with those of Eurocontrol. The Commission therefore suggests the setting-up of a system of ATM at the widest possible European level. Such a broad coverage will be a far better way of improving the efficiency of European ATM and will provide more flexibility, increasing the scope for sub-regional groupings to further integrate their airspace if they choose to do so. Another advantage of using a wider multilateral organisation is, the Paper states, that national governments might find it easier to allow such an organisation to play a role in the military use of airspace. The system will be based on the centralised exercise of regulatory functions together with operational tasks in the fields of air traffic flow management and air space management, but with other operational tasks remaining with individual countries.

The Commission recommends the reinforcement of Eurocontrol’s regulatory powers to make it the sole air traffic regulator in Europe. Eurocontrol must be given the powers and mechanisms for decision-taking and monitoring needed to carry out its role with proper authority. The Community must become a member of the new Eurocontrol with the weight and terms which will enable it to exercise its competence and allow its institutions to perform the roles allocated to them by the Treaty.

The Transport Committee resolution had regard to Article 7a of the EC Treaty, which begins:

and Article 5, which begins:

The White Paper propounds the following legal bases for regulation in the ATM sector:

• Article 75(1) which states that "the Council...will establish...measures to improve transport safety...";
• Article 84(2) for matters directly linked to the furtherance of the common transport policy;
• Article 100a for harmonisation measures;
• Article 129c for the interoperability and interconnection of national air traffic control systems;
• Article 130h for research co-ordination.

The conclusions to be drawn are limited by the fact that the single ATC body is merely an idea at the moment. The interest lies is in the practical, political and economic arguments for and against the establishment of such a body. The White Paper concludes that it would be most sensible, given the existence and powers of Eurocontrol, to "reinvent" the body, rather than create a new body. An important point here is that this body is wider than merely the European Union, given that the Paper concludes that the new ATM system should be wider than the Union. The Instar Study is presently looking into a range of organisational models which will meet the requirements of the Paper; this will lead to revision of the Eurocontrol Convention as required to meet the model selected.

A further point of interest is that the Commission states:

The European Environment Agency was provided for in Regulation 1210/90, which came into force only in October 1993 after it was agreed that the headquarters would be in Copenhagen. It has been established to gather information and data on the state of the environment in the Community, and to publish a report every three years. It is also charged with disseminating the information it gathers and harmonising the measurement of data throughout the Community.

The Agency’s role is limited, and therefore is of limited value as an analogy. It has not been given any enforcement or policing powers in relation to environmental legislation. In fact, the European Parliament has been trying to introduce such powers by proposing amendments to the Regulation, in the hope of converting it into a form of European Environment Inspectorate. However, there is a provision in the Regulation which requires the Council to reconsider the scope of the Agency’s powers within two years of the Regulation coming into force, which in particular specifies a possible role in monitoring the implementation of EC environmental legislation.

Perhaps the most interesting point about the European Environment Agency is that it illustrates, in contrast to the proposed role of a European Regulatory Authority, just how little power has been granted to some, indeed most, EC bodies.

Although harmonisation of the pharmaceutical legislation was completed in 1992, the question of the harmonisation of decisions on the authorisation of individual medicinal products remained outstanding. To remedy this, a Council Regulation of 22nd July 1993 laid down Community procedures for the establishment of a European Medicines Evaluation Agency ("EMEA"). The EMEA opened in London in January 1995, its purpose to promote the free circulation of medicinal products by co-ordinating and supervising their licensing across the EU and in due course the EFTA countries. The first marketing authorisations from the EMEA were granted towards the end of 1995.

The function of the EMEA, in brief, is to provide a single marketing authorisation, through a "centralised procedure", which is valid throughout the Union for medicinal products intended for human or veterinary use. Use of the centralised procedure is compulsory for medicinal products derived from biotechnological processes. Applications must be submitted directly to the EMEA for scientific evaluation by a scientific Committee. The Committee has a fixed period (210 days) in which to reach an opinion which is then sent to the applicant, the Commission and the Member States. The applicant has a right to appeal against the decision. The Commission then prepares a draft decision and Member States have 28 days in which to make written observations to the European Commission. If these raise new scientific or technical questions not addressed by the scientific Committee then they may be referred back to the Committee for further consideration. A final decision is taken by the Commission after consulting a Standing Committee (consisting of representatives of Member States with a representative of the European Commission as Chairman) or, in the event of a significant disagreement between Member States, by the European Council.

Until the EMEA was set up, drugs companies had to submit applications to each agency in the 15 Member States, waiting up to six years for authorisation. Such delays reduced the value of patent protection (although there is now supplementary certificate protection available which alleviates this problem to some extent) and it cost Ecu 200 million per product to provide the required data. The system did not reassure public opinion about the safety of medicines; for example, it is difficult to understand why commonly used products such as the sleeping pill Halcion had to be withdrawn from one country but were accepted by the next. The single evaluation is designed to be of the highest possible scientific quality, reinforcing the protection of public health. A list of 1,600 experts has been established by the EMEA to serve within teams co-ordinated by the scientific Committees. A telematic network is also being set up with the assistance of the European Commission Joint Research Centre of Ispra, the purpose of which is to ensure fast and secure data transmission (eg of assessment reports and pharmacovigilance alerts). The opinions of the scientific Committees and the assessment reports, after removal of confidential information, are available to the public. The measures are designed to promote the free circulation of medicinal products within the community, as well as saving the Member States money by banishing duplication of effort.

A decentralised procedure still applies to the majority of medicinal products (ie not innovatory or biotechnological) whereby an applicant who wishes to market his product in more than one Member State can apply for recognition in other Member States based on an assessment report from the first licensing authority. It is anticipated that there will remain inconsistencies in the experience and approach of different Member States militating against mutual recognition under the decentralised procedure. In the case of serious objections the dispute will be referred to a single committee which will arbitrate. There are fears that Member States may, either by this method or through the power of veto under the centralised procedure, obstruct applications. At a time when States are trying to control health budgets, rapid approval of expensive drugs could mean higher drugs bills.

In 1994 the EMEA received 6,800,800 Ecu from the Community’s budget which was totally devoted to investment expenditure. The major part of this money was spent on selecting, leasing and fitting out the new headquarters and installing computer equipment. The initial operational budget was said by the EMEA to be in the order of 20 million Ecu.

The EMEA was set up under the Council Regulation 2309/93 (the "Regulation") and London was chosen as its seat by a decision of the Heads of State and Government on 29 October 1993. The Regulation has as its basis Article 235 of the EC Treaty, the implied powers provision. Any legislation based on this Article has to be agreed by unanimous vote in the Council of Ministers. The significance of the choice of a Regulation as a legislative vehicle is that under Article 189 of the EC Treaty such legislation is directly applicable in all Member States, ie it has uniform effect throughout the EU and has automatic legal force without need for intervening legislation. Some of the Recitals in the Regulation illustrate the purpose for which the EMEA was set up, for example:

Fees to be paid to the EMEA for the evaluation of medicinal products (which were the subject of some debate with some EU Members objecting to the proposed fees which they regarded as high compared with fees then charged in those individual states) were set out in Council Regulation 297/95. The debate over fees caused some delay in the start of operations at the EMEA.

The establishment of the EMEA should lead to better use of the considerable product licensing expertise currently spread across the Member States of the EU. It remains to be seen if the application process, which is subject to tight time limits, will be speedier under the new arrangments and so reduce delays in bringing medicinal products to the market. Even with the EMEA there are mechanisms by which individual Member States can raise new issues, which, in theory, could delay the authorisation processes. The agency has only been operating for approximately one year and has begun granting authorisations. It is probably too early to assess how efficiently the new system is working.

Under the European Patent Convention "EPC" (which is not an EU measure) provision is made for a single patent application to be made in the European Patent Office ("EPO") in Munich which will nominate to particular nation states in which patent protection is sought. The application takes effect as a bundle of national patents in designated states. Issues of validity are dealt with at the European level, while issues of infringement are generally dealt with at the level of individual nation states, although there is provision, recognised in certain countries, for pan-European injunctions.

Whilst the EPC has been a successful system for a number of years for the granting of patents in all the Member States of the European Union, and some non-EU states, it is not a European Union convention and the EPO is not an EU organisation. The EPC does not provide an EU-wide system whereby a patent can be granted, by a single grant, to take effect throughout the whole of the EU.

The Community Patent will not replace existing national patents or the EPC but the question of which system is used by a proprietor will probably be determined by fees and the extent of the protection required. It seems likely that fees will be set so that, for example, a proprietor requiring protection in only one EU state would find that it is not cost effective to apply for wider protection. In contrast, a proprietor wishing to obtain EU-wide protection would find that the Community Patent Convention ("CPC") route would be cheaper. A 1989 Agreement (see below) provides for non-EU countries to join the CPC where they are invited to do so. It would first be necessary for the patent laws of those invited states to be compatible with the CPC. It is possible that the joining of countries to the CPC on an invitation basis will result in various arrangements being made for those invited countries, perhaps on a case by case basis, and various levels of membership arising. This may be a particularly important issue for the developing Eastern European block countries.

For many years there have been proposals for the adoption and ratification of a Community Patent Convention which, by contrast with the EPC, will allow for a single community patent across all Member States. Adoption of the CPC has been held up by disputes over translations and conflicts with the constitutional requirements of Member States. There was, in 1989, a Community Patent Agreement which sets out provisions for bringing the Community patent system into being. In order for the 1989 Agreement to come into force, it must be ratified by all the signatory States and will then come into effect twelve months after the last State to ratify does so.

Whilst there may be a demand for an EU-wide CPC, the convention still awaits ratification. The UK Patents Act 1977 s86 and 87 provides for the implementation of such a convention already (from a date to be appointed). In view of the differences in the memberships of the EPC and the EU (EPC membership extends to many countries outside the EU) it is possible that when the CPC is finalised it will need to be extended beyond the EU to provide for this difference.

Parallels may perhaps be drawn between the grant of a single community patent and a single community telecommunications licence. The patents granted under the CPC are intended to co-exist with national patents, leaving it for the applicant to determine whether he wishes to have a community patent or national patent and that level of choice may also be relevant in the field of telecommunications licences.

The European Monetary Cooperation Fund ("EMCF") was the operating fund within the EMS system. EMS member countries deposited gold and dollar reserves with the EMCF in exchange for european currency units. The EMCF was dissolved by the Maastricht Treaty, which provided for the establishment of a new central body, in the European Monetary Institute ("EMI") to strengthen monetary policies coordination of the Member States. The (EMI) took over the role of EMCF and its assets and liabilities.

The EMI was established under Article 109f of the EC Treaty (as amended by the Maastricht Treaty) on 1 January 1994. The EMI Statute was separately provided in a Protocol to the Treaty. EMI members consists of central banks of the Member States. It is governed by a Council consisting of the central bank governors from the 15 Member States, plus a Chairman. Maastricht laid down a firm timetable of three stages towards adoption of the Ecu as a single currency: the first was a loose process of convergence, the second started with the creation of EMI and greater convergence and the third stage (scheduled for 1 January 1997 or 1999 at the latest) will see the adoption of the Ecu and EMI being absorbed into a proper European Central Bank.

The main objective of EMI is to contribute to achieving the conditions necessary for the third stage of European monetary union. It does this by co-ordinating monetary policies to ensure price stability and preparing towards the establishment of the European Central Bank (Article 4b), the conduct of a single monetary policy and the creation of a single currency in the third stage and overseeing the development of Ecu. EMI also monitors the functioning of the EMS, holds consultations concerning the course of monetary policies and is consulted by the national monetary authorities before they take decisions on the monetary policy in the context of achieving monetary union.

EMI is charged with drawing up the regulatory, organisational and logistical framework necessary for the European Central Bank ("ECB") to perform its task in the third stage. The ECB is designed to sit at the centre of a European system of central banks and will fix a common interest rate policy for those in the monetary union once exchange rates are pegged, and will issue and regulate the new single currency.

The Institute is of interest, being an example of a body which, by virtue of its extensive regulatory and other powers, required specific Treaty amendment. The ECB, too, is a body to be created according to a specific Treaty amendment.

The Denton Hall OFSAT preliminary study - (1990) recommended the setting up of an Office of Satellite Policy (OFSAT). Its role would have been to officiate satellite policy at national, EC and international level including regulation, standards, frequencies and development relating to all types of satellite services. In addition OFSAT could have the following brief:

• co-ordinating with international bodies and organising a pan-European approach to their activities
• liaising with related European bodies concerned with satellite technology
• formulation of policy initiatives with a view to their being implemented as EC Directives
• dealing with concerns of satellite operators, investigation of complaints with power to rectify abuses of process or dominant position.

It was important that OFSAT be impartial, not influenced by domestic governments, PTTs or major operators. It should also have enforceable powers to deal not only with policy issues but also everyday policy problems faced by the satellite industry. It should be equipped with powers to ensure its rulings were respected, including sanctions to prevent operators, governments and PTTs proceeding in breach of OFSAT’s rulings in satellite policy. It is also expected that by empowering OFSAT with these formal powers it would be able to exert informal pressure by virtue of its being an influential body.

Ideally, OFSAT’s powers could include extension of its jurisdiction to the whole of Europe, given considerable voting power at international conferences and increased opportunities to steer international negotiations in directions that would benefit Europe as a whole. Domestic governments would surrender their jurisdiction over satellite policy to OFSAT and undertake that any supplementary policy pursued at domestic level would be subsidiary and non-conflicting with OFSAT’s policies. The study considered, however, that these aims were unlikely to be achieved in the short term.

The paper considered 3 possible methods for creating OFSAT:

• an international convention;
• through the Council of Europe; or
• through the European Commission;

and concluded that the third option was the most viable.

An OFSAT established by the Commission could take the form of an advisory agency which makes recommendations to the Commission for the Commission to implement through its existing powers (similar to the EEA). The disadvantage of this is that the time taken for a policy to be implemented will be very long given the Commission’s constraints of time and resources. A better alternative may be to establish a separate EC body which is independently funded and would have its own executive powers. This might have the advantage of being the kind of body which could be extended to admit other countries which do not wish the EC but which would wish to submit to a standard European satellite policy.

Within OFSAT itself, it would need to be governed by a management committee. This should be made up of the Directors General of the telecommunications regulatory bodies in each Member State together with 2 Commission appointees. OFSAT would have its own Director General, answering to the management committee, and its own staff.

The Study may therefore provide some useful insights into the consideration of the form and functions of a European Regulatory Authority.

The American experience with dual federal and state sovereignty in the area of telecommunications provides a good example of the efficiencies gained and conflicts created by a strong federal regulatory presence. The balance between state and federal power has tipped ever more toward the federal side as telecommunications technologies have advanced and converged. In part, this is because the interstate network becomes less amenable to state and local regulation as it becomes more integrated and intricate. In part, it is because the stronger federal interest in promoting competition creates more areas for federal intervention as technologies proliferate. Of course, increased competition, to some extent, also supplants some regulation of any kind, thus serving to check the expansion of federal regulatory power.

Over the past sixty years, the U.S. federal government has asserted control in the telecommunications arena on the basis of two related notions:

• that the federal government has the power to regulate interstate commerce and the duty to ensure an efficient telecommunications network; and
• that the federal government is responsible for managing certain national resources (e.g., spectrum).

The exercise of federal power has increasingly eroded traditional bulwarks of state authority such as the regulation of facilities siting, zoning, intrastate traffic, and consumer protection.

This paper examines some examples of how federal pre-emption has been used in relation to advancing technology, including new exercises of federal power under the Telecommunications Act of 1996. Section 2 examines the formation of, and rationale for, the Federal Communications Commission, consistent with the preservation of the 50 states’ separate regulatory spheres of the states and territories. It then provides a brief overview of the regulation of different communications sectors. Section 3 examines the evolution of federal pre-emption of state regulatory authority. Finally, Section 4 examines the most substantial effects of the Telecommunications Act of 1996 on the federal power to regulate telecommunications.

On February 26, 1934, President Franklin D. Roosevelt urged Congress to create a new, independent federal agency called the Federal Communications Commission ("FCC"), with the authority to regulate both the radio waves and the wirelines, then regulated separately by two other agencies. Congress did so in the Communications Act of 1934 that, as amended, continues to govern telecommunications and broadcasting in the U.S. In enacting this statute, Congress had the power to endow the federal agency with far-reaching authority to regulate the conduct of telecommunications service providers. The source of Congress’ power, in this respect as in all others, is the U.S. Constitution, which tells Congress what it can regulate and the extent to which those regulations may pre-empt state regulations on the same subject. Although the federal structure of government as a whole is relevant to interpretation of Congressional power, three provisions are particularly relevant: the Tenth Amendment, the Commerce Clause and the Supremacy Clause.

The Constitution’s Tenth Amendment provides that the individual states retain all powers not expressly given to the federal government. Despite this apparent interest in preserving state sovereignty, the states’ constitutionally protected province of exclusive authority is, in modern practice, quite small. This is because the Constitution’s Commerce Clause, which empowers Congress "to regulate Commerce with foreign Nations, and among the several States," has been construed very broadly to nearly overwhelm the Tenth Amendment’s preserve. U.S. Supreme Court decisions dating from the mid-1930s have relied on the Commerce Clause to justify the federal government’s entry into myriad, seemingly local, activities on the grounds that such activities have spillover effects (direct or indirect) on interstate commerce. These decisions have interpreted the meanings of both commerce and interstate commerce expansively. Many telecommunications activities are quintessentially interstate activities, but others (a decreasing number) are not and, as discussed below, the line between interstate and intrastate activities in this field has been particularly hard to draw.

The second constitutional provision relevant to the exercise of federal authority is the Supremacy Clause, which empowers Congress and, as construed by the courts, federal agencies acting within their statutory authority, to pre-empt state law. Pre-emption may occur in a number of different situations: when Congress expresses a clear intent to pre-empt state law, when there is outright or actual conflict between federal and state law, where compliance with both federal and state law is physically impossible, where there is implicit in federal law a barrier to state regulation, where Congress has legislated so comprehensively as to occupy an entire field of regulation, or where the state law opposes the execution of Congress’ objectives. The federal government has relied especially heavily on the incompatibility of state and federal regulations and on the state regulations’ obstruction of federal objectives in pre-empting state communications regulation.

In creating the FCC, Congress endowed the agency with relatively moderate powers of regulation and pre-emption and stopped short of exploiting the full measure of the federal control permitted by the Constitution. Section 1 of the Communications Act creates the FCC for the expansive purpose of overseeing the development of "a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges." 47 U.S.C. ‘ 151. Accordingly, Section 2(a) specifically grants to the FCC the authority to regulate "interstate and foreign commerce in wire and radio communication." 47 U.S.C. ‘ 152(a). However, Section 2(b) contracts what would otherwise appear to be very expansive powers by expressly denying the FCC "jurisdiction with respect to . . . charges, classifications, practices, services, facilities, or regulations for or in connection with intrastate communications service by wire or radio of any carrier." 47 U.S.C. ‘ 152(b) (emphasis added).

The apparent tug between federal and state authority embodied in the Communications Act has worked out very differently in the telephony and radio areas due to the different natures of telephonic and radio transmissions. From 1934 on, wireline telephony providers were common carriers — traditional subjects of state control. However, radio communications services largely transmitted one-way broadcasts and these not on a common carriage basis. States had little experience regulating such activities. Moreover, the poorly understood nature of radio wave propagation was reckoned to be inherently interstate. For these reasons, radio transmissions came to be regulated under Title III of the Communications Act, which lacks the constraint on federal power that Section 2(b) imposes under Title II with respect to intrastate communications. Thus, radio transmissions were subjected almost exclusively to federal jurisdiction. With respect to telephony, on the contrary, the Supreme Court has noted that Title II of "the Act would seem to divide the world of domestic telephone service neatly into two hemispheres — one comprised of interstate service, over which the FCC would have plenary authority, and the other made up intrastate service, over which the states would retain exclusive jurisdiction."

To gain insight into the Communications Act’s original division of labour, it is important to understand the communications environment of 1934 and differences between wireline and radio services. Local telephone service constituted about 98% of the total and states were its primary regulators. Prior to the creation of the FCC, the agency responsible for federal telecommunications regulation was preoccupied with regulating railroads and saw little need to enter with as much force into this largely local industry. With the creation of the FCC, the federal government assumed a great deal of the regulatory responsibility, but the Communications Act clearly recognised and preserved some of the states’ existing authority.

On the other hand, the federal government by 1934 had already gained significant experience in regulating radio and had come to the conclusion that radio interference problems rendered radio spectrum an inherently national resource. This federal experience began with the Radio Act of 1912, the first piece of domestic legislation to reduce destructive interference among government, commercial, and amateur radio users. The 1912 Act’s provision of federal power in this area, though novel, was very modest. For example, the licensing authority had no power to deny a license on the ground that the proposed station would interfere with existing stations. Moreover, according to a 1926 decision by the Court of Appeals for the D.C. Circuit, this authority could not impose restrictions on frequency, power, and hours of operation and could not prevent a station from using a frequency not assigned to it. Radio chaos ensued.

The Radio Act of 1927, the precursor to the Communications Act of 1934, was enacted to fill this power vacuum and "to maintain the control of the United States over all the channels of interstate and foreign radio transmission." With respect to the distribution of radio licenses among "the different states and communities," the Federal Radio Commission was charged to "give fair, efficient, equitable radio service to each of the same." Commenting on the legislation, one of the first Commissioners noted:

Congress has grasped the significance of radio as a vital force in American life and has recently enacted a law which in many ways is absolutely unique. I know of no other activity, conducted entirely through private enterprise which has seemed to Congress so important and so complex in its problems as to require the creation of a new and separate branch of government exclusively for its regulation.

On the basis of this experience, Title III of the Communications Act vested the FCC with exclusive jurisdiction to allocate radio frequencies to various uses and grant licenses to various users. Outside of content restrictions (e.g. libel, privacy, consumer protection), states have no significant responsibilities in the broadcasting and satellite transmission area, except to the extent that land use issues are implicated. Until recently, states played a greater role in the regulation of common carriage by radio, but, as discussed below, this role is now much diminished.

As background for Section 3’s pre-emption discussion, this section provides a brief overview of communications regulation in the various communications industries. The FCC’s primary responsibilities are to regulate telephony (wireline and mobile), cable and broadcasting. The states have had major responsibilities in the first two areas, but far less in the third area. Such state responsibilities for mobile telephony have been reduced substantially, while state autonomy in regulating wireline telephony was narrowed considerably by the Telecommunications Act of 1996.

The U.S. telephone industry has three major components:

• local fixed line phone service is provided in a particular geographic area for which the customer does not have to pay a per-call or per-minute toll (generally, but not always, intrastate);
• long distance phone service (may be intrastate or interstate); and
• mobile communications.

Local phone service is regulated in price, terms and conditions by each of the states’ regulatory commissions and by the FCC’s Common Carrier Bureau (with input from the Department of Justice in some cases). Long distance service, primarily regulated by the Common Carrier Bureau, has not been regulated as heavily as has local phone service since the 1984 break-up of AT&T because long distance service has been more competitive. Mobile communications, primarily regulated by the FCC’s Wireless Telecommunications Bureau and Common Carrier Bureau, is regulated least of all because it has been more competitive and deemed, by the FCC, ancillary to basic wireline telephone service.

Prior to the 1996 Act, the 1982 AT&T Divestiture Consent Decree (the Modified Final Judgement or "MFJ") established a regulatory structure based on the principle that long distance and equipment markets should be opened, competition in those markets should be encouraged, and monopolies should be regulated by replicating the effects of competition. The profitable and infrastructure-intensive local loop was conceded to be, as a practical matter, the exclusive domain of the local exchange carrier ("LEC"), subject to price regulation set by the FCC and state commissions. State commissions generally set higher rates for business services, intrastate toll, and enhanced services than for basic residential local exchange services and subsidies generally flowed from long distance to local service.

The MFJ Consent Decree opened the long distance market for competition by ensuring equal access to customers and local telephone company facilities by placing additional regulatory burdens on AT&T (which until 1995 was deemed to have a uniquely dominant position). The FCC built on the competitive spirit of the MFJ by expanding unbundling and interconnection obligations. It required regional Bell operating companies ("RBOCs") were to unbundle their network elements so that competitors could purchase these elements as they chose. It further required RBOCs to interconnect with emerging competitors in their local markets. Each of these requirements pre-empted state regulations on the same subject and further marginalised the state’s role. As discussed in Section 4, below, the 1996 Act dissolves the MFJ Consent Decree structure by seeking to ease entry of the regional Bell operating companies ("RBOC"), long distance companies and cable companies into each other’s businesses, subject to certain safeguards, and by expressly providing for expanded interconnection and facilities collocation.

Mobile telephone services are broadly classified as Commercial Mobile Radio Services ("CMRS") and, to a much lesser extent, Private Mobile Radio Services. CMRS also includes licensed services such as paging, satellite services, Specialised Mobile Radio, cellular, and Personal Communications Systems ("PCS"). It also includes unlicensed PCS services, which can be used for wireless private exchange and local loop access. Since the U.S. adopted a law in 1993 to largely deregulate CMRS providers (see Section 3.2. below), the central regulatory issues for mobile and satellite services have been:

• the functioning of auctions as an assignment methodology; and
• interconnection terms and rates with LECs.

Sorting out the proper relationship between CMRS providers and LECs has been essential to the development of mobile telephony and the possibility of competition in the provision of local telephone service. The existence of competitive mobile telephony services has hinged on the degree to which RBOCs would be able to use their unique access to customer proprietary network information, infrastructure, and bottleneck facilities to gain advantage in the mobile markets. The wireline companies gained a head start in cellular in the early 1980s by obtaining free licenses for the provision of regional service through guaranteed set-asides, with little or no delay due to litigation. To keep RBOCs from leveraging their position in the local loop market, the FCC imposed an in-region RBOC-cellular structural separation rule.

In turn, the FCC acted to prevent cellular companies from leveraging their positions to gain advantage in new markets opened up in the mid-1990s when the FCC auctioned licenses for the provision of digital CMRS — narrowband and broadband PCS. To prevent the cellular companies from gaining undue advantage and ensure robust competition in PCS, the Commission limited the initial participation of the cellular providers. It also structured some license auctions so that smaller companies would have a chance to bid for smaller license areas.

As discussed further in Section 4 below, the Telecommunications Act of 1996 defined the interconnection obligations of incumbent LECs. RBOCs are required to allow cellular and PCS services to interconnect with wireline facilities on a non-discriminatory basis. CMRS providers generally are not subject to the interconnection and unbundling requirements to which wireline providers are subject, leaving CMRS providers free to continue to bundle equipment and services.

What are colloquially referred to as cable services consist of multichannel video programming distributors operating on closed transmission path facilities (namely traditional hard-wire cable television and satellite master antenna TV (used in apartment buildings)), regulated by the FCC’s Cable Services Bureau, and those operating on open transmission path facilities, such as wireless cable (a subscription service transmitted terrestrially over microwave frequencies) and direct broadcast satellite ("DBS"), which are regulated respectively by the FCC’s Mass Media Bureau and the International Bureau. Hard-wire cable systems are also subject to the requirements of local franchises. Satellite services are almost entirely regulated at the federal level, although certain antenna and other satellite earth-station zoning restrictions may be imposed at the state or local level.

Certain federal rules apply to both closed and open path facilities, but additional regulations apply to hard-wire cable systems. Cable regulation has centred on the prohibition on cable’s entry into the telephony, wireless cable and broadcast markets, and the strictures of the 1992 Cable Act, which checked monopolist cable prices, mandated cable competitors’ access to popular cable programming, required larger systems (36 or more channels) to lease capacity to independent programmers, and ensured that cable systems carry local broadcast channels, thereby sustaining broadcast television as a viable competitor to cable (subject to an option for broadcasters called retransmission consent). Although local authorities responsible for granting cable franchises have been at the regulatory forefront,