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VON Europe

Comments on the European Commission’s Consultation on Universal service

Comments on the European Commission’s Public Consultation on Universal


Service Principles in e-Communications
VON Europe

May 2010

Executive Summary
The Voice on the Net Coalition Europe (“VON”) welcomes the opportunity to comment on the
European Commission’s Consultation on Universal Service Principles in e-Communications (hereafter
“the Consultation”).

VON’s main messages can be summarized as follows:


o VON supports a more competitive broadband market in Europe (last and middle mile).
Supporting effective competition is the best protection of consumer and business users'
interests.
o VON considers that a clear distinction must be drawn between universal accessibility of
broadband as a desirable political objective and the ‘universal service’ regulation which would
be a rather blunt instrument for attempting to achieve it
o VON would like to see more (unlicensed) spectrum to be made available, as an alternative way
to make broadband available. Policy-makers must hence increase opportunities for unlicensed
devices and innovative spectrum access models, making a maximum of spectrum available for
mobile broadband and improving the transparency of spectrum allocation and utilisation
o Last but not least, VON believes that what truly should be considered as the de minimis universal
service benchmark for all EU citizens and businesses, is an open and unrestricted access to all
content, services and applications over the Internet, at a speed which allows and promotes
such unfettered access.

This de minimis universal service benchmark ties into the statement made rightfully in the
Consultation document that “electronic communications services (…) are no longer tied to a single
physical infrastructure” and that “voice has become one of many applications provided on the
networks”. Faced with this evolution, it is VON’s strong belief that the principle of “functional
internet access” is tied as much to the ability to have unrestricted access to all content, services
and applications over the Internet as to having access to a broad pipe. Therefore we would urge the
Commission services not to look at the Universal Service consultation in isolation, but to ‘connect
the dots’ with the work going on regarding NGA, Spectrum policy and even Net Neutrality, as these
are all building blocks that need to be assembled to form a coherent whole to ensure that European
citizens have access to the Internet they deserve.

ABOUT: VON Europe consists of leading VoIP companies, on the cutting edge of developing and delivering voice
innovations over Internet, including iBasis, Google, Microsoft, Skype and Voxbone. We work to advance policies that
enable Europeans to take advantage of the full promise and potential of VoIP. The Coalition believes that with the right
public policies, Internet based voice advances can make talking more affordable, businesses more productive, jobs more
plentiful, the Internet more valuable, and Europeans more safe and secure. www.voneurope.eu

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Preliminary Remarks: Need for a multi-dimensional and stepping stone


approach

VON considers that too much focus has been allocated over the past years to speed benchmarks
alone. For example, in the Commission’s “Europe’s Digital Competitiveness Report” of August 2009 1,
the findings keep on focusing on the fact that “Europe is at risk of losing its competitive edge”, the
report stressing that “Europe has positioned itself as a world leader for broadband internet but
dramatically lags behind Japan and South Korea in high-speed fibre. Similarly, Europe’s mobile
communications success has not spilled over into wireless Broadband” (pg.10).

But isn’t plain vanilla (or “functional”) broadband Internet what matters most to people? The
focus on high-speed and the continuous insistence to benchmark Europe’s penetration rates and
speed/bandwidth averages with the US, Japan, Korea, etc seems to have put consumer demand in a
second (or even lower) place when it comes to setting realistic, achievable and consumer-benefitting
goals for the ICT sector and putting in place the framework to deliver those goals. The European
Commission keeps on collecting statistics and asking consumers “why” they do not use the
Internet, but seems to forget to ask “what” they expect from the Internet, in light of what is
offered today and what can reasonably be predicted for tomorrow. It makes one think of a Margaret
Thatcher quote: “You and I come by road or rail, but economists travel on infrastructure.” It
sometimes feels like EU policy has been behaving like an economist!

Without prejudice to the evident fact that infrastructure is important, do European consumers
aspire to have a 100 Mbit shiny fibre pipe connected to their house? Or do they aspire to be able to
find information in a quick and efficient manner, access content from all over the world, talk to their
family using voice or video over IP, read an eBook or their daily newspaper, contribute articles to
Wikipedia, upload their photos, play multiplayer games, access eHealth services, interact with
government electronically, etc.

2, 20 or 200 Mbit at my home is great: but what if there are no, or if I cannot access, services and
applications that are of interest to me or I am prevented from distributing information; what if I do
not have the hardware to connect to the Internet; what if I do not have the knowledge or the
comfort to surf; what if all I get is an empty pipe because policy makers were focusing so much on
infrastructure and adopted policies that allow network operators to adopt practices that harm the
emergence of socially and economically valuable services and applications?

1
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0390:FIN:EN:PDF

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Rather than focusing on speed alone, VON would therefore propose a “stepping stone” model
whereby Governments dedicate efforts on increasing simultaneously:
o COVERAGE: High speed is great but being able to access the internet in rural areas or while on
the move is equally important.

o SPEED: Speed of the connections, i.e. speeds allowing and promoting the unfettered access
defined by the suitability criterion set out above

o DEMAND: Stimulating demand by consumers for Internet-based content, applications and


services

Once a certain pre-defined objective is met across those 3 axes, a country/region could envisage the
next step. A model like this avoids governments spending too much effort on increasing one factor
(speed for instance) whilst overlooking the fact that large parts of the territory are not covered or
that citizens see no interest in an internet connection in the first place, let alone in higher speeds .

Past experiences show that discussions on Universal service often start with great objectives, only to
be watered down when the financial cost of achieving those objectives becomes apparent. Using a
‘stepping stone’ model measuring progress by looking at a combination of speed, coverage and
uptake by citizens, it should be clear that, besides spending tax money, Governments have much
more tools at their disposal (e.g. spectrum policy, stimulation education etc.) to ensure a – primarily
- market-led build out of broadband internet access. Looking at other geographies, it must be noted
that the FCC in the US has set a National Broadband Availability Target 2, as well other longer term
goals3. VON believes that Europe should take a similar approach, by setting realistic and forward
looking objectives that take into account the needs of households, businesses and institutions, and
consider both the fixed and mobile requirements.

2
See http://www.broadband.gov/plan/8-availability/
3
See http://www.broadband.gov/

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Response to specific questions

Question 1: In today's competitive environment, can the market be relied on to meet demand for
basic e-communications services from all sections of society, thereby ensuring social inclusiveness?
Question 2: If not, what is the best policy to allow disabled consumers, those on low incomes and
those living in geographically remote or isolated areas to access and use basic e-communications
services?

In a competitive environment, markets only deliver services and put infrastructure in those areas
and to those customers that enable them to have a return of investment. Past experience shows
that neither fixed nor mobile infrastructures have so far offered a 100% coverage in all Member
States, as rural areas or areas with difficult topographies are not covered easily by market players.
Moreover, as regards affordability of fixed and mobile Internet access, one can consider that the
current retail prices do not meet all demand.

As regards the needs of consumers with disabilities, the Internet has enabled the emergence of
innovative services and applications which have allowed people with disabilities to take advantage of
communication capabilities that were previously unavailable, and this often for free or at very low
prices. While this does not cater for all their needs, making it necessary to continue some form of
intervention, it shows how the innovative potential of the Internet helps those in need (provided
that their internet provider allows them access to these communication tools of course!).

On a different, note, VON considers that it is unclear which “basic e-communications services” the
consultation refers to in the context of this document: those defined under the current Chapter II of
the Universal service Directive, or something else yet undefined?

Policy makers and public authorities more generally can step in by using different tools:

• Public-private partnerships and financial support through the Structural Funds and state aid in
the context of roll-out of Next-Generation Networks:
VON believes that the key principles that need to be attached to any attribution of state aid (or
for that matter, funds from some form of universal service levy) to any market player, regardless
of the nature of the procedure, are 4:

o An open access obligation that covers services, applications and networks and which
applies to any beneficiary of state aid (at a minimum). In other words, the beneficiary
of state aid should be mandated to offer non-discriminatory wholesale access inputs and
to give equal treatment in all its retail offers to all content, services and applications
going over the top of its infrastructure. This implies also that measures must be taken to
ensure that state aid is conditional upon: (1) third party applications and services such as
VoIP or video being accessible to all customers without restrictions; and (2) an any-to-
any connectivity obligation being imposed on the beneficiary.

4
VON considers that these principles apply to all networks and that in the context of granting of public funds,
these principles should take the form of explicit requirements.

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VON Europe
Comments on the European Commission’s Consultation on Universal service

o Beneficiaries should have to comply with these obligations on their entire network -
both on the state aid funded part and on the rest of the broadband network (be it fibre
or copper based, or hybrid). Build out through state aid in underserved areas is not an
isolated initiative. The resulting network interconnects to the rest of the network of the
infrastructure provider. An open access obligation that covers services, applications and
content therefore needs to apply to that entire network, at wholesale and at retail level,
to ensure that it is meaningful. Fibre based access products are a continuum to copper
based ones – they are not distinct services – and the networks built using state aid will
not function “en vase clos”. Moreover, the most effective way for networks to reclaim
investment costs is to accelerate deployment in an open manner which enables access
by third party services, as stated by Ad Scheepbouwer, CEO of KPN (the Dutch
incumbent) in February 2009:

“In hindsight, KPN made a mistake back in 1996. We were not too enthusiastic to
be forced to allow competitors on our old wireline network. That turned out not
to be very wise. If you allow all your competitors on your network, all services
will run on your network, and that results in the lowest cost possible per service.
Which in turn attracts more customers for those services, so your network grows
much faster. An open network is not charity from us”.

• Applying policies to spectrum that promote universal services access: Radio spectrum is
recognised as an increasingly important factor in enabling the delivery of broadband network
access, especially to areas that might otherwise be un(der)served. It can support a multiplicity
of technical solutions, which makes it an optimal tool for enabling many advanced and
innovative communication and information society services. Full utilisation of spectrum,
therefore, will be critical to the achievement of the objectives of the European post-i2010 and
Europe 2020 strategies.

The importance of adopting a consistent EU-wide approach to spectrum use cannot be


overstated. Consumers desire devices, services, applications, and content that work across
Member State borders, but the expense to industry of applying for multiple licences, as well as
the technical difficulties associated with accessing different frequencies and potentially using
different technologies in each Member State, are impediments to meeting this demand. As
such, the market is able to address only a small part of the demand for pan-European Electronic
Communications Services.

VON believes that the switchover to digital television and the subsequent management of the
digital dividend provides a particularly opportune moment for the introduction of a harmonised
policy on spectrum management and the adoption of rules that permit the most efficient use of
unused spectrum in the allocated spectrum for TV broadcasting in particular. This includes
increasing opportunities for unlicensed devices and innovative spectrum access models, making
a maximum of spectrum available for broadband and improving the transparency of spectrum
allocation and utilisation.

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Besides the often stated Digital Dividend, there are huge parts of the spectrum that remain
rarely used (defence for example does only need certain bands at specific times in specific
locations). Governments have significant tools at their disposal in the form of increasing the
effective and efficient use of spectrum. Before spending tax money or imposing obligations on
commercial enterprises, greater efficiency gains should be sought at that level.

• Offering direct support to people with disabilities and people on the wrong side of the digital
divide fence, in terms of subsidising the needed hardware and software, offering training
possibilities, etc. There again, public-private partnerships could be an interesting route, as well
as increasing the R&D funding for tools aimed at addressing the needs of people with disabilities.

• Embracing the value of public content/services and education in driving demand for access, by
taking a proactive approach to the offering of eGovernment tools and the expansion of a “digital
awareness” across all segments of the population.

Question 3: Broadband for all is a widely-stated policy objective at national and European level.
What role if any should universal service play in meeting this objective?
Question 4: What impacts could an extension of the role of universal service to advance broadband
development have in relation to other EU and national policies and measures to achieve full
broadband coverage in the EU? What other impacts would be likely to arise regarding competition,
the single market, competitiveness, investment, innovation, employment and the environment?

The policy objective of broadband for all must be clearly differentiated from universal service.
Broadband for all is very much a policy that focuses on providing connectivity. And while certainly a
key enabler, broadband alone does not automatically ensure citizens have access to those services
that enable them to participate fully in the Information Society.

VON considers that a clear distinction must be drawn between universal accessibility of
broadband as a desirable political objective and the ‘universal service’ regulation which would be
a rather blunt instrument for attempting to achieve it. Universal service regulation is not the best
means of achieving broadband for all because it limits the ability of the market to deliver choice and
value to the great majority of citizens. Rather than regulating to compel certain operators to serve
all areas, we believe that it is better to define the target objectives and then work with industry to
determine what mechanisms can remedy areas of market failure and as a last resort how public
funding can be best be applied, without distorting the market elsewhere.

Moreover, universal service should not only be about infrastructure, but must also be about
enabling access to content, services and applications to everyone, and thus creating the
environment that delivers that access.

In a 2009 consultation document issued by the Irish regulator Comreg, it was pointed out that
“Notwithstanding the existence of an NGB network, (…) consumers will not necessarily use it unless
they see a compelling need to do so. This need typically manifests itself in the desire to use a key

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VON Europe
Comments on the European Commission’s Consultation on Universal service

service or application which requires NGB (a derived demand)” 5. VON considers that it is the range
and diversity of applications, services and content made accessible over the Internet, often at no or
little cost, that is the main if not the only driver for the demand by consumers for higher
bandwidths. This model has also made it possible for SMEs across the world to offer their services
and products to the world, merely by putting a website online that is equally accessible by all users
across the world.

Ensuring that users can obtain and use the services, applications, content, and devices of their
choice without restrictions, is critical to maintaining and further unlocking the vast potential of the
Internet. Applications like VoIP are particularly sensitive to degradations in network performance
and because of their peer-to-peer nature in some cases, can be faced with various network
management impediments by access operators.

Broadband should be seen as open and unrestricted Internet access, and not defined solely on the
basis of data rates. It is an ‘essential’ input to providing functional internet access, characterized by
an “always on” connectivity combined with a bit rate sufficient to provide for accessing of internet
applications (upload/download). Overly restrictive data limits hamper emerging technologies that
use the availability of broadband to deliver content, applications and services to the consumers, and
limit the ability of the consumers also to be producers.

Speeds need to be effective enough as to not be a detriment to the quality of their service and
latency is also an important factor to consider. Packet shaping and data transfer management
should not arbitrarily hamper data in any way. This leads to inequality in service for the consumers
and will damage the companies that provide these services over broadband.

It is not the how, but the what, that is broadband. It is the ability to consume and distribute the
information as it is meant to be on the technologies that are available. Merely having access is not
significant enough to be defined as broadband.

We refer for the remainder to our answer to questions 2 and 3 which set out why we consider
universal service is not necessarily the appropriate route to delivering broadband for all.

5
Discussion Document on Next Generation Broadband in Ireland, p. 42. See
http://www.comreg.ie/_fileupload/publications/ComReg0956.pdf

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Question 5: If universal service obligations should prove necessary to achieve the policy objective of
broadband for all, at what level (EU or national) should such obligations be defined, taking into
account the different levels of market development across the current Union of 27 Member States?
Question 6: If a common harmonised universal service needs to be defined at EU level, should a
mechanism be put in place to balance the need for national flexibility and a coherent and
coordinated approach in the EU?

VON believes that when setting objectives, care should be taken to set those objectives so that
speed, coverage and demand uptake are looked at together6. This would allow market players -
combined with Government stimulus (primarily stimulus based on making more spectrum available
and stimulating demand uptake(e.g. via education) to gradually make the necessary investments.

On the one hand, setting common objectives should not mean adopting the lowest common
denominator between all Member States; on the other, national flexibility should be limited and
subject to explicit justification, with reference to the targets put forward in March 2010 by the
European Commission at under its Flagship Initiative: “A Digital Agenda for Europe” 7. These targets
should be confirmed by the Council and should be valid throughout the EU, with the possibility
obviously for Member States to choose to set higher targets, and explicitly justified exceptions for
lower targets. The associated elements (e.g. the reference to a stable legal framework for open and
competitive high speed Internet infrastructure and related services, the references to EU structural
funds and to public funding at national level) should also not be varied at national level.

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Please also refer to our response to Questions 2 and 3 where we point at the different aspects Governments should
consider and set out why we consider that universal service obligations are not an effective instrument to achieve
broadband for all, and our response to question 4 which outlines that Universal service and broadband for all should not be
considered as one and the same.

7
Pages 12-13 of “E U R O P E 2 0 2 0 - A European strategy for smart, sustainable and inclusive growth”. See
http://ec.europa.eu/growthandjobs/pdf/complet_en.pdf

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VON Europe
Comments on the European Commission’s Consultation on Universal service

Question 7: Irrespective of the scope of universal service, are mechanisms whereby funding is
provided by the sector appropriate in the context of a regulatory environment that seeks to
eliminate distortions of competition and promote market entry?

VON’s main remarks in this area are:

• VON does not believe that universal service provision requires specific funding mechanisms to
be put in place (see our answer to questions 2 and 3 8) The costs of complying with universal
service obligations by the incumbent is largely outweighed by the indirect benefits it gets from it,
and no country in our view has so far been able to demonstrate convincingly that these
obligations constituted an unfair burden. Where countries have come to that conclusion (e.g.
France), developments have shown that this assessment was revised downward year after year9,
and we believe it still is overestimated at present.
• Universal service funds that require contributions based on a percentage of turnover should be
prohibited: there is ample data showing that aside from the incumbent operators, many
electronic communications network providers are not or barely turning a profit. Requiring a
contribution based on their turnover simply worsens their financial situation and deepens the
gap they have with the incumbent, which in due time is likely to create irredeemable damage to
competition in these markets.
• Discussions in some member States certainly show that great progress must still be made by
regulators in assessing the concepts of “unfair burden” and “intangible/indirect benefits” and a
good understanding of these concepts would be more than likely to render some of the questions
in this consultation unfounded, notably as regards the financing mechanisms, as no net cost
would be identified.
• The incentive for other operators than the incumbent to provide such services can only become
a reality if proper and fair tendering procedures are put in place, which notably do not impose
geographic coverage obligations that can only be met by the incumbent.

We thank you in advance for taking consideration of these views. Feel free to contact Caroline De
Cock, Executive Director VON Europe, by phone (+ 32 (0)474 840515) or email (cdc@voneurope.eu)
should you need further information.

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In our response to Questions 2 and 3, we argue that governments can achieve more by revising their
spectrum management approach and stimulating interest of citizens of acquiring internet access in the first
place (by making more government data available, by offering more government services online, by
stimulating education, by preventing restrictions on the content, applications and services that can be
accessed and distributed
9
http://www.arcep.fr/uploads/tx_gsavis/10-0448.pdf

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