SVP Advisors participated in a Consortium which was commissioned a Study by the EC on the “Impacts of EU Policy options for revision of the universal service provision”. This Study intended to assist the Directorate-General for Information Society and Media (DG INFSO) in the formulation of potential policy options and providing qualitative and quantitative assessment. In particular, this Study aimed at assessing whether universal service at the EU level is an appropriate tool to advance basic broadband development and if so, when and how it should be used, or whether this should be left to other EU policy instruments or national measures. Based on our study, as well as the results of an extensive public consultation process, the EC decided in the end not to include broadband access as part of the Universal Service.

1. VAN • DIJK
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EUROPEAN COMMISSION
Information Society and Media Directorate-General
***
* *
* *
* ***
*
Impact of EU Policy options for
revision of the universal
service provision
Assignment under the
Framework Contract
for Impact Assessment and
Evaluation-Related-Services
N° 2007/035 – LOT 2
FINAL REPORT
25 October, 2010
Report submitted by the consortium lead by Van Dijk Management
Consultants and comprising SVP Advisors and time.lex
VAN DIJK – MANAGEMENT CONSULTANTS
AVENUE LOUISE 250 – BOX 14 – B-1050 BRUSSELS (BELGIUM) – WWW.BVDMC.COM

2. VAN • DIJK
MANAGEMENT CONSULTANTS
Contact for this assignment :
Ms Tine DEBUSSCHERE
Director eCommunication Services
Administrator
VAN DIJK MANAGEMENT CONSULTANTS
Avenue Louise 250, b 14
B-1050 BRUSSELS
Belgium
Tel.: +32 (0)2 641 00 00
Fax: +32 (0)2 641 00 30
E-mail: tdb@bvdmc.com
The opinions expressed in this report are those of the authors and do not
necessarily reflect the views of the European Commission
Document Control
Document Final Report for the study on the Impact of EU Policy options for
revision of the universal service provision
Prepared by Tine Debusschere, VDMC; Alexandre de Streel, on behalf of VDMC;
Leen Moria, VDMC; Laurence Mourlon-Beernaert, on behalf of VDMC
Julio Villalobos, SVP Advisors
Date 25 October 2010

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Table of Contents
1. INTRODUCTION ..............................................................................................................7
1.1. The concept of Universal service in the European Union............................................................9
1.1.1 The origin of the USO concept....................................................................................................9
1.1.2 The concept of USO in the 2002 Directive................................................................................13
1.1.2.a General principles .............................................................................................................13
1.1.2.b The Scope of universal service ..........................................................................................13
1.1.2.c The designation of universal service providers .................................................................16
1.1.2.d USO financing....................................................................................................................17
1.1.3 The current state of affairs as a result of transposing the 2002 Directive in the EU Member
States .................................................................................................................................................21
1.1.3.a Scope of the universal service at MS level ........................................................................21
1.1.3.b The Designation of Universal service providers................................................................22
1.1.3.c Financing of USO ...............................................................................................................22
1.1.4 Further evolutions at the EU level since the 2002 Directive.....................................................23
1.1.4.a The reviews of 2005/2006 and of 2008 ............................................................................23
1.1.4.b The 2009 reform ...............................................................................................................24
1.2. The scope of this study ...........................................................................................................25
1.2.1 Current EU concept of USO.......................................................................................................26
1.2.2 Services considered ..................................................................................................................26
1.2.3 Relation to the periodic review of the scope of universal services ..........................................28
2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THE PROBLEM ... 29
2.1. Identification of the problem (‘What is the problem’)..............................................................29
2.1.1 Development of the broadband market...................................................................................29
2.1.1.a Technological developments in the broadband sector.....................................................29
2.1.1.b Infrastructure versus service competition ........................................................................31
2.1.1.c Market development in the EU Member States ...............................................................31
2.1.2 The future broadband development ........................................................................................42
2.1.2.a Release of “Digital dividend” will increase availability of spectrum for wireless broadband
services in the coming years .........................................................................................................42
2.1.2.b Convergence of fixed and mobile networks (FMC)...........................................................43
2.1.2.c Evolution towards Next Generation Networks (NGN) ......................................................43
2.1.2.d Evolution towards Bundled offers ....................................................................................45
2.1.3 What elements of market evolution could impact the appropriateness of USO as a tool to
advance broadband development?...................................................................................................45
2.2. Assessment and description of the problem............................................................................47
2.2.1 What are the reasons behind the problem?.............................................................................47
2.2.1.a Problem of insufficient broadband coverage....................................................................47
2.2.1.b Problem of insufficient broadband take‐up......................................................................48
2.2.2 Who is affected by the problem (specific actors, sectors …)? ..................................................54
2.2.3 What is the scale of the problem?............................................................................................56
2.2.4 Why is public intervention necessary, why at the European level? .........................................58
2.2.4.a Need for public intervention.............................................................................................58
2.2.4.b Why intervention at the EU level? ....................................................................................61
2.2.4.c Can EU act, and if so, how: the principles of subsidiarity and proportionality .................64
2.2.5 How was the problem avoided or reduced via other institutional contexts, regulations or
policies? .............................................................................................................................................65
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2.2.5.a At the EU level...................................................................................................................65
2.2.5.b At the Member States level: The National Broadband plans............................................73
3. DEFINITION OF THE POLICY OBJECTIVES........................................................... 75
3.1. General objectives ..................................................................................................................75
3.2. Specific objectives ..................................................................................................................76
3.3. Operational objectives............................................................................................................77
4. IDENTIFICATION AND DESCRIPTION OF POLICY OPTIONS.......................... 79
4.1. Option 1: ‘No policy change’ (2009 Regime) ............................................................................79
4.2. Option 2: ‘No EU regulation related to USO’ ...........................................................................80
4.3. Option 3: ‘Mandating broadband internet access for all citizens at a speed of 2Mbit/s’ ...........81
4.4. Option 4: ‘Refinement of the 2009 regime’..............................................................................81
4.5. Option 5: ‘A reformed and focused USO’ .................................................................................85
4.6. Summary of the main differing characteristics of the policy options regarding broadband and
USO at the EU level .......................................................................................................................87
5. ASSESSMENT OF THE POLICY OPTIONS............................................................... 92
5.1. Qualitative assessment ...........................................................................................................92
5.1.1 Preliminary assessment of elements with major national flexibility ........................................93
5.1.1.a Mechanisms available for providing financial support to specific user groups ................93
5.1.1.b Sources for funding of USO net cost .................................................................................95
5.1.1.c Conclusion .........................................................................................................................98
5.1.2 Overall qualitative assessment of the economic, social and environmental impacts of each
policy option ......................................................................................................................................98
5.1.2.a Identification of the relevant impacts...............................................................................98
5.1.2.b Qualitative assessment of Option 1: No policy change (2009 regime)...........................102
5.1.2.c Qualitative assessment of Option 2: No EU regulation related to USO ..........................103
5.1.2.d Qualitative assessment of Option 3: Mandating 2 Mbps access for all EU citizens........104
5.1.2.e Qualitative assessment of Option 4: Refinement of the 2009 Regime...........................105
5.1.2.f Qualitative assessment of Option 5: A reformed and focused USO................................107
5.1.2.g Comparison of the options..............................................................................................109
5.2. Quantitative assessment....................................................................................................... 112
5.2.1 Assessment of the cost of ensuring full coverage (availability)..............................................113
5.2.1.a Cost of ensuring full coverage in the EU 27 ....................................................................113
5.2.1.b Assessment of the cost of ensuring full coverage with 2Mbps connectivity ..................123
5.2.1.c Estimation of the part of the cost of full coverage to be funded by the sector under each
option..........................................................................................................................................125
5.2.2 Assessment of the cost of ensuring affordability ...................................................................126
5.2.2.a Estimation of the cost of affordability of broadband services........................................126
5.2.2.b Assessment of the estimated cost of affordability .........................................................131
5.2.2.c Comparison of the cost of affordability between options ..............................................135
5.2.3 Assessment of the costs of managing the universal service system ......................................136
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5.2.3.a Identification of cost categories......................................................................................136
5.2.3.b Conclusion.......................................................................................................................140
5.2.4 Overall quantitative assessment.............................................................................................140
5.3. Overall cost‐benefit assessment of each policy option........................................................... 142
ANNEX 1 : OVERVIEW OF NATIONAL BROADBAND PLANS (SITUATION AS OF
DECEMBER 2009) ..........................................................................................................144
ANNEX 2 : DETAILED QUALITATIVE ASSESSMENT OF EACH POLICY OPTION
..............................................................................................................................................157
Policy option 1: ‘No policy Change’ (2009 Regime) ....................................................................... 157
Policy option 2: ‘No EU Regulation related to USO’ ...................................................................... 161
Policy option 3: ‘No policy Change’ (2009 Regime) ....................................................................... 164
Policy option 4: ‘Refinement of the 2009 Regime’ ........................................................................ 167
Policy option 5: ‘A reformed and focused USO’ ............................................................................ 171
ANNEX 3 : DESCRIPTION OF THE TECHNO­ECONOMIC MODEL FOR THE
CALCULATION OF THE NET COST OF MANDATING BROADBAND INTERNET
ACCESS FOR ALL EU CITIZENS AT A SPEED OF 2MBIT/S ..................................176
General architecture of the Techno‐Economic Model................................................................... 176
Description of the Techno‐Economic model main assumptions .................................................... 178
Inputs of the Techno-Economic model................................................................................... 181
ANNEX 4: BREAKDOWN OF NET COST OVER THE DIFFERENT TYPE OF
AREAS (PER COUNTRY) ...............................................................................................186
Calculations based on the least expensive offers.......................................................................... 186
Calculations based on the median value offers ............................................................................ 187
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List of Abbreviations
ARPU Average Revenue per User
BIAC Broadband Internet Access Cost
CAPEX Capital Expenditure
DAE Digital Agenda for Europe
DG INFSO Directorate General Information Society and Media
DSLAM Digital Subscriber Line Access Multiplexer
DOCSIS Data Over Cable Service Interface Specification
eSGEI Services of General Economic Interest in electronic communications
EAFRD European Agricultural Fund for Rural Development
ERDF European Regional Development Fund
FMC Fixed-Mobile Convergence
FTE Full-Time Equivalent
FTTx Fiber to the x, where x can be filled in by home (H), curb (C) , building
(B)…
HH Households
IA Impact Assessment
ICT Information and Communication Technologies
ISP Internet Service Provider
LTE Long Term Evolution
MS Member States
NBS National Broadband Scheme
NGA Next Generation Access
NGN Next Generation Networks
NRA National Regulatory Authority
OPEX Operating Expenditure
PON Passive Optical Network
P2P Point to Point
SGEI Services of General Economic Interest
SMEs Small and Medium Enterprises
TFEU Treaty on the Functioning of the European Union
USD Universal Service Directive
USO Universal Service Obligations
USP Universal Service Provider
VAT Value Added Tax
WiMAX Worldwide Interoperability for Microwave Access
xDSL Different Digital Subscriber Line technologies, e.g. ADSL, ADSL2+,
SDSL
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• DIJK
1. INTRODUCTION
The present report constitutes the final report for the study on the “Impacts of EU
Policy options for revision of the universal service provision”. This study supports the
European Commission Directorate-General for Information Society and Media (DG
INFSO). It aims in particular to assist the formulation of potential policy options and
providing qualitative and quantitative assessment. The key issue of the study is
whether universal service at the EU level is an appropriate tool to advance basic
broadband development and if so, when and how it should be used, or whether this
should be left to other EU policy instruments or national measures.
The report presents the outcome of the three tasks – divided over two Stages – as
identified in the terms of reference for the study. Between Stage 1 and Stage 2, a
public consultation was organised by the Commission 1 .
The link between the two Stages of the study, the study tasks and the impact
assessment steps is illustrated in the following figure:
STAGE 1
,------------------------------------~
,.. '" '" Main Impact Assessment steps:"
I
I
I TASKl: Data gathering,
a na Iys is of in puts
I .Identification and assessment
(definition) ofthe problem
_--------------------- 1 §Ib9~_~
_----------~+---------------+~-----------,.. .. !oo
,/ • Defin ition ofthe policy objectives TASK 2: Supporting the
: • Identification and description of a na lysis of contributons
: the main policy options to public consultation
I
r.--- ---.. • Ana lysis ofthe impacts ofthe
TASK 3: Assessment of policy options and comparison ofthe TASK 3: Assessment of
policy options options policy options
• Compa rison ofthe options and,
where possible and appropriate,
identification of a preferred option "
'~----------T-+-------------.....~-----------~ ,
... ...
...
---------------- ~~::::::::::::::::::_-­ ------------------,
... .
• Specification of monitoringand
eva luation ofthe preferred policy
option
Figure 1: Overview of the scope of the study
1See
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_
service_2010/index_en.htm
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The present report will thus first of all identify and define the problem and define the
objectives for the sought after solution for dealing with this problem (cf. Chapter 1).
Referring to the tender specifications, the problem definition will strongly focus on
universal service obligations for broadband services and particular attention will be given
to the broad range of policy initiatives that have been taken in recent years for
improving the penetration and take-up of these services.
Regarding the objectives (cf. Chapter 2), distinction will be made between general,
specific and operational objectives. The relation with the objectives of other policy
initiatives will be made.
After all, the analysis of the impacts of EU policy options for the revision of the universal
service provision should be based on the potential of the policy options to attain the
objectives that are defined in order to tackle a well-defined problem.
In a next step (cf. Chapter 3), policy options are identified. The policy options that are
presented relate first of all to the minimal set of options as presented by the
Commission in its tender specifications (Options 1, 2 and 3). This list has been
completed with two additional options that are inspired by the detailed problem
definition. For each policy option, a detailed description is provided, making explicit
reference to the policy objectives in Chapter 4.
The detailed qualitative and quantitative assessment of each policy option is
presented in Chapter 5. The qualitative assessment presents to what extent each
option is more or less contributing to achieving the different policy objectives. The
quantitative assessment provides indications of the cost of overall availability and
affordability of basic 2Mbps broadband access services as well as indications on the
cost of managing the Universal Service system.
Finally, all of the above-mentioned steps have been further refined and / or
completed based on the contributions to the public consultation on “Universal
service principles in e-communications” that was organised by the Commission
between 2 March 2010 and 7 May 2010 2 .
The report was prepared for and funded by DG INFSO and will serve as an input
into their own regulatory impact assessment exercise, if any. The analysis in this
study is based on information regarding policy and market developments available
at the end of September 2010. The calculations presented in Chapter 5 take into
account costing and pricing elements from end 2009 - beginning 2010.
Before presenting the actual impact assessment of EU Policy options for revision of the
universal service provision, the concept of universal service as well as the scope of the
study is introduced in more detail.
2See
http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/univ
ersal_service2010/presentations/questionnaire_en_100302.pdf
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1.1. THE CONCEPT OF UNIVERSAL SERVICE IN THE EUROPEAN UNION
A profound insight in the concept and reasoning behind imposing universal service
obligations (USOs) is a basic requirement for a good understanding of the ideas
presented in the different parts of this impact assessment study. Therefore, an
important part of the introduction is devoted to resuming:
The origin of the USO concept ;
The concept of USO in the 2002 Universal Service Directive (USD) ;
The current state of affairs as a result of transposing the 2002 Directive in the
EU Member States;
Further evolutions at the EU level since the 2002 Directive.
1.1.1 THE ORIGIN OF THE USO CONCEPT
Universal Service Policy may have different meaning and objectives depending of
the country and the development of the network. 3 It may vary from a social safety
net to an industrial policy tool. 4
The wide range of possibilities in universal service policies, are clearly shown in a
table composed by Claire Milne, as reproduced below:
3 For example, the origin dates back to the beginning of the 20th century when it was decided
in the USA that all of the distinct local network would be integrated into one global network,
offering “universal access” to all subscribers: see M. Muller (1997), Universal Service:
Competition, Interconnection, and Monopoly in the Making of the American System, MIT Press.
4 An “industrial policy” refers to a set of actions taken by government in order to affect the
way in which factors of production are being distributed across industries.
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Stage 1: Stage 2: wide Stage 4: Stage 5:
Stage 3: mass
network geographic network services to
market
establishment reach completion individuals
Teledensity* 0 to 5 per 100 1 to 20 per 100 15 to 40 per 100 35 to 60 per 100 Over 50 per 100
GDP per capita rage Low income Lower middle Upper middle High income High income
income income
Business take-up 0-30% 20-80% 70-100% 100% 100%
Household take-up 0-10% 5-30% 20-85% 75-100% 100%
Commercial
Typical telephone Administrative Operational
Entrepreneurial (maybe Competitive
company culture (govt. dept.) (huge workforce)
privatised)
Large scale Technical
Growing call
Typical management capital network Growing the
revenues Profitability
preoccupations investment in (improvement, network
(marketing)
new technology public service)
Limited demand
Investment Affordability of
due to due to Manpower for
funds, service to poorer
Main constraints to high prices (of plant installation
appropriate households;
network expansion low incomes) and to meet mass Market appeal
technology and cultural
use of alternative demand (waiting
skills acceptability of
communications lists)
telephony
Govt. control (for Installation and
Typical public policy national security rental charges Network
Investment Free, fair
measures (telecom) and economy); kept low to competition, cost-
incentives competition
geographically stimulate line oriented tariffs
uniform charges demand
Universal service goal Technological Geographic Economic Social (achieve Libertarian
type (acquire new (maintain (stimulate political (individual right
technology) regional parity) economy) cohesion) to communicate)
Everyone can
Telephone
Long distance Widespread meet basic
service available
service linking all residential take Telephone communication
in all population
Examples of universal major centres; up of telephony; affordable to all; needs; public
centres;
service goals public telephones meet all telephone service access to
widespread
where demand reasonable adaptable to advanced
adoption of
warrants demands for special needs services (esp.
telephony in
telecoms education,
business
health)
Needs created by
Typical market Main small Rural, disabled,
Payphone rates Main household new services (e.g.
research focus business low-income
and locations requirements mobility,
requirements needs
internet)
Profitable
Typical public policy Licence Control speed of Identify and meet
licences subject to Targeted
measures (universal conditions on prices non-market
unprofitable subsidies
service) network rollout rebalancing demand
obligations
Table 1: The five stages of universal policy development
(Source: C. Milne (1998), “Stages of universal service policy”,
Telecommunications Policy 22, p. 776)
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As the table above clearly shows, there is not one ‘universal set of characteristics’ that
unambiguously defines the concept of USO and that is thus applicable in all
circumstances. This said, it is important for our study to understand how the concept
of USO has been defined in the regulatory framework for electronic communications
services in Europe.
In the EU, the concept of universal service is linked to the liberalization process that
took place during the nineties and was conceived as a social safety net and not an
industrial policy tool. 5 It covers a number of particular or specific objectives,
contributing to general public interest 6 , which were previously – i.e. in a monopolist
context - ensured by a public service policy defining the monopolist organizations
(i.e. by regulation). These objectives are availability, affordability 7 and
accessibility 8 . Moreover, in pursuit of these objectives, ensuring adequate quality
must be monitored.
With the opening of the market, new approaches, methods or tools have been
defined in order to pursue these same public interest objectives as mentioned above
in a competitive environment. In this way, the concept of universal service obligations
in Europe is thus directly linked to the change from a monopolist to a competitive
context. More precisely, USO should remedy the shortcoming of the competitive
environment for attaining the objectives listed above. Furthermore, the concept of
USO in se does not provide any indications on who should be responsible for
financing the cost related to providing the universal services.
Regarding the link between USO and the competitive environment, it should be
emphasized that the introduction of competition itself was motivated by its expected
positive contribution to the same objectives of quality, availability and affordability.
More precisely, USO was defined as a measure accompanying the introduction of
competition, allowing public intervention in case the previously regulated
monopolist situation of certain citizens would deteriorate after the market opening in
the sense that existing services would no longer be provided. Therefore, this context of
competition requires that any universal service obligation is implemented in a way
that results in minimal market distortion. After all, the starting point for the
European electronic communications sector policy is that stimulation competition is
the preferred approach to achieve the three objectives mentioned previously. At all
times, market development based on competition should thus be given priority.
5 On the origins of the concept of universal service in the EU, Communication from the
Commission of 15 November 1993 Developing universal service for telecommunications in a
competitive environment, COM(93) 543, and Council Resolution of 7 February 1994, OJ
16.2.1994 C 48/1.
6 Please note that general public interest refers more generally to equality and continuity.
7 ‘Affordability’ refers to the fact that maintaining and using a service does not place an
unreasonable financial burden on consumers, particularly on vulnerable disadvantaged
consumers.
8 ‘Accessibility’ refers to the fact that services must be useable by all social groups and in
particular by the disabled.
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In theory, it could thus be argued that all public intervention measures or tools that
contribute to the objectives of availability, affordability and accessibility in a
competitive environment can be referred to as universal service obligations.
In practice however, the implementation of USO in Europe includes the possibility of
sector specific funding for the cost of universal service provision (cf. also section
1.1.2.d). As a consequence, all other and subsequent policy choices for the practical
implementation of USO (e.g. the listing of services, the designation of the universal
service provider(s) (USP), the development of a pricing policy in general and for
specific disadvantaged groups in particular) need to take into account this additional
aspect of USO in Europe. More precisely, the success of USO as a ‘safeguard’ that the
competitive environment actually attains the three public service objectives for the
services in its scope, will depend on the extent to which USO can find the right
balance between the positive impact of preventing exclusion of certain
disadvantaged citizens and the negative impacts of the financial burden placed on
the sector (e.g. in terms of increasing overall prices and thus reducing overall
affordability).
Furthermore, the EU legislation balances carefully European harmonization and
flexibility left to the Member States. For the services which are harmonized at the
European level (the scope of the USO), the modalities of their provision leave some
flexibility to the Member States. Conversely, for the services that are not harmonized
at the EU level (other services than in the USO), the rules related to the modalities
leave less flexibility to the Member States.
Scope of USO Designation and
Financing schemes
4 services in USOs State and/or sector fund
EU level
(harmonization) (some flexibility)
Other services to be State funding only
National level decided by Member States
(flexibility) (some harmonization)
Table 2: Overview of required balancing between the scope of the USO services and the
financing mechanisms
The universal service at the WTO level
Finally, the concept of USO as defined at the EU level is consistent with 9 the
provisions in the WTO Reference Paper on basic Telecommunications of 24 April
1996, Art 3, stating that: ‘Any Member has the right to define the kind of universal service
obligation it wishes to maintain. Such obligations will not be regarded as anti-competitive per
se, provided they are administered in a transparent, non-discriminatory and competitively
9 See USD 2002/22/EC, Recital 3 USD
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neutral manner and are not more burdensome than necessary for the kind of universal service
defined by the Member’.
1.1.2 THE CONCEPT OF USO IN THE 2002 DIRECTIVE
The main elements of this Directive, further defining the concept of USO at EU level,
are presented in the following paragraphs.
1.1.2.a GENERAL PRINCIPLES
The Universal Service Directive provides that any measure taken to guarantee
universal service should meet the principles of objectivity, transparency, non-
discrimination and proportionality. 10 It should also fulfill two important but subtly
different principles: competition should not be distorted and distortions within
markets should be minimised. 11
The first principle, which stems directly from the Treaty, entails that universal
service measures may not distort competition between undertakings active on the
same market. This, in turn, implies that all undertakings active on a relevant market
could be designated as a universal service provider, or that each provider that incurs
a net cost for doing so should be compensated on the same basis.
At the same time, even if the state of competition may not be altered by universal
service measures, markets are often nonetheless distorted, because at least some
universal services have to be provided at prices that depart from normal commercial
conditions (i.e. at below market-prices or even below their costs of provision);
therefore the provision of such services may require subsidising, which in turn may
require taxes or levies to be imposed. Therefore, in accordance with the second
principle, these markets distortions have to be minimised. This implies that the least
costly way of ensuring the provision of universal service should be chosen by the
Member State and, if compensation is to be provided from within the sector, the base
of contributors should be as wide as possible. 12 The principle of the minimisation of
market distortions should be seen as a gateway for the economic principle of
efficiency to enter the policy and regulatory arena. 13
1.1.2.b THE SCOPE OF UNIVERSAL SERVICE
In Article 3 of the USD, universal service obligations are in general described as:
‘Member States shall ensure that the services set out in this Chapter are made available at the
quality specified to all end-users in their territory, independently of geographical location,
and, in the light of specific national conditions, at an affordable price’.
10 See USD 2002/22/EC, Art.3(2).
11 See USD 2002/22/EC., Arts.1(2) and 3(2) and Liberalisation Directive 2002/77/EC, Art.6(1).
See R. Cawley, “Universal Service: specific services on generic networks – some logic begins
to emerge in the policy arena”, presented at the 2001 TPRC Conference and available at
http://tprc.si.umich.edu/tprc01/Program01.HTM.
12 See USD 2002/22/EC, recitals 4 and 23.
13 This principle was heavily relied upon by the Court of Justice in Case C-220/07 Commission
v France [2008] E.C.R. I-95, paras.29 and 31.
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The scope of the current universal service is described in Articles 4 to 7 of the 2002
Directive 14 .
List of services to be made available
Firstly, it comprises access 15 for a connection to the public telephone network at fixed
location, allowing end-users to make and receive calls, fax, and data communications.
The data rate should be sufficient to permit functional Internet access, taking into
account prevailing technologies used by the majority of subscribers and
technological feasibility. In 2002, this was limited by the Directive to a single
narrowband network connection at 56 Kbps 16 . As the Directive is technologically
neutral, the connection at the fixed location or address 17 could be fulfilled via wire or
wireless technologies (including cellular) provided they allow call, fax and data
communications to be carried out and that the tariffs for outgoing and incoming
communications are structured in such a way as to meet the affordability criterion.
Moreover, Member States should choose the least expensive technologies among
those available because the provision of the universal service should minimise
market distortions.
Secondly, universal service comprises at least one comprehensive and regularly
updated directory, in a printed and/or electronic form approved by the national
regulatory authority (NRA). The directory should list fixed and mobile subscriber
data in a non-discriminatory way, and abide by the ePrivacy Directive, under which
all subscribers listed in a directory have to give their consent 18 . Moreover, a
comprehensive directory enquiry service should be available.
Thirdly, sufficient public pay telephones (that inter alia enable the placing of emergency
calls free of charge) should be available to meet the reasonable needs of end-users in
term of geographical coverage 19 .
Finally, with respect to accessibility, it is foreseen that disabled people can have an
equivalent access to the above mentioned services as that enjoyed by other end-users
(connection at a fixed location, directories and directory enquiry services, public
14 I.e. scope in the narrow sense, meaning the list of services to be made available. The full
scope of US obligations, including provisions on the designation of undertakings, on
affordability of tariffs and on control of expenditure, can be found in Articles 3 to 10.
15 This ‘Access’ obligation refers to the objective of ‘availability’.
16 See Recital 8 of the USD 2002/22/EC that left some flexibility to Member States for
allowing a data rate below the upper limit of 56 kbps to exploit the capabilities of wireless
technologies that may be of particular relevance in some future Member States.
17 It should thus be underlined that connection at fixed location does not mean connection via
fixed public network, but only connection at a specified address, which Member States may
restrict to the end-user's primary location/residence (see Recital 8 of the 2002 Directive).
18 See ePrivacy Directive 2002/58/EC, Articles 12 and 16.
19 Nevertheless, to ensure minimum regulation, an NRA may decide not to impose these
obligations if, after public consultation, it considers that these facilities or comparable services
are widely available. More generally, when the market is satisfactorily providing for the
elements of universal service, the Member State may not designate a universal service
provider.
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phone boxes). For example, specific services such as textphone for the deaf or speech-
impaired people, or billing in specific formats such as Braille for the blind or partially
sighted, could be made available free of charge 20 .
Affordability and quality
In the European context, universal service implies not only availability, but also
affordability. Moreover, it implies a certain specified quality of service. On the
determination of both of these characteristics, Member States enjoy some flexibility
to ensure, in accordance with the principle of subsidiarity, that universal service fits
national circumstances.
Tariffs for the universal service should be affordable, in the light of specific national
conditions in particular in relation to national consumer prices and income. 21 For
instance, affordable tariffs may be linked to the penetration rate or to the price of a
basket of basic services related to the disposable income of specific categories of
customers. Particular attention should be paid to the needs and capacities of
vulnerable and marginalised groups. To achieve affordability, Member States may
require that the designated universal service providers offer tariffs which depart
from those offered under normal commercial conditions (i.e. which are at lower
prices or even below cost), that they comply with a price cap, or that they offer
similar tariffs across the whole territory. Among all these possibilities, Member
States should choose the combination that minimises market distortions. 22
Empirical evidence has shown that affordability is not only linked to the level of
expenditure, but also to the way customers can control it. Therefore, the universal
service providers should also offer, at no additional cost, facilities and services that
enable subscribers to monitor and control expenditure and avoid unwarranted
disconnections. 23 In addition, to limit the expenses of the subscribers, universal
service providers may not require consumers to subscribe for additional facilities or
services which are not necessary or not required for the service requested. 24
Quality of service is a factor that is as important as price. Therefore, information on
service quality should be made available and NRAs may impose credible
20 See Recital 13 of the 2002 USD.
21 See Art.9 of the 2002 USD.
22 It has been shown that self-selected tariffs (where the universal service provider proposes a
suite of tariff plans that consumers can choose, depending on their consumption pattern) may
be efficient, as it gives an incentive to consumers to reveal their preferences and limit the
subsidy to those subscribers that are really in need. Moreover, subsidies that are targeted to a
specific group of citizens or specific area are more efficient than a general geographical
averaging of tariffs. It might also be appropriate to choose two different mechanisms, one for
uneconomic areas and one for uneconomic customers in economic areas. In the first case,
tariffs below costs could be imposed on the designated operator(s), whereas in the second
one, vouchers could be distributed to those specified customers, who could then themselves
choose between providers and benefit from competition between them: J.M. Cheffert (2000),
“Universal service: Some observations relating to future European debates?”, Info 241.
23 See USD, Art.10 (2) and Annex I, Part A.
24 See USD, Art.10 (1).
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performance targets taking into account the views of interested parties. 25 Providers
of universal service should thus publish adequate and up-to-date quality of service
information, based on both standardised parameters 26 and any other parameters
developed by the NRA, in particular those that take into account the specific needs of
disabled users. Moreover, NRAs can set performance targets, and persistent failure
to meet these would result in sanctions being taken against the universal service
providers.
1.1.2.c THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERS
If necessary, Member States may designate one or more undertakings to guarantee
the provision of universal service, in part or all of the national territory 27 . In order to
fulfil the principle of avoiding distortions of competition, the method used to
designate providers should be transparent, objective and non-discriminatory. Hence,
all undertakings that are able to provide the universal service 28 , irrespective of
technology used, should be entitled to participate in the designation process and be
aware of it. In order to fulfil the principle of minimising market distortions, the
method should ensure that universal service is provided in a cost-effective manner,
i.e. in the least costly way. If it is efficient, different undertakings could be designated
to provide different elements of universal service and/or to cover different parts of
the national territory. 29
In practice, a whole range of designation mechanisms is allowed: tendering, public
consultation or when those can not work, direct designation. Auctions 30 can be
efficient and should be used when there is already sufficient competition on the local
access market. Otherwise, they may be problematic, due to the difficulty of ensuring
that sufficient undertakings are in a position to bid against the incumbent (as new
entrants would need to use alternative network infrastructure or use the incumbent’s
assets) and because of the asymmetry of information between the incumbent and
25 See USD, Art.11.
26 See USD, Annex III,
27 See USD, Art.8.
28 Sufficient coverage is hereby not a pre-condition per se for being able to provide universal
services.
29 To guarantee the principles of non-discrimination and the minimising of market
distortions, national law may not require that the provider of the universal service should be
able to cover the entire national territory: Case C-220/07 Commission v France [2008] ECR I-95,
para.34. Also the pending Case C-154/09, Commission v Portugal which concerns the ability of
the Portuguese legislator to designate the incumbent PT Comunicações as the universal
service provider until 2025 without relying on an efficient, objective, transparent and non-
discriminatory procedure.
30 For a typology of auctions and the criteria to be taken into account when designing an
auction for universal service obligations: Sorana, “Auctions for universal service subsidies”,
(1998) 18 Journal of Regulatory Economics, 33; Nett, “Auctions: an alternative approach to
allocate universal service obligations”, (1998) 22 Telecommunications Policy, 661; Competition
Economists Group, 33-36. See also Weller, “Auctions for universal service obligations”, (1999)
23 Telecommunications Policy, 645, who details the scheme proposed by GTE in the United
States for an auction leading to in-market competition, which was criticised by Laffont and
Tirole, at 244-260.
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potential entrants, e.g. concerning the net costs and benefits of serving particular
groups of subscribers.
1.1.2.d USO FINANCING
The USD specifies that : “Where, on the basis of the net cost calculation referred to in
Article 12, national regulatory authorities find that an undertaking is subject to an unfair
burden, Member States shall, upon request from a designated undertaking, decide:
a. to introduce a mechanism to compensate that undertaking for the determined net
costs under transparent conditions from public funds; and/or
b. to share the net cost of universal service obligations between providers of electronic
communications networks and services.” 31
Two funding or financing mechanisms can thus be applied by the Member States:
public funding and sector specific funding. Moreover, it is allowed to use ‘different
elements of universal service through different funding mechanisms, and/or to finance the net
costs of some or all elements from either of the mechanisms or a combination of both’ 32 .
These mechanisms can only be activated after determining the net cost of the
universal service obligations. Furthermore, the activation is dependent on the
obligatory assessment by the NRA of the unfair burden of this cost. This procedure is
presented in the following scheme:
Direct designation of Calculate net cost
US provider(s) by the of USO
("ex-post"*)
Member States
If YES: Activate
sectoral or
public funding
OR USO may OR If NO: No funding
Unfair
represent burden
unfair confirmed?
burden?
Designation of US
provider(s) by a Net costs are identified
designation by designation
mechanism
mechanism
(e.g. tendering)
* Based on accounts and/or other information that is audited or verified by the national regulatory
authority
Graph 1: Consecutive steps preceding the financing of the USO net cost
Referring to the link between USO and the competitive environment (cf. supra), it is
furthermore specified that: “A sharing mechanism shall respect the principles of
transparency, least market distortion, non-discrimination and proportionality” 33 and “this
31 See USD, Article 13, 1.
32 See 2002 USD, Recital (21)
33 See USD, Article 13, 3.
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means that the transfers result in the least distortion to competition and to user demand” 34 .
“Least market distortion means that contributions should be recovered in a way that as far as
possible minimises the impact of the financial burden falling on end-users, for example by
spreading contributions as widely as possible 35 ”.
Remark on the appropriateness of financing procedure for substantial new
investment
Graph 1 presented above clearly indicates that– even in the case of e.g. auctions for
the selection of the most cost-efficient universal service provider – no guarantee can
be given to the selected provider that the costs incurred for providing the universal
service are indeed going to be considered as an unfair burden 36 . As such, the USO
financing mechanism brings about important uncertainties and could possible
discourage undertakings from being a candidate provider.
Also, the current compensation mechanism implies an important delay between the
moment of the actual investment for providing universal services and the
recuperation of the net cost. 37 In practice, several years can thus elapse before
funding is received. This again could possible discourage certain undertakings for
which pre-financing is very difficult or even not feasible 38 .
The next paragraphs further comment on the two mechanisms that are currently
foreseen for financing the net cost of USO.
a.1. Sector specific funding
The undertakings that are currently eligible for bearing a part of the net cost of USO
are providers of electronic communications networks and services. These actors – e.g. an
Internet Service Provider, offering access to the Internet – can also offer other services
that do not fall under the electronic communications services, such as the provision
of web-based content 39 . Undertakings that only provide other services than
electronic communications services are however not eligible for contributing to the
net cost of USO.
Intuitively, the contributions of providers of e-communications networks and
services to the net cost of USO could be regarded justified because of the benefits
these operators derive e.g. from the wider roll-out of infrastructure, the larger
34 See USD, Annex IV – Part B: Recovery of any net costs of universal service obligations
35 See USD, Recital (23)
36 The importance of respecting the consecutive steps for the activation of a USO fund and
especially of making the assessment of the unfair burden has been stressed by the
Commission when it brought Belgium to the European Court of Justice. The Commission
considers that Belgium has not correctly transposed provisions of the USD as the Belgian Law
provides for no assessment of the question whether the provision of social tariffs represents
an unfair burden for the undertakings concerned.
37 See 14th Implementation Report – Volume 1 – Part 2 (page 45): “In majority of those Member
States where a decision to activate the compensation mechanism has already been taken, […] effective
compensation faces long delays due to administrative procedures, appeals and court proceedings.”
38 This difficulty has also been raised by Cheffert (2000).
39 See also Framework Directive 2002/21, Recital (10).
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number of customers receiving and making calls, etc. This rationale behind the
sector-specific funding for mainly voice telephony could be further transferred to the
context of broadband in the information society. Very soon, it then becomes clear
that there might be a case to extend the scope of eligible actors for the sector specific
funding, in order to include e.g. providers of web content or web based services
(both private and public, cf. e.g. eHealthcare, eGovernment). After all, these actors
would directly benefit when broadband services would be available to wider
customer bases.
Finally, it is foreseen that not all undertakings providing electronic communications
networks and services are obliged to contribute since “the net cost of universal service
obligations may be shared between all or certain specified classes of undertakings.” 40 For
example: “Member States may choose not to require contributions from undertakings whose
national turnover is less than a set limit.” 41
Results of the public consultation
In the contributions to the public consultation on universal service principles in e-
communications (March 2010) 42 , some operators argued – given the convergence of
the internet, media and telecommunications industries – for extending the
contributory basis to e.g. web content providers. Also some national governments
noted there might be need to consider whether content providers should also be
obliged to contribute in the future. Other market players however believed that such
an approach is not feasible provided e.g. the managerial difficulties and the endless
disputes on the calculation of the contribution of each contributor. Furthermore,
since current broadband offers are sold without subsidies from content providers,
including them in the universal service financing system for broadband would easily
distort the market.
a.2. Public funding (government budgets or ‘general taxation’)
The possibility of financing the net cost for USO by means of public funding was
added in 2002 compared to the 1998 framework 43 , where the possibility of financing
was limited to the sector.
In general, economic literature has shown that, unless there are significant
inefficiencies within current taxation, compensation of the net cost of USO by means
40 See USD, Recital (23)
41 See USD, Article 13 (3).
42
See
http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/universal_
service_2010/index_en.htm
43 See Directive 98/10 of the European Parliament and of the Council of 26 February 1998 on
the application of open network provision (ONP) to voice telephony and on universal service
for telecommunications in a competitive environment
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of public funding is less distorting and more efficient than the use of a sector specific
fund 44 .
This is because the taxable basis is broader, thus the distortive effect of the taxes is
accordingly smaller. Opponents to public funding for universal service argue that
allowing public funding could generate competitive distortions between Member
States, and competitive disadvantage for the countries using sector specific funds
compared to those using the general budget. Such fears however are unfounded as
differences in compensation mechanisms are similar to divergences between Member
States in other economic factors, such as the cost of labour or capital or the taxation
regime. Moreover, the universal service net cost burdens are small-scale when
compared with overall economic activity. Finally, undertakings in the electronic
communications sector still generally compete within national markets, even if
communication is by definition an international activity.
Regarding the list of services that are included in the scope of USO in relation to the
financing source, national public budgeting procedures could require NRAs to
provide politicians with detailed estimates for the upcoming cost of USO. As such
and in comparison with financing based on sector specific funding, NRAs could be
stimulated to focus more strongly on limiting USO to situations in which market
failure is clearly demonstrated.
a.3. Remark on other financing possibilities
The procedure to be followed for activating the USO fund somehow limits the
possibilities of financing. After all, any possible financing mechanism required that
the burden on the undertaking providing the universal service is first assessed.
Because of that, the following financing approaches are excluded in spite of their
advantages:
Direct subsidy to end-users (‘vouchers’): efficient to meeting universal service
objectives in a very much directed way;
Direct subsidy to operators: enables operators to have a pre-financing of the
required investments;
Pool operator together to invest in infrastructure: this approach would by
definition guarantee open access to networks.
44
See e.g. Report of the Competition Economists Group (CEG) on “Reforming Universal Service
Policy” (2007, Report for GSM Europe) in which it was estimated that the welfare loss from
using industry funds may be as much as three times higher than funding from general
taxation.
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1.1.3 THE CURRENT STATE OF AFFAIRS AS A RESULT OF TRANSPOSING THE 2002
DIRECTIVE IN THE EU MEMBER STATES
1.1.3.a SCOPE OF THE UNIVERSAL SERVICE AT MS LEVEL
As Member States enjoy a certain level of discretion with respect to universal service,
some heterogeneity in scope of the services included in the national obligations, and
in their evolution, can be perceived. More specifically, the following observations 45
can be made:
• In recent years, several Member States have limited the scope of the universal
service obligations as some universal service elements are being delivered by
the market under normal commercial conditions. Illustrative of this is the
following non-exhaustive list of examples:
- Directory and directory enquiry services have been taken out of the
scope of USO in the Czech Republic, and are only intended to be
designated for certain groups of disabled users in Denmark;
- Provision of access at a fixed location is removed out of the scope of
USO in the Czech Republic and Hungary, and Latvia has proposed a
similar measure;
- A reduction in the number of public payphones required can be
observed in some Member States such as Hungary and Slovakia, and
payphones are not included at all anymore in the USO scope in
Denmark;
• Measures for the disabled and users with special needs often consist of different
forms of special tariff plans and prices, discounts for connection and call
making, and obligations concerning the provision of public payphones with
specific requirements for usage by disabled users. It has been observed that
there is some heterogeneity in the measures employed by the Member States,
and that the depth and scope of their impact also varies;
• A small number of Member States have recently enlarged or are contemplating
of enlarging the scope of the services included in USO. These elements, for
which no sector-specific funding is/would be possible (see 1.1.2.d), include:
- ISDN services, leased lines and maritime emergency services in
Denmark;
- Broadband services: next to Finland, also other Member States such as
Spain 46 , France, Cyprus and Romania have initiated considerations in
this regard. So far, Finland is the only country taken concrete
measures to designate universal service providers for broadband 47 .
45 Examples drawn from the 13th, 14th and 15th Report on the Implementation of the
Telecommunications Regulatory Package.
46 In Spain, a legislative proposal foreseeing universal access to the internet at a speed of
1Mbps at “affordable rates” from the 1st of January 2011 is currently being considered.
47 FICORA has designated 26 telecom operators as universal service providers in various
parts of Finland. The universal service obligations started at the 1st of July 2010. The
connection speed must be 1 Mbps. No price cap for the broadband subscription fee was fixed
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1.1.3.b THE DESIGNATION OF UNIVERSAL SERVICE PROVIDERS
It is left to the discretion of Member States to determine the most efficient and
appropriate mechanism for selecting the undertakings to supply universal service,
provided that the requirements of the framework are respected. This implies that
Member States should ensure the provision of universal service in a cost efficient
manner, whilst respecting the principles of objectivity, non-discrimination and
minimum market distortion. In this regard, the mechanism used to designate
operators for the provision of universal service must not a priori exclude any
undertakings, and the conditions of the designation procedure must allow for
evaluation of all offers of interested parties to provide particular elements in the
whole or part of the national territory 48 .
A number of Member States have not yet designated universal service providers in a
way that is based on the rules of the current US framework. These countries include
Belgium (other than social tariff component), Bulgaria, Greece, Italy, the
Netherlands, Portugal, Spain. Three of them (Greece, Portugal and Spain) are
currently in the process of preparing new designations. Eight Members States
designate universal service providers based on a tendering procedure: these are the
Czech Republic, Estonia, France, Hungary, Poland, Romania, Slovenia and Cyprus.
1.1.3.c FINANCING OF USO
Currently, sector specific funding for USO is foreseen as the only or main financing
mechanism for the net cost of USO in most of the EU Member States. Finland and
Sweden, and most recently the Czech Republic are the only three Members States
providing for a financing mechanism from public fund only. Malta and Portugal
allow both public and sector-specific funding. In Latvia, the law requires setting up
of a specific sector-sharing mechanism for the compensation of universal service net
costs but until such a mechanism is established compensation should be paid from
the state budget.
A compensation mechanism is currently only activated in a minority of Member
States. These are Belgium (for social tariffs only), the Czech Republic, France, Italy,
Latvia, Romania 49 and Spain.
in advance, but FICORA indicated that a monthly fee of 30 to 40 EUR would be reasonable in
most cases. A reasonable delivery time and price will be determined case-specifically.
See: http://www.ficora.fi/en/index/viestintavirasto/lehdistotiedotteet/2010/P_27.html
48 See 14th Report on the Implementation of the Telecommunications Regulatory Package.
49 The Romanian compensation mechanism is currently under scrutiny of the Commission
services for compliance with the framework;
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Country Year USO net cost USO net cost per
capita
Belgium 2003 48.4 million EUR 4.61 EUR 50
Czech Republic 2006 13.8 million EUR 1.29 EUR
France 2007 22.86 million EUR 0.36 EUR
Italy 2003 41 million EUR 0.71 EUR
Latvia 2008 0.54 million EUR 0.24 EUR
Romania 2008 0.47 million EUR 0.02 EUR
Spain 2007 71.09 million EUR 1.55 EUR
Table 3: Overview of USO net costs shared between operators
The fact that currently only a very limited number of Member States have actually
activated USO funds, could be considered as a confirmation that the current USO
system is in balance. At the same time however, the number of MS activating a US
fund is increasing. This can be explained by the fact that more and more incumbents
(which are the universal service providers in most Member States) are losing market
share on the retail markets, which leads to a reduced capacity of bearing the burden
of the net cost of USO and thus an incentive for asking the activation of a USO fund.
1.1.4 FURTHER EVOLUTIONS AT THE EU LEVEL SINCE THE 2002 DIRECTIVE
Since 2002, the scope of the universal services was reviewed twice. Furthermore, in
2009, the 2002 Universal Service Directive was amended by the Citizens’ Rights
Directive. The impact of these on the elements of the 2002 USD presented in section
1.1.2, are presented in the following paragraphs.
1.1.4.a THE REVIEWS OF 2005/2006 AND OF 2008
Article 15 and Annex V of the Universal Service Directive 51 request the Commission
to review periodically the scope of the universal service and to appreciate the
opportunity to propose to modify this scope. This assessment has to be made taking
account of social, market and technological developments (e.g. mobility, data rates
and prevailing technologies used by the majority of subscribers) and is based on two
questions or ‘preliminary conditions/criteria’ which have to be completed if the
Commission wishes to propose a change to the universal service’s scope:
1) are specific services available to and used by a majority of consumers and
does the lack of availability or non-use by a minority of consumers result in
social exclusion (“majority use test”)?
2) does the availability and use of specific services convey a general net benefit
to all consumers such that public intervention is warranted in circumstances
50 Approximately half of this amount relates to the component ‘social tariffs’ for which the EC
brought Belgium to the ECJ since it considers that there has been no assessment of the
question whether the provision of social tariffs represents an unfair burden for the
undertakings concerned.
51 See USD 2002/22/EC
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where the specific services are not provided to the public under normal
commercial circumstances (“market failure test” 52 )?
The first periodical review of the scope of universal service was presented in 2005 53 ,
based on which it was concluded that there was no necessity to modify the scope of
universal service. For mobile communications, evidence demonstrated that the
competitive provision of mobile communications has resulted in consumers having
widespread affordable access and that the conditions for including this service in
universal service were therefore not fulfilled. For the broadband services, it was
concluded that only a small, though growing minority of European consumers were
making use of broadband services so that broadband in 2005 had not yet become
necessary for normal participation in society, such that lack of access implies social
exclusion. Nevertheless, a number of questions to be further investigated were raised
such as the impact of the growth of IP-based services on the current USO model
which is based on access as well as services and the compatibility of the current
financing model of USO in the context of market liberalisation and the opening to
competition.
In 2008, a second periodical review was published by the Commission 54 . For the
mobile communications, the same conclusion of the first review was reaffirmed. For
the broadband service, it was concluded that the first criterion for including a service
in the scope of universal service (service used by a majority of consumers) is being
approached rather quickly compared to the first review and that consequently the
situation needs to be kept under review.
1.1.4.b THE 2009 REFORM
In general, the most important changes for USO in the Citizens’ Rights Directive can
be summarized as follows:
1. the flexibility given to Member States to up-grade the provision of universal
service to a connection to the public communications network allowing
broadband data rates (Recital 5 of the Citizens Rights Directive 2009/136);
2. the possible imposition on all undertakings of requirements aiming at
facilitating access and choice of e-communications by the disabled (Art. 7 of
the Universal Service Directive);
3. the separation of the provision of a connection/access from the provision of
services (Article 4 of the amended Universal Service Directive and Recital 15
of the Citizen Rights Directive);
4. the inclusion of public voice telephony access points in the scope of universal
service (New Art. 6(1) of the Universal Service Directive).
These changes do however not affect the provision on the financing of the cost or the
provisions on the selection and designation of the universal service provider.
52 USD, Recital (25) refers to “a substantial majority of the population”.
53 See COM(2005) 203, 24.5.2005
54 See COM(2008) 572, 25.9.2008
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For the purpose of this study, the first and third modification is of particular
importance. Regarding the first modification, Recital (5) of the 2009 Directive states
that ‘Data connections to the public communications network at a fixed location should be
capable of supporting data communications at rates sufficient for access to online services
such as those provided via the public Internet. The speed of Internet access experienced by a
given user may depend on a number of factors, including the provider(s) of Internet
connectivity as well as the given application for which a connection is being used. The data
rate that can be supported by a connection to the public communications network depends on
the capabilities of the subscriber’s terminal equipment as well as the connection. For this
reason, it is not appropriate to mandate a specific data or bit rate at Community level.
Flexibility is required to allow Member States to take measures, where necessary, to ensure
that a data connection is capable of supporting satisfactory data rates which are sufficient to
permit functional Internet access, as defined by the Member States, taking due account of
specific circumstances in national markets, for instance the prevailing bandwidth used by the
majority of subscribers in that Member State, and technological feasibility, provided that
these measures seek to minimise market distortion.’
Compared to the provisions in the 2002 USD 55 , reference is no longer made to a
narrowband connection and the indication on an upper limit (56 kbps in the USD) has
been removed, so larger discretion is provided to the Member States. No precise
indications are provided as to how the specific national circumstances need to be
taken into account. Recital (5) states the following: “Flexibility is required to allow
Member States to take measures, where necessary, to ensure that a data connection is capable
of supporting satisfactory data rates which are sufficient to permit functional Internet access,
as defined by the Member States, taking due account of specific circumstances in national
markets, for instance the prevailing bandwidth used by the majority of subscribers in that
Member State, and technological feasibility, provided that these measures seek to minimise
market distortion”. Depending on the definition of functional internet access by each
individual Member State and taking into account the specific circumstances in
national markets, broadband services with different speeds could thus be added to
the scope of USO at national level.
It should be noted that the introduction of the larger discretion for Member States to
include broadband services of a specific speed, was not based on the assessment of
the two criteria of Article 15 of the Universal Service Directive as defined for the
review of the scope of the universal service (cf. section 1.1.4.a). As such, it cannot be
excluded that the USD will be used by Member States as an industrial policy tool
instead of the social safety net that was previously conceived by the EU (cf. section
1.1.1). Furthermore, this change upsets the balance between the flexibility regarding
the scope of the universal services and the harmonization of the funding
mechanisms, especially in view of the magnitude of funding required for
implementing such an industrial policy tool.
1.2. THE SCOPE OF THIS STUDY
The scope of the policy options that will be considered in the context of this study on
the review of USO can be defined in terms of the extent to which the
55 See Directive 2002/22, Recital (8)
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(implementation of the) current EU concept of USO in the electronic communication
sector can be modified, in terms of services considered; i.e. only basic broadband
services are considered and in terms of its relationship with the periodic review of
the scope of universal services.
1.2.1 CURRENT EU CONCEPT OF USO
More precisely, since the purpose of the current study is to assess ‘whether universal
service at EU level is an appropriate tool to advance broadband development and if so, when
and how it should be used, or whether this should be left to other EU policy instruments or
national measures’, we have understood that a number of aspects related to the
implementation of USO as currently foreseen in the Amended USD can indeed be
questioned.
Examples of such aspects are e.g. the requirement that the NRA first needs to assess
if the net cost represents an unfair burden for the universal service provider before
compensation can be agreed upon or the way in which the contributions to the
universal service fund are collected. More precisely, it could be evaluated if some of
these aspects require refinement or modification in order to make USO more
appropriate for broadband services, given the assumption that broadband should
indeed be added to the services within the scope of USO.
Other aspects, which are part of the fundamental characteristics of the current EU
concept of universal service, such as e.g. the possibility of sector funding for
compensating the net cost of providing universal service, have not been however
considered as candidates for changes in this study.
1.2.2 SERVICES CONSIDERED
In terms of services considered, the scope of the policy options under consideration
for this study will clearly be limited to adding broadband services to the services which
fall currently within the scope of USO.
Broadband capacity has previously been defined by the European Commission 56 as
capacity with a speed equal to or higher than 144 kbps. However, the 15th
Implementation Report recognizes that today only a fraction of all retail broadband
lines provide speeds of 144 kbps, and that in future reports (and as of 1/1/2010) 1-2
Mbps will be estimated as being the minimum download speed. This evolution is
amongst others linked to the growth of e.g. content-oriented services that require
continuously higher speeds.
56 See 15th Implementation Report, Annex 2, § 4.1 Broadband Access Definitions
(http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcemen
t/annualreports/15threport/15report_part2.pdf)
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Furthermore, since the appearance of Next Generation Access 57 (NGA), a distinction
is more and more often made between “basic broadband access” (or first-generation
access) and “very high speed broadband services” (or second-generation access,
based on NGA). This distinction can also explicitly be found in the “Community
Guidelines for the application of State aid rules in relation to rapid deployment of
broadband networks” 58 . Also, besides "basic broadband”, the Digital Agenda for
Europe 59 sets targets concerning "fast" internet access at speeds of above 30 Mbps
and "ultra-fast" internet access at speeds above 100 Mbps (see further section 2.2.5.a
below).
An overview of different possible services delivered through broadband and the
level of broadband access they require is presented in the following graph:
~IeMooicne
t.tJltiocatoo
Collaboration
Interactivrty
level
Vrtuli Sports
Utioty ComlXltng Glds
VrtuaJL...a1:lcfataies
Next-Gmer<iion TV
64-256Khps 512 Khps-2 Mbps 3l Mbps-l Gbps
Effectrve BandYt'idth
Access Typo _ . . .
,. • rFA;RST;mG:aNiEERAiiAiTn;'ON;;--"llr~~ffi,;;;;:;;'~:;-;;::::::::~::::::--------------
BROAllIWIO BROAOBIlND
NEXTGE~RATlON
Graph 2: Examples of services delivered through broadband and the required bandwidths
(SOURCE: Digital highways – the role of government in 21st century infrastructure – Booz
& Company)
For the purpose of this study, only basic broadband access will be considered since this
is the broadband service that is currently most widely spread amongst consumers in
Europe (cf. section 2.1.1.b).
57 ‘Next generation access (NGA) networks’ (NGAs) mean wired access networks which consist
wholly or in part of optical elements and which are capable of delivering broadband access
services with enhanced characteristics (such as higher throughput) as compared to those
provided over already existing copper networks. In most cases NGAs are the result of an
upgrade of an already existing copper or co-axial access network (See Draft Commission
Recommendation on regulated access to Next Generation Access Networks (NGA).
http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/nga_
2/090611_nga_recommendation_spc.pdf)
58 See 2009/C 235/04, 30.09.2009.
59 See COM(2010) 245 final/2: http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0245:FIN:EN:PDF
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Although the definition or assessment of some policy options could indicate the need
for a broader review of the current USO model (e.g. because of the growing
importance of IP based services, the added value of including telephone services as a
specific USO on top of access to broadband internet services could eventually be
questioned), the assessment presented below will be limited to the broadband
services. This means that, wherever appropriate, remarks will be made regarding the
potential impacts of a specific policy option for broadband on other universal
services; the policy options will however not include details on these impacts.
In this respect, it is noteworthy that one stakeholder contribution to the public
consultation 60 suggested that a reform of the universal service regime should foresee
that the obligation of the USP for providing access at a fixed location and telephony
services is lifted once a publicly supported broadband network (under the
“Community Guidelines for the application of State aid rules in relation to rapid
deployment of broadband networks”) or if some form of broadband universal
service were introduced.
1.2.3 RELATION TO THE PERIODIC REVIEW OF THE SCOPE OF UNIVERSAL
SERVICES
Finally, the objective of the present impact assessment study is clearly not to conduct
a third periodical review of the scope of USO. More specifically, the impact
assessment will take a global approach when addressing the question on the
appropriateness of adding broadband services to the Universal Service Obligations.
By consequence, the study will thus not necessarily be limited to those elements that
can directly be linked to the evaluation of one of the two criteria presented above.
Therefore, in order to avoid any possible misunderstanding, we explicitly take the
assumption that - for the policy options for which inclusion of broadband services in
USO is assumed - both criteria are met. This assumption is thus purely theoretical
and does not provide any indications of the opinion of the consortium on whether
the two above-mentioned criteria are actually fulfilled for broadband services. On the
contrary, by making this assumption, the consortium solely wishes to indicate that –
at least for the policy options that assume continuation of USO - it will directly focus
on the larger debate on and assessment of the appropriateness of including
broadband services in the Universal Service Obligations (USO) as they are defined
today. Of course, in case the option of including broadband in USO would be
implemented, it would need to be verified if both criteria are indeed met or if
proposals for modifying these are necessary.
60See contributions to the public consultation on universal service principles in e-
communications.
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2. IDENTIFICATION AND ASSESSMENT (DEFINITION) OF THE
PROBLEM
The purpose of this study is to assess the extent to which a number of policy options
are effective and efficient for dealing with a problem. By consequence, it is of the
utmost importance to first clearly identify and describe this problem, so that the
policy options can be focused on the main bottlenecks identified.
2.1. IDENTIFICATION OF THE PROBLEM (‘WHAT IS THE PROBLEM’)
The key question addressed in this study is ‘whether universal service at EU level is an
appropriate tool to advance broadband development and if so, when and how it should be
used, or whether this should be left to other EU policy instruments or national measures’.
Since answering this question requires a profound understanding of its broader
context, the problem definition will include a large number of elements related to
broadband development in Europe and how this has been stimulated so far, so that
these elements can also be taken into account when defining and delimitating at a
later stage the objectives and future policy options related to USO.
For the sake of clarity, the problem definition will therefore whenever possible
distinguish between elements related to:
1. the identification and assessment of the problem of insufficient broadband
development (i.e. the underlying problem that needs to be dealt with by
the policy options proposed in Chapter 4); and
2. the question if USO at the EU level could be an appropriate tool provided
these elements (i.e. those aspects that will impact the extent to which USO
could be an appropriate tool).
2.1.1 DEVELOPMENT OF THE BROADBAND MARKET
Since the appropriateness of USO for broadband services will depend on how these
services have developed in recent years, the nature of the problem will first of all be
described in terms of broadband market developments.
2.1.1.a TECHNOLOGICAL DEVELOPMENTS IN THE BROADBAND SECTOR
Broadband internet can be supplied by different technological solutions. The
following paragraphs give a brief overview of the main technologies for internet data
transmission currently used.
‘xDSL’ stands for Digital Subscriber Line and represents a family of technologies that
provides digital data transmission over the wires of a local telephone network (e.g.
ADSL, ADSL2+, SHDSL). xDSL technologies allow for a download speed of up to 24
Mbps (ADSL2+) and an upload speed of up to 1 Mbps for asymmetrical DSL, and
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