Marta Cantero (Postdoctoral Researcher, University of Helsinki | FiDiPro Project)

Creating a unified digital market for telecommunications within Europe is a primary goal of the current European Commission. [i] However, achieving this single market remains a distant prospect. The current multi-tiered regulatory model for European telecommunications relies heavily on individual nations’ regulatory bodies to implement the EU’s telecom framework. Furthermore, enforcing this framework falls upon the Member States themselves under their own national procedures.

To maintain consistency and achieve the EU’s telecom goals, a specialized supervisory system is in place. This system, described in Articles 7 and 7a of the Framework Directive on telecoms regulation, grants the European Commission more power to oversee the varied regulatory approaches of each nation. [ii] These articles establish a post-legislative system of monitoring and consultation that aims to create a unified internal market for telecommunications using a combination of firm and flexible legal strategies. However, a key question arises: is this system truly adequate for the task?

This post examines a current case (Case C‑28/15, Koninklijke KPN NV and Others v Autoriteit Consument en Markt) highlighting the weaknesses within this market-consolidating mechanism.

Background

In essence, the case revolves around a disagreement between the Dutch telecoms regulator and the Dutch Trade and Industry Appeals Tribunal. The regulator issued a decision based on a Commission Recommendation regarding termination rates, [iii] which the Appeals Tribunal later overturned. Several telecom operators had appealed the regulator’s initial decision. The national court, siding with the operators, argued that despite the Commission’s Recommendation, market conditions in the Netherlands remained unchanged, providing no justification for altering the method of calculating termination rate caps.

This isn’t the first time a regulatory decision based on the Commission’s Recommendation faced challenges in Dutch courts. Back in 2010, the Dutch regulator (formerly OPTA, now ACM [iv]) issued a decision aligning with the Commission’s guidance on termination rates. Telecom operators appealed, and the court ultimately agreed with their stance. Simplifying the complexities of market analysis and competition concerns, the court determined that despite the Commission’s Recommendation, the national market conditions remained unchanged. Therefore, there was no need to modify the cost calculation methodology according to the Recommendation. Essentially, the court concluded that imposing a “more invasive measure” at the wholesale level wouldn’t solve retail pricing inefficiencies, given the already competitive nature of the retail mobile market. [v] The court then set new cap prices for termination rates and directed the regulator to issue a new decision using a different cost calculation method than that recommended by the European Commission.

Following the Article 7a Framework Directive consultation process, the national regulator informed the European Commission of the new decision, which adhered to the court’s judgment. The Commission expressed concerns that this decision could hinder the internal market, leading to a Phase II investigation under the Article 7a procedure. Consequently, the Dutch regulator found itself caught between the European Commission and the national judiciary. At that time, complying with the highest administrative court in the Netherlands was the only option for the national regulator.

However, two years later, within the context of a new market analysis, the regulator – potentially influenced by the Commission’s ongoing investigation – issued another decision that followed the European Recommendation. Predictably, this decision was again challenged in the national court. However, this time, the court opted to refer the case to the European court for a preliminary ruling.

Issues at Stake

In essence, the national court has requested clarification from the European court regarding the extent to which a national court[vi] can deviate from an EU Recommendation based on legal and factual circumstances within that nation. Additionally, the court seeks clarity on the national court’s authority to evaluate the proportionality of the national regulatory authority’s (NRA) actions when reviewing regulatory decisions (Article 4 of the Framework Directive). The case highlights three key legal and institutional tensions:

1. The concrete legal and practical implications of non-binding recommendations (soft law).
2. The practical and institutional limitations on judicial review of national regulator activities.
3. The balance of proportionality in a national regulator’s actions when implementing an EU Recommendation in a situation where a national market’s factual circumstances remain unchanged. This highlights a clash between the national regulator and the national judiciary.

While a final judgment from the European Court of Justice is still pending, analyzing the recently released Opinion (April 28th) reveals potential institutional issues, especially for other European NRAs facing similar situations.

AG Opinion

Advocate General Mengozzi, in his Opinion, argues that despite the non-binding nature of the Recommendation on termination rates (para. 54), the national court should still “take into consideration” this Recommendation (para. 57). Furthermore, he suggests that the national court should exercise “extreme caution” when choosing to deviate from the methodology the Commission put forth (paras. 53 and 64).

The Advocate General also believes that this case doesn’t represent an inherent incompatibility between national and EU law. He states (para. 72) that it’s “very difficult to conceive that national law, as interpreted by the referring court and as derived from Union law, requires, by its wording and scope, departing from the calculation model recommended by the Commission.”

However, acknowledging that there isn’t a single correct model for implementing the Access Directive’s provisions, [vii] Mengozzi concedes that unique characteristics of the Dutch market could justify the national court’s departure from the recommended model (para. 75).

The Opinion’s second part centers on evaluating the proportionality of the regulatory decision. This assessment considers the regulatory objectives that national regulatory authorities must pursue under the Framework Directive, as part of judicial review. Mengozzi believes that the judicial control of regulatory activity extends to this proportionality assessment (paras. 80 and 84). He further argues that adhering to the Recommendation would imply a presumption of proportionality with the EU regulatory objectives outlined in Article 8 of the Framework Directive, which include promoting competition, contributing to a unified internal market, and advancing the interests of EU citizens.

This is crucial because the regulator’s justification for imposing an obligation on the regulated wholesale market was based on its anticipated effects on the unregulated retail market. Therefore, concerning the burden of proof and considering the impracticality of demanding concrete evidence of future market effects, Mengozzi concludes that the national court cannot require the national regulatory authority to definitively prove the actual achievement of these regulatory objectives (paras. 92 and 96).

Comments

Harmonizing the Internal Market under a multi-level governance structure is a complex endeavor, and this case exemplifies the challenges inherent in such a system. The case raises several critical issues:

1. If the European court adopts the AG’s Opinion, it could empower national courts to overrule regulatory authorities’ analyses when deciding on appeals, as demonstrated in the first national ruling. This scenario positions the national judiciary as a de facto regulator, potentially creating institutional conflict and hindering the integration of the telecoms market, as evidenced by this case’s protracted timeline since 2010. This judicial overreach raises questions about the need to balance the intervention of the national judiciary in regulatory matters against the principles of equivalence and effectiveness when implementing a non-binding instrument.

2. The case also raises concerns about the effectiveness of the specialized supervisory mechanism under Articles 7 and 7a of the Framework Directive. It questions the limitations and true impact of using “soft law” as an instrument for achieving integration.

3. The multi-level governance framework of the telecoms sector prompts inquiries about whether national courts should possess the authority to determine the actual influence of national regulatory measures beyond their domestic markets. Should the ECJ agree with the Opinion, it would delegate the responsibility of judging the impact of a national measure on the internal market to national courts—a role arguably belonging to the ECJ. This necessitates further examination of whether the rapidly evolving telecoms market can function effectively with European divergences or if the existing regime requires revisions. Potential solutions include granting the European Commission more formal powers or establishing a European Telecoms Agency, an initiative that has previously been unsuccessful.

4. Finally, the case highlights the ongoing challenge of building a unified telecoms market within a multi-level governance system. Due to the case’s significance for other European NRAs facing similar circumstances, numerous regulatory decisions involving investigations initiated by the Commission under Article 7a are currently on hold awaiting the outcome.

Conclusions

The case delves into fundamental and timely questions about the function and legal impact of EU “soft law,” particularly concerning its effectiveness in market integration—perhaps the most compelling aspect of this case.

Regardless of the final judgment, the implications for the current structure of the telecoms institutional and procedural framework will be significant. One potential outcome is that the European court prohibits national courts from deviating from the Recommendation. This would imply no room for domestic adaptation and empower Article 7a to strengthen the influence of non-binding decisions from the Commission.

However, an alternative scenario involves the court adopting the AG’s interpretation. Allowing deviations from the Recommendation could, in my view, render Article 7a ineffective, as it would then fall to national courts to determine what constitutes a sufficient impact on the Internal Market to necessitate mandatory compliance with a non-binding European instrument.

Photo credit: ispreview.co.uk

[i] Political Guidelines for the next European Commission – A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change (15 July 2014), Jean-Claude Juncker.

[ii] Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), as amended by Directive 2009/140/EC and Regulation 544/2009.

[iii] Termination rates are the fees that telecom networks charge each other for connecting calls between their networks; essentially, it’s how much one mobile phone operator can charge another to connect calls on its network. The Commission Recommendation aims to standardize the method used to calculate the price caps on these termination rates. Commission Recommendation (2009/396/EC) of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU. OJ L 20.5.2009, pp. 67-74.

[iv] The “Independent Post and Telecommunications Authority” (OPTA in Dutch) was merged with the Netherlands Competition Authority (NMa) and the Netherlands Consumer Authority to form a single regulatory body, the Netherlands Authority for Consumers and Markets (ACM). This “super watchdog” became operational on April 1st, 2013.

[v] CBb Judgment of 31st August 2011, 4.8.3.4.

[vi] It is worth noting that the national court questions its own authority to deviate from the Recommendation, but doesn’t address the national regulatory authority’s discretion to disregard the recommended methodology, which is the case in several other Member States.

[vii] Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive).