Monthly Archives: July 1997

Notice by the Commission concerning the status of voice on the Internet under Directive 90/388/EEC

Notice by the Commission concerning the status of voice on the Internet under Directive 90/388/EEC

 


Supplement to the Communication by the Commission to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services

The Commission has approved a draft position on the status of voice on the Internet under Directive 90/388/EEC.

The Commission intends to adopt the draft position as a Supplement to the Communication by the Commission to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services (95/C 275/02 OJ No C 275 p.2) after having heard any comments from interested parties.

The Commission invites interested parties to submit their possible observations they may have on the draft position published hereunder.

Observations must reach the Commission not later than two months following the date of this publication. Observations may be sent to the Commission by fax (No (32 2) 296 98 19) or by mail to the following address:

European Commission

Directorate-General for Competition (DGIV)
Directorate C
Office 3/48
150 Avenue de Cortenberg/Kortenberglaan 150
B-1049 Brussels

email: christian.hocepied@dg4.cec.be




STATUS OF VOICE ON THE INTERNET UNDER DIRECTIVE 90/388/EEC

 Regulatory position of voice on Internet

 Directive 90/388/EEC on competition in the markets for telecommunications services (OJ No L 192, 24.7.1990, p.10) defines in detail the service which the Member States may continue to reserve to their telecommunications organisations.

 According to Article 1 of Directive 90/388/EEC “‘voice telephony’ means the commercial provision for the public of the direct transport and switching of speech in real-time between public switched network termination points, enabling any user to use equipment connected to such a network termination point in order to communicate with another termination point.”

 On 20 October 1995 the Commission published a Communication to the European Parliament and the Council on the status and implementation of Directive 90/388/EEC on competition in the markets for telecommunications services (95/C 275/02, OJ No C 275 p.2) (“the Communication”). This set out the Commission’s approach on the implementation of the definition in Article 1 of Directive 90/388/EEC. Since then due to the development of specific software it has become possible to code, compress and transmit voice communications in such a way that it has become viable and to send them via the Internet – at local call tariffs – to other Internet subscribers using the same or interoperable software. This is a new issue and the Commission should therefore adopt a Supplement to the Communication on this matter.

The Commission considers that under the definition of voice telephony in Directive 90/388/EEC, voice communication between Internet users could only be considered as voice telephony if each of the following criteria are met:


– Such communications are the subject of a commercial offer

This requires that the simple technical non-commercial provision of a telephone connection between two users should be authorised. “Commercial” should be understood in the common sense of the word, i.e. that the transport of voice is provided as a commercial activity with the intention of making a profit. In the case of the Internet, the commercial provision of the transport of voice is, at least for the time being, not the aim of access providers. Such telephone calls are established by users who procured themselves the required software without referring to the access provider to which they subscribe.

However, if a decisive drive for Internet subscribers became the use of this network for voice, service providers offering a dial out service to any telephone number, could be considered as providing commercially the transport of voice.

– It is provided for the public

Although only users who subscribed to a server providing access to the Internet and who used compatible software would be able to use the Internet for calling other users, it could be argued that the service is provided “for the public” since the service would be available to all members of the public on the same basis.

– To and from public switched network termination points on the fixed telephony network

“[B]etween public switched network termination points” means that, to be reserved, the voice service not only has to be offered commercially and to the public, but also it has to connect two network termination points on the switched network at the same time. If access to the Internet is obtained via leased circuits, the service could never be considered as voice telephony, even if the call terminates on the public switched network. However, as a large number of internet users gain access to the Internet via the PSTN, such use would fall within this definition. One future development which would affect this would be the introduction of equipment which would allow Internet access via the cable television networks. Such cable modems are already on sale in the United States. This would allow widespread Internet voice telephony with data never travelling via the PSTN.

If the Internet user can only call other Internet subscribers whose computers are connected via a modem and who are using similar software, then this is also not “voice telephony” because it is not “enabling any user … to communicate with another termination point”. In the foreseeable future, it is likely that Internet service providers will offer a service whereby an Internet user can dial up a local Internet service, log on with his PC, input the destination telephone number, have the call routed over the Internet, with automatic dial out to any telephone number (including to users without a modem) at the far end (with payment by credit card pre-paid card or electronic cash for the local interconnection rates plus a margin). This is an example of a technological development which could change the current interpretation.

– It involves direct transport and switching of speech in real time

Given the technique used for the first voice communications between Internet users and the early state of development of Internet technology (mainly bandwidth and compression techniques) Internet telephony could not, originally be considered to take place in real-time. According to this basic technique, the voice is digitally encoded, packed and sent by a user from a termination point to a server and on to the reception server which in turn sends it to the receiver equipment, connected to a termination point, which assembles the packets to be delivered as voice via the loudspeaker. The time period required for processing and transmission from one termination point to the other was such that the voice service could not be and still cannot be considered as a real-time service. However, with the evolution of the available software and bandwidth, this assessment may well need to be reviewed.

In summary therefore, it would seem that the definition of voice telephony in Directive 90/388/EEC taken together with existing precedents can provide good guidance for assessing the regulatory position of voice on the Internet in the pre-liberalisation situation. Voice on the Internet cannot be considered as “voice telephony” in the sense of this Directive and therefore falls within the liberalised areamay therefore not be reserved to the telecommunications organisations. The situation will, however, have to be kept under review in the light of technological and market developments.It may be, however, that if Internet service providers began marketing their service on the basis of the voice telephony capability, this conclusion would have to be reversed.

Consequences

a) licensing

The fact that a telecommunications service may not be reserved, does not prevent Member States from making its supply subject to licensing, general authorisation or declaration procedures aimed at compliance with the essential requirements.

Directive 90/388/EEC sets out a basic framework as regards the extent of such authorisation procedures.

According to the Directive:


  • the provision of telecommunications services other than voice telephony, the establishment and provision of public telecommunications networks and other telecommunications networks involving the use of radio frequencies, may be subjected to only a general authorisation or a declaration procedure. A priori authorisation may therefore not be imposed on Internet access/service providers;
  • the authorisation procedures may only contain conditions which are objective (i.e. linked to the essential requirement involved), non-discriminatory, proportionate and transparent. This implies that no specific authorisation scheme should be drafted for Internet access/service providers which is different from the one applicable to other data transmission providers;
  • where a Member State wants to discontinue the supply of a non-reserved service, reasons must be given and there must be a procedure for appealing against such a decision;
  • the relevant authorisation schemes must have been communicated to the Commission.

Internet service providers now typically operate under a data transmission or value-added service licence. Where some customers use the service for voice telephony (often the Internet service provider will not even know about it), this remains essentially within the Internet service provider’s licence, in the same way as calling card services are considered to be outside the reserved area: the voice telephony ability is an additional feature of a service which is chosen by the customer for other reasons, such as browsing, downloading etc. In that sense, the voice telephony application is subsumed under the broader licence which covers the Internet service provider’s operation.

The consequence of that argument is that Internet service providers would even in the future, when voice telephony applications improve, not require voice telephony licences, thereby avoiding the need to apply for individual licences and the requirement to contribute to the funding of universal service.


b) contribution to Universal ServiceA further issue is whether Internet access/service providers should contribute to the burden of Universal Service.

Community law provides a framework according to which contributions to universal service may be required from organisations providing publicly available telecommunications networks and publicly available voice telephony services. As Internet Voice is not considered to be “voice telephony” within the meaning of the directive, no contribution can be required from Internet Access providers.

The answer is given in Article 3 of Directive 90/388/EEC which only allows Member States to subject public network and voice telephony providers to licensing conditions encompassing possible “financial obligations with regard to universal service”. This provision is mirrored by Article 5(1) of the draft ONP Interconnection Directive, allowing the imposition of contributions to universal service costs on organisations providing “publicly available voice telephony services”.

In relation to Article 5(1) of the common position on the proposal for a Directive on interconnection in telecommunications, the Commission recalled in a declaration to the minutes of the Council of Ministers’ meeting of 21 March 1996 that Article 4c of Commission Directive 96/19/EC of 13 March 1996 amending Directive 90/388/EEC regarding the implementation of full competition in telecommunications markets states that, where Member States set up mechanisms for sharing the net cost of universal service obligations, they should apply these mechanisms to undertakings providing public telecommunications networks.

Directive 96/19/EC further states that the respective burden must be allocated according to objective and non discriminatory criteria and in accordance with the principle of proportionality. According to the latter principle contributions should, as emphasised in recital 16 of the Commission Directive, seek only to ensure that market participants contribute to the financing of the universal service.

The Commission further noted in its declaration to the minutes of the Council of Ministers’ meeting of 21 March 1996 that Parliament and Council Directive 95/62/EC on the application of ONP to voice telephony defines the scope of universal service obligations, which may be financed through universal service mechanisms. This Declaration also states that the principle of non discrimination opposes financing mechanisms for universal service obligations which lead either to double contributions to the cost of universal service in the same Member State or to all undertakings in the telecommunications markets subsidising the voice telephony operators. Consequently contributions should be limited to services within the scope of the universal service definition.

The Commission concluded that it will interpret both Article 4c of the Commission Directive and 5(1) of this common position as allowing contributions only to be imposed on voice telephony providers in proportion to their usage of public telecommunications networks. Given that, as mentioned above, Internet access/service providers cannot, for the time being, be considered as voice telephony providers, they should not be subject to the payment of such contributions.


c) regulatory consequences of technical evolutionAs shown in the above analysis, the regulatory position of voice on the Internet depends on an analysis of the actual service provided as regards the various elements of the definition of voice telephony in Article 1 of Directive 90/388/EEC.

The current position of voice on Internet under Community law may change in due course if, for example, the following conditions are met:


  • Internet service providers start providing a service whereby an Internet user can connect to a local Internet service, log on with his PC or other terminal equipment, input the destination telephone number, have the call routed over the Internet to any telephone number (including to users without a modem) at the far end (with payment by credit card pre-paid card or electronic cash for the local interconnection rates plus a margin); and
  • a decisive drive for Internet subscription becomes the telephony feature as the quality of service improves and in particular is provided in real-time.

Those Internet service providers offering a dial out service to any telephone number – and only those – could then be considered as “voice telephony providers” under Community law. This description is by way of example and does not exclude other possible interpretations of future developments. Technical developments will have to be periodically reviewed by the Commission.

This could have significant consequences for the relevant undertakings. Indeed, according to Article 3 of Directive 90/388/EEC, Member States could then subject the operation in their territories of Internet service providers’ voice telephony services to individual licensing procedures.

According to the Directive such licensing procedures should only be aimed at compliance with:


  • essential requirements, or

  • trade regulations relating to conditions of permanence, availability (conditions relating to availability can include requirements to ensure access to customer databases necessary for the provision of universal directory information) and quality of the service, or
  • financial obligations with regard to universal service.
  • Indeed, if in the future Internet voice is considered voice telephony, then providers could be asked to contribute to universal service funding in accordance with the principles set out in Community law and with the guidelines on the costing and financing of universal service set out in the Commission