France's telecoms regulator ARCEP announces "pivot" toward Internet services, but what are the implications of this ambitious plan?

By Winston Maxwell, Partner at Hogan Lovells and Stephane Piot, Partner at Analysys Mason

ARCEP's “January 2016 strategic review” explores the possibility of extending regulation to “digital communications”, which is broader than the current notion of “electronic communications services”.

In Europe, there are two opposing parties: those who support broadening telecoms regulation to cover over-the-top (OTT) services, and those who fear that telecoms regulation will hamper innovation in emerging services.

As presented by ARCEP in January 2016, its strategic pivot is structured around four pillars: investment in infrastructure, connected territories, open Internet, pro-innovation prism and three new types of intervention (using crowdsourced data to regulate better, developing co-regulatory models, and taking on the role of neutral expert in the digital and postal sectors). To implement its plan ARCEP has defined a detailed roadmap of 21 topics, 12 of which have been identified as priorities for 2016/2017.

ARCEP’s plan is ambitious. Many topics lie within ARCEP’s previous remit: migration from high to very high speed services, review of relevant markets, analysis of mobile coverage, etc. However, the development of effective competition in the fixed and mobile markets (perhaps with the exception of the business market) should lead to progressive removal of telecoms regulation.

To fill the void, ARCEP has suggested new areas where it may need to take action.

The scope of ARCEP’s powers has not yet been extended by the French legislature. So far, ARCEP’s roadmap has involved setting up working groups, strengthening its capacity to monitor and forecast market trends, cooperating with the Body of European Regulators for Electronic Communications (BEREC), and contributing to the revision of EU directives that could significantly expand the powers of both ARCEP and all other telecoms regulators in Europe.

Within ARCEP’s roadmap, several points attracted our attention:

• Applying the concept of “open digital devices and platforms” to ensure an open Internet.
  Thanks to a subtle form of wording (‘open device’), ARCEP wants to use the open Internet principle defined by the European Regulation of 25 November 20151 to intervene in the debate about online platforms. The potential regulation of digital platforms is already covered in the Digital Republic bill proposed by Axelle Lemaire, the Minister in charge of digital matters in France. The European Commission (EC) also launched a consultation on digital platforms in 2015. There are two opposing views regarding regulation of terminals and digital platforms. In ARCEP’s view, there is a need to anticipate potential problems created by these devices and platforms, before they actually materialise. The other view is to wait before regulating, and to intervene only if existing legislation (e.g. on consumer protection and competition) proves insufficient. According to the ‘wait and see’ view, the creation of new regulation targeting digital markets should be considered only as a last resort. To justify its more interventionist approach, ARCEP emphasises the gatekeeper nature of devices and platforms. However, before going further down the road of regulating platforms, there is a need for further analysis of the “gatekeeper” characteristic of platforms, and the potential market failures caused by digital platforms. In 2014, the French Competition Authority and the UK Competition and Markets Authority published a study showing that closed digital ecosystems were not necessarily more harmful to consumers than open ecosystems.2 The study found that both systems can lead to both pro-competitive and anti-competitive behaviour, and lock-in effects are not systematic enough to justify specific platform regulation.
• Extending the concept of “electronic communication services” to “digital communications”.
  In the second half of 2016, ARCEP wants to review the concept of an electronic communications operator, particularly with regard to OTT providers. Analysys Mason and Hogan Lovells have previously worked on this topic, having conducted a 2011 study for ARCEP on the definition of electronic communications operators.3 ARCEP will participate in the EC review of the EU regulatory framework to determine whether the inclusion of OTT services is justified. In its contribution to the EC’s consultation on the regulatory framework,4 ARCEP introduced the concept of “digital communications”, which would be broader than the current notion of “electronic communications services”. This would include many OTT services that are not currently regulated under EU telecoms legislation.

France appears to support extension of existing telecoms regulation to digital activities, while other countries such as the UK and the Nordic countries seem hostile to this expansion.

Such a change would be far from trivial and could have a significant impact on the digital ecosystem, given that OTT message and voice services (Skype, Viber, WhatsApp, iMessage, etc.) are currently exempt from any sector-specific regulation.

In the EC’s 2002 telecoms directives, the concept of “electronic communication services” was defined narrowly to prevent telecoms regulation from creeping into newly emerging Internet services.

Internet services and applications thus remained outside the scope of regulation, in order to promote innovation and growth, reflecting the scepticism that regulation might hamper emerging digital services.

In our view, before extending the scope of telecoms regulation to include new digital services, EU law-makers should first ask why the current situation is unsatisfactory. Certain subjects, such as the adequacy of current rules on lawful intercept, might merit attention.

But other telecoms regulatory issues – such as interconnection, access to scarce resources, universal service and telecoms-specific consumer protection – do not seem applicable to OTT services, and would not appear to justify extending telecoms rules to OTT services.

• Collecting information through crowdsourcing to better regulate.
  ARCEP wants to launch a “crowdsourcing” project to support its duties. This project will involve building partnerships and, if appropriate, creating its own crowdsourcing tools to collect relevant data on service quality and network coverage. This development is interesting, in that it will allow ARCEP to measure the customer experience actually perceived by end users. However, several players are already active in this space, such as Speedtest or RootMetrics. In this context, ARCEP’s intervention could affect the business models of existing players.
• Extending ARCEP’s role to that of a consumer protection agency for the Internet.
  At a time when asymmetric telecoms regulation is decreasing, should ARCEP take on the role of consumer protection agency for the Internet? Other French institutions such as the DGCCRF, the CNIL and the CSA already apply consumer protection rules. The real question is whether ARCEP should “pivot” toward a broader consumer protection role, and how this responsibility would be shared with other French regulators. ARCEP is known for the high quality of its economic, technical and legal analyses and would probably be well placed to act as consumer protection agency for the Internet, but this was not its original role. Moreover, the fundamental question still remains: isn’t there already sufficient regulation of Internet services? France’s Council of Economic Analysis (CAE), which is part of the Prime Minister’s Office, recommends avoiding the concept of “digital industry”, and avoiding creating regulations that target the “digital industry”.5 According to the CAE, it is futile to try to define a “digital” sector; and wherever possible, existing laws should be applied.
• Promoting experimentation through adaptive regulation.
  ARCEP recommends a “legislative framework for experimentation”, echoing the CAE’s recommendations for “a right for innovative companies to experiment”. Given the rapid development of digital markets and technologies, the regulator cannot anticipate all the effects that new rules might have on the digital ecosystem, including on innovation and growth. This is why ARCEP is promoting “experimental”6 or “adaptive7 regulation”. ARCEP’s version of experimental regulation could lead to regulatory holidays for new business models, if applied on a small scale.

The idea is interesting, but difficult to apply in practice without leading to a two-tier system of regulation where established players are subject to restrictive rules, but new entrants are exempt.

This approach could raise discrimination issues, since it could create two speeds of regulation that would penalise the success of established players.

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