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The European Court puts start-ups and European sharing economy in danger

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The redde rationem between taxi drivers and Uber is getting closer and closer, with the Uberpop application likely to be definitively out-of-law. This may not be a serious prejudice for Uber, which is more concentrated on other value-added modalities such as UberX, Uber Limo ecc where service providers are regular taxi drivers, not private citizens. However, the impact of today’s opinion of the Attorney General of the European Court, Maciej Szpunar, may be more relevant in other sharing economy sectors where the activity of private citizens is prevailing (such as Airbnb, for instance).

The legal opinion rendered in the case C-434/15 Asociación Profesional Elite Taxi vs Uber is not binding for the Court, which will adopt the final, binding decision in 8/10 months. However, statistics say that in 80% of the cases the court substantially confirms the legal solution suggested by the Attorney General.

As we all know, Uber is a US-based company which has developed a successful computer program that can be used on smartphones. The program has created an online platform connecting users and car owners for urban journeys, competing de facto with traditional taxi transportation. The success of Uber and the replication of the same model in other services sectors (doctors, baby-sitting, take-away ecc) has even created the term “uberization”, meaning the process whereby traditional economic activities are replaced by an online platform connecting directly users and providers.

In this preliminary reference, the Court of Justice was asked to determine the type of service provided by Uber, whether transport services, information society services or a combination of both. The question was fundamental to determine whether Uber, and its drivers, may be required to have authorizations and licenses, normally required by national transport legislation. In Barcelona, like in many European cities, the operations by Uber has been challenged by local taxi organizations claiming that Uber and its drivers should hold a normal taxi licenses and be subject to the taxi legislation. This would be, however, the end of the UberPop application as we have learned it sofar. In the specific Spanish case, an absence of such authorizations and licenses amounts to a breach of the provisions governing competition in Spain.

Obviously, Uber always denied to provide transport services, instead claiming that its computer program should be seen as an information society service falling within the scope EU Directive 98/34/EC. This Directive prohibits restrictions on the freedom of establishments and would mean that national taxi legislations could not make such services subject to administrative authorizations. In addition, in the specific case Uber claimed that an authorization scheme applicable to its program and services should be justified by general interest and not be discriminatory, in line with art. 9 Directive 2006/123 which governs authorization schemes and the freedom of establishment.

The opinion of the Attorney General is restrictive vis-à-vis services rendered by private citizens, since it requires them the be subject to the general legislation of the sector. In the case of Uber, this means the end of UberPop, not of other transportation services provided by licensed taxi drivers via the same platform (Uber X, Uber Limo, ecc).

However, the worst impact of this principle will be upon other sharing economy platforms which are based on private citizens rather than on licensed workers. This is the case, for instance, of AirBnb, which is constantly under attack by the hoteling industry. In that case, imposing the full application of hotelling rules upon Airbnb’s clients would be the end of the business model. The same may happen for innovative applications intermediating private citizens. Thus, the final decision to be rendered by the European court would be more fundamental for future European start-ups rather than for Uber.

Why the end of roaming surcharges is not the start of a Single Telecom Market

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The single telecom market which had to be

In the last few years many people, including me, believed that the phasing-out of roaming surcharges would have shaken the European telecom market, transforming the current puzzle of distinct domestic markets into a unified, single and big European telecom market. This was apparently the scope of the legislative initiative encompassing the roaming reform proposed by Commissioner Kroes in 2013, the Single Telecom Act also known as the Connected Continent (which ended up with Regulation 2120/2015). Indeed, we expected that once roaming surcharges would disappear, users would be able to subscribe mobile services from any operator in the EU, thanks to the fact that any domestic mobile tariff would be valid elsewhere in Europe. To make an example, a French citizen would purchase a Finnish mobile SIM from a Finnish operator if he/she believes that retail tariffs in Finland are more convenient than in France. In such circumstances, competition would fiercely emerge at cross-border level, with European citizens looking at better mobile tariffs available abroad, while mobile operators would be targeting clients everywhere in the UE, not only in their domestic market. Thus, the mobile European market would have rapidly becoming a unique competitive space leading to rapid consolidation amongst telecom operators, with the main groups (Telefonica, Orange, Deutsche Telecom and Vodafone) shopping abroad in order to be able to achieve continental scale.

The European institutions would have welcomed such development. In particular, since 2015 the offices of DG Competition have resisted plans for domestic consolidation by telecom operator, while letting open a window for cross-border mergers. The head of Competition directorate, Margaret Vestager, rejected mobile mergers in UK and Denmark, while imposing remedies in Italy, with this making clear that the time for domestic consolidation had ended. According to Vestager, mobile operators could continue to merge only at cross-border level while the phasing-out of roaming surcharges would provide the right incentive for that. The fixed market would have followed, since the biggest mobile operators in Europe are integrated with fixed networks.

What’s gonna happen instead

Despite the above, the expected consolidation in the mobile market is unlikely to happen. This is due to the final mechanism, introduced with regulation 2120/2015, setting the end of roaming surcharges. The retail and wholesale regime should be examine separately.

Retail

The Roaming-Like-At-Home regime introduced by Regulation 2120/2015 does not mean the European citizens may actually use a SIM card everywhere in the EU without paying roaming surcharges. In fact, the regulation prohibits permanent roaming, that is to say roaming services to be used in competition with domestic ones. In other words, European citizens may enjoy a free-roaming regime only when temporarily traveling abroad, not in order to get more favorable retail tariffs from foreign operators. The latter behavior is considered abusive or even fraudulent by the regulation.

Wholesale

While imposing the end of roaming surcharges by June 15, 2017, regulation 2120/2015 sets wholesale roaming access tariffs which are completely misaligned with domestic retail tariffs. Fact is, beginning from June 2017 the operator’s cost to provide roaming abroad will be 7,7 Euro per Gigabyte, with a decreasing glide path ending up with Euro 2,5 per Gigabyte in 2022. Such wholesale tariffs are fully inconsistent with domestic practice, since today mobile operators normally sell one Gigabyte for 1 or 2 Euro on average. It follows that many mobile operators, mainly MVNOs and small mobiles, will face losses when providing roaming services at domestic tariffs. The situation may be different for big mobile operators which normally exchange roaming traffic on the basis of bilateral agreements, based on the fact that inbound and outbound traffic are quite balanced. For such operators, wholesale rates have only a nominal value, no losses are incurred.

Because of the above, the phasing-out of roaming surcharges will put small and competitive operators at risk, while big mobile operators will be reinforced. No pan-european competition may emerge from this scenario, as big mobile operators will continue to defend domestic markets (where they can extract oligopolistic profits), while more competitive operators will be unable to be commercially aggressive. Under such circumstances, there will be no incentive for big mobile operators to merger at continental basis. The telecom market will remain fragmented as it is.

Why it ended up like this

Basically, while the traditional telecom industry had to accept the end of roaming surcharges because of political pressure, it succeeded in convincing the European institutions that domestic markets must be preserved because they are still important to make profit and sustain investments. The misalignment between wholesale tariffs and domestic practice has this scope: preventing foreign operators to attack domestic markets by way of convenient foreign/roaming tariffs. In addition, consumers cannot use foreign SIM to escape less convenient domestic tariffs.

As a result of the above, the scope of a single telecom market will be completely missed. On one side, there is no incentive for operators to provide cross-border services and consequently to merge. On the other side, bigger mobile operators are getting reinforced and will have the possibility to increase domestic tariffs, thus strengthening the isolation amongst domestic mobile markets.

SIAE, the ultimate monopoly

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The Italian antitrust authority has opened an investigation over SIAE, the old-fashioned incumbent holding a legal monopoly position in the Italian market for copyright management. The authority believes that SIAE may have committed some abuses even beyond its monopoly rights with the scope to “exclude all competition in the (investigated) markets, hindering the activities of new entrants and so reducing the freedom of the authors and editors to choose which collecting society to be member of or request services to”.

Whatever will be the outcome of this competition proceeding, the Italian market of copyright management remains something unique in Europe. Unlike other EU countries, where liberalization has been inflated at various levels, in Italy SIAE still enjoys a legal monopoly granted on the basis of a law of 1941 (that is to say during the fascism and even before the attack of Pearl Harbour). The various attempts to open this market has been vain so-far : in 2016 the competition authority signaled to the government that this monopoly should be drastically revised, while competitors have filed complaints with the European Commission. Everything has been ineffective so far: on one side, the Italian government ignored the advice of the competition authority and recently even reinforced the legal monopoly, despite the fact that an option for liberalization was offered while transposing EC Directive 26/2014 on the harmonization of collecting societies in the online music market; on the other side, the European Commission remained officially silent and di not act so-far, despite the fact that SIAE’s competitors have been advocating an intervention on the basis of EU rules and complaints are pending.

The Italian legal monopoly of copyright management is a blatant violation of freedom of services rules and of the Bolkestein directive, since it prevents operators lawfully authorized and operating in the EU to enter into the Italian copyright management market. In other words, when music in Italy is played, streamed or broadcasted, only SIAE is entitled to collect the copyright fee from the users and pay it to the authors. Because of this monopoly status, SIAE has no real incentive to be efficient, cheap and rapid, because authors have no clear legal right to access to competing services. Despite to that, in the last years some operators have entered the market in the hope that the government would have liberalized this business (and thus almost 8000 authors have left SIAE for competitors). SIAE is reacting suing them in front of courts and, because of the recent confirmation of the legal monopoly regime by the Italian government, it may have the real chance to bring the clock back to 1941. So, the legal situation is grey and only a clear intervention by a deus ex machina, that is to say the European Commission, could clarify the scenario.

The position of the Italian government is confused and difficult to understand: the competent ministry, Dario Franceschini of the Partito Democratico of the former premier Matteo Renzi, has shown mixed feeling regarding monopoly and liberalization. Various voices in the party have been advocating a drastic reform of SIAE, also considering the vocation of Renzi to close down (rottamare) the most embarrassing legacies in Italy. Despite of that and nothwitstanding the conflict with EU basic rules, and disregarding the European benchmark showing that the liberalization is the norm, the Ministry Franceschini backed an antistorical, reactionary view of the copyright management market: only one guy, SIAE, can legally make business there, others must stay out.

The start of an antitrust proceedings today is the first consequence of this position, further news may come from Brussels soon.

Stop with expensive after-sale service calls

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The cost of a call to an after-sales telephone number must not exceed the cost of a standard call. This is what decided the European Court of the European Union in decision rendered today in a case of a German consumers association (Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main) against a retailer (Comtech GmbH) which was to charge expensive tariffs open customers calling the after-sale service telephone number.

The practice of charging unfair and expensive telephone tariffs to people requiring after- sale assistance is quite common and particularly detested by consumers. Traditional and online retailers, airlines, insurance and financial companies, utilities, may be particularly nasty in this respect.  The paradox is that the expensive tariffs did not encourage companies to be efficient and customer-friendly. The intervention of the European court has therefore stopped an unfair practice that national authorities were not able to control, apparently.

Under the relevant rules (Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights) Member States must ensure that where a trader operates a telephone line for the purpose of being contacted in relation to contracts concluded with consumers, consumers are not to be bound to pay more than the basic rate for calls to that line. However, the concept of a ‘basic rate’ is not defined by the directive.

To solve this issue, the European court stated  that the concept of ‘basic rate’ must be interpreted as meaning that call charges relating to a contract concluded with a trader to a telephone helpline operated by the trader may not exceed the cost of a call to a standard geographic landline or mobile telephone line. According to the Court, in everyday language ‘the basic rate’ refers to the standard cost of a call. Both the context in which that concept occurs in the directive and the purpose of that directive, namely to ensure a high level of consumer protection, confirm that the concept must be understood in that ordinary sense of the term.

While the case concern an internal dispute, it will interesting to see whether further cases may arise when after-sales services are rendered to customers resident in another Member State. The matter needs to be followed up.

What the European institutions will not say about the disguised end of roaming surcharges: the end of mobile competition and the rise of mobile tariffs

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BREAKING NEWS: DURING THE NIGHT THE TRILOGUE AGREED UPON EURO 7,7 EURO/GIGA TO FALL UP TO 2,5 EURO/GIGA IN THE NEXT YEARS. I REGRETTABLY CONFIRM THE VIEWS EXPRESSED IN MY BELOW POST

In the night of January 31, 2017 representatives of European Parliament, Council and Commission are set to agree on the maximum levels (so-called “wholesale roaming caps”) mobile operators can charge each other for access to their networks in order to allow customers to use services when traveling abroad without paying roaming surcharges (so called roaming like at home).

While everybody agrees that the end of roaming surcharges will be beneficial for all consumers, it is sad to see that the selected mechanism will affect competition and allow a rapid increase of mobile tariffs everywhere in Europe. This is due to the high level of wholesale roaming caps that will be agreed tonight, which is expected to be between 7 and 8,50 Euro per Gigabyte (and with a weak glide path). Since most of retail tariffs in Europe offer one Gigabyte for 1 or 2 euro, it is evident that most operators will not be able to recover their costs when providing roaming to their customers. In order to prevent losses, they should be increasing domestic retail offers, or even stopping providing roaming services. Others may invoke a sustainability mechanism allowing them to continue to apply roaming surcharges in order to be able to pay the wholesale roaming caps.

Big mobile operators will be less affected by the level of wholesale roaming surcharges, thanks to the ability to compensate reciprocally the roaming traffic in the frame of established bilateral agreements (someone call them cartels). However, thanks to the struggles and pains by small and competitive mobile and MVNO operators, big mobile ones will have less competitive pressure and may start to increase price back, as it is already happening by the way.

Even worst: because of a complex mechanism provide by arts. 4.2. and 4.3. of Regulation 2016/2286 (the implementing rules enacted by the European commission last December to regulate in details this matter), the highest the level of wholesale caps, the fewer the roaming traffic exempted  by surcharges that users my benefit in case they have an unlimited Internet plan or a pre-paid sim card.

The European institutions are aware of this poisoned effect of the “end of roaming”, however they have not been able to agree on lower wholesale caps due to various reasons.

The European Commission, in lack of credibility, needs to officially declare the end of roaming at all costs, no matter for the side effects. President Juncker took a personal political initiative on this matter in order to be able to set an historical precedent and imposed the end of roaming by way of legislation, although the offices of the Commission (especially the one sin DG Connect) were well aware of the side effects of this result and have been working in order to minimise them. Nevertheless, the political pressure prevailed over reality and basic economics.

The Council, i.e. the governments, is splitted but, at the end, is caught by some Member States (France and Germany) who want to protect their mobile market and oligopoly therein while others (the Mediterranean countries) are willing to continue to monetize some cash brought by summer tourists.

The Parliament has been much more fighting and one should recognize that the rapporteur, the Finnish Miapetra Kumpula-Natri, has been trying to propose more competitive wholesale caps (starting at 4 Euro per Gigabyte in 2017 and down to one Euro in 2020) together with the shadow rapporteurs of the other political parties. The EPP issued a crystal clear press release making clear that wholesale caps should be below retail tariffs, not above.

However, even these commendable efforts have been vain due the intransigence of Council and Commission.

The European data retention ruling and the struggle about national surveillance laws

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Various Member States, Italy in primis, will have to revise their legislation about conditions and duration of obligations upon ISPs and telecoms to keep record of Internet traffic and telephony conversations. The telecom industry will seek opportunities to diminish such obligations, which normally require huge capex investments in data retention equipments and exhausting communications with public prosecutors. Finally, civil rights organizations will attack in courts existing data retention legislations on the assumption that they are in contrast with the European jurisprudence. All this will happen in a scenario where national governments tend, in contrast with the above, to reinforce internal surveillance for antiterrorism- reasons, rather than relaxing the public security regime.

The above are the main effects of today’s CJEU ruling on a joint-case concerning the legitimacy of data retention laws in EU Member States.

This court decision follows the previous 2014 ruling about the annulment of the European Data Retention Directive. In that case, the CJEU just pointed out the relation between fundamental rights, data protection and retention of personal data by ISP and telecom operators, with the final result that the directive was annulled. The same principles are now applied directly in the context of national legislations on data retention, without major changes.

To tell the true, following the 2014 ruling most of European countries started a review of respective legislations in the matter of data retention, however with the prevailing result to keep alive the existing legislations (save for some minor adaptations). In some countries, however, the local constitutional courts rendered rulings annulling their data retention legislation. Few countries remained completely inactive, amongst them Italy. Today’s ruling will make even more difficult this wait and see strategy.

The main conclusions of todays’ ruling are:

· Member States may not impose a general obligation to retain data on providers of electronic communication services

· Data retention is admissible under EU law only in instances where it is targeted, limited to what is strictly necessary, and subject to conditions (e.g. prior review by an independent authority, localization of data, etc).

The reasoning of the CJEU is streamlined hereinbelow:

· EU law precludes national legislation prescribing general and indiscriminate retention of data.
· Data retention constitute a serious interference with citizens fundamental rights and as such can only be utilised in the fight against serious crime.
· Legislation prescribing a general and indiscriminate retention of data does not require there to be any relationship between the data which must be retained and a threat to public security.
· Such national legislation therefore exceeds the limits of what is strictly necessary and cannot be considered to be justified within a democratic society, as required by the directive, read in the light of the Charter.
· The EU acquis does not however preclude national data retention laws, provided that the retention of data is: (i) Limited to what is strictly necessary (in terms of categories of data retained, persons targeted, retention period, etc); (ii) Defined in clear and precise national legislation; (iii) Constrained by meaningful procedural safeguards; (iv) Based on objective evidence.
· Concerning access to data, Member States must introduce objective criteria in order to define the circumstances and conditions under which the competent national authorities are to be granted access to the data.
· It is essential that access to retained data should, except in cases of urgency, be subject to prior review carried out by a court or an independent authority.
· National data retention legislation must make provision for that data to be retained within the EU owing to its sensitivity.

 

What the end of Renzi government means for the Italian digital and ultra-broadband sector

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The resignation of Matteo Renzi following the defeat at the Constitutional Referendum of December 4th, 2016, creates the question as how Italy will ever fill the gap with other developed nations in the matter of digital services and ultra-broadband networks.

Whether you like him or not, there is no doubt that Matteo Renzi has been the first Italian premier showing a concrete interest vis-à-vis Internet and digital infrastructures, putting them at the core of the governmental policy. Before him, Italian governments have been merely dealing with television and broadcasting regulation, while the development of the digital sector was never a priority. The only serious concern of previous governments in the area of telecoms was the ownership of Telecom Italia, whether the company will become a subsidiary of whom. But no Italian premier ever took action or made pressure to force Telecom Italia to invest in high-speed networks. As a result, the traditional Italian telephony company has been relying, longer than other European incumbents, on the old-fashioned and depreciated copper telephony network rather than installing new fibers networks in massive way. No need for that.

With Matteo Renzi, the situation changed dramatically. It might be for a matter of age or personal experiences, the former mayor of Florence never liked very much Telecom Italia and its bills. Renzi launched an ambitious ultra-broadband plan to fill the gap in the vaste provincial and rural areas of Italy (the European Commission cleared the plan last June). Telecom Italia was offered to benefit of that plan and also to buy Metroweb, a company (controlled by Cassa Depositi e Prestiti) installing and offering ultra-broadband networks in big Italian cities. However, government and Telecom Italia did not find a common agreement on important conditions: while Renzi was aiming at strongly modernizing and re-shaping the Italian telecom market, Telecom Italia preferred to keep alive the copper network as much as possible and did not want to hear about structural separation of its network (a possible outcome when combining its network assets with Metroweb). Telecom Italia was probably thinking to be winning at the very end, thanks to the traditional instability and weakness of Italian governments, but it was wrong.

The stallo situation was “sparigliata” (broken) by the entry into the market of Enel, the Italian energy utility which launched a plan for ultra-broadband investments and offered to buy Metroweb. In the meanwhile, the Italian government granted a State-owned company, Infratel, the task to install ultra-broadband networks in rural areas. The emergence of new network operators changed dramatically the landscape: Telecom Italia ended up with “melina” and started to seriously invest in fibers.

Beside that, Renzi’s governments has been strongly intervening in the digital sector with various legislations in the matter of net neutrality, online platforms, sharing economy; they finally appointed as Digitalist Chief Diego Piacentini, a seconded senior executive of Amazon, to coordinate and make progress the digital agenda in Italy. The choice of Matteo Renzi’s about Diego Piacentini was challenged by someone because of potential conflicts of interests: nevertheless, no one could object the professional level of the Chief Digitalis and the need to coordinate the various Italian agencies competent for digital.

One would wonder whether the above was just a transitory acceleration and now Italy will fall back into traditional inertia. The main winner of the Constitutional Referendum, the 5-Stars Movement, has been traditionally relying on the Internet rather then other medias. However, despite some individual positions, it is not clear whether this political party has a concrete and coherent industrial policy for ultra-broadband and the digital sector in general. Irrespective whether they will become a force of government, the 5-Stars Movement and its leader, the comedian Beppe Grillo, should start to think about and say something to the people.