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3. The current Community legislative framework in the field of telecommunica- tions consists essentially of liberalisation 2. The Tribunal Supremo wishes essentially directives adopted by the Commission to know whether under those provisions it under Article 86 EC (formerly Article 90 is permissible for a Member State to adopt of the EC Treaty) 3 and harmonisation rules which oblige a public telecommunica- directives adopted by the Parliament and tions network operator with significant market power 3 — See, for example, Commission Directive 88/301/EEC of 16 May 1988 on competition in the markets in telecommu- nications terminal equipment, OJ 1988 L 1 3 1 , p. 7 3 ; Com- mission Directive 9 0 / 3 8 8 / E E C of 28 J u n e 1 9 9 0 on competition in the markets for telecommunications services, OJ 1990 L 192, p. 10; Commission Directive 94/46/EC of 13 October 1994 amending Directive 88/301/EEC and Directive 90/388/EEC in particular with regard to satellite communications, O J 1994 L 2 6 8 , p. 15; Commission Directive 9J/51/EC of 18 October 1995 amending Directive 90/388/EEC with regard to the abolition of the restrictions on the use of cable television networks for the provision of already liberalised telecommunications services, OJ 1995 — to offer interconnection at local and L 256, p. 49; Commission Directive 96/2/EC of 16 January 1996 amending Directive 90/388/EEC with regard to higher-level switching centres, and/or mobile and personal communications, OJ 1996 L 20, p. 59; Commission Directive 96/19/EC of 13 March 1996 amending Directive 90/388/EEC with regard to the imple- mentation of full competition in telecommunications mar- kets, OJ 1996 L 74, p. 13; Commission Directive 1999/64/ 1 — Original language: English. EC of 23 June 1999 amending Directive 90/388/EEC in 2 — OJ 1997 L 199, p. 32, as amended by Directive 98/61/EC of order to ensure that telecommunications networks and cable the European Parliament and of the Council of 24 Septem- TV networks owned by a single operator are separate legal ber 1998, OJ 1998 L 268, p. 37. entities, OJ 1999 L 175, p. 39.

4 — See, for example, besides Directive 97/33, Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market for telecommunications services through the implementation of open network provision, OJ 1990 L 192, p. 1; Council Directive 92/44/EEC of 5 June 1992 on the application of open network provision to leased lines, OJ 1992 L 165, p. 27; Directive 95/62/EC of the European Parliament and of the Council of 13 December 1995 on the application of open network provision (ONP) to voice telephony, OJ 1995 L 321, p. 6, later replaced by Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the application of open network 6. 'Interconnection' means according to provision (ONP) to voice telepnony and on universal service for telecommunications in a competitive environment, Article 2(1)(a) 'the physical and logical OJ 1998 L 101, p. 24; Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a linking of telecommunications networks common framework for general authorisations and indivi- used by the same or a different organisation dual licences in the field of telecommunications services OJ 1997 L 117, p. 15; Directive 97/51/EC of the European in order to allow the users of one organisa- Parliament and of the Council of 6 October 1997 amending tion to communicate with users of the same Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment in or another organisation, or to access ser- telecommunications, OJ 1997 L 295, p. 23; Directive 97/66/EC of the European Parliament and of the Council vices provided by another organisation. of 15 December 1997 concerning the processing of personal Services may be provided by the parties data and the protection of privacy in the telecommunica- tions sector, OJ 1998 L 24, p. 1. involved or other parties who have access 5 — See Article 1 of Directive 90/387, cited in note 4. to the network.'

— are authorised to provide circuits to 11. The concept of significant market third countries, or power referred to in Article 4(2) is defined

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in Article 4(3): an organisation is as a — unbundle interconnection charges, so general rule presumed to have significant that the applicant is not required to pay market power when it has a share of more for anything not strictly related to the than 25% of a particular telecommunica- service requested (Article 7(4)), tions market in the geographical area in which it is authorised to operate. The competent national regulatory authority (NRA) may however determine on the basis of an economic evaluation either that an organisation with a market share below 25% has significant market power or that an organisation with a market share above that threshold does not possess significant — use cost accounting systems suitable for market power. implementing all those requirements (e.g. separate accounting for intercon- nection activities and other activities) (Articles 7(5) and 8(2)). 12. Other specific rules for Annex I orga- nisations with significant market power are to be found in Articles 6 to 8. Annex I organisations which provide for example the fixed public telephone network or service and which have been notified by their NRA as having significant market power must 13. Article 9 is entitled 'General responsi- bilities of the national regulatory authori- ties'.

— comply with the principles of non- discrimination and transparency with regard to interconnection offered to others (Article 6),

(a) Dispute resolution procedure,

In particular, in relation to interconnection between organisations set out in Annex II, national regulatory authorities: (b) Requirements for publication/access to interconnection agreements and other periodic publication duties,

— may set ex ante conditions in the areas listed in Part 1 of Annex VII; (c) Requirements for the provision of equal access and number portability,

— shall encourage coverage in intercon- nection agreements of the issues listed (d) Requirements to provide facility shar- in Part 2 of Annex VII.' ing, including collocation,

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TELEFÓNICA DE ESPAÑA

— may ón its own initiative at any time or of proportionality', 'in the interest of if requested by either party set time- users' and 'as a last resort' to inter- limits within which negotiations on connect and, where appropriate, set interconnection are to be completed; terms of interconnection (Article 9(6)). if agreement is not reached within the time allowed the authority must take steps to bring about an agreement under procedures laid down by that authority (Article 9(3));

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The national provisions at issue Detailed requirements for open access are to be laid down in an implementing regula- tion.

19. In order to implement the Community regulatory framework Spain adopted Ley 11/1998 General de Telecomunicaciones 22. On the basis of the provisions of Law (General Telecommunications Law) of 11/1998 the Spanish Government issued 24 April 1998 1 1('Law 11/1998'). the contested 'Royal Decree 1651/1998 of 24 July approving the Regulation imple- menting Title II of Law 11/1998, General de Telecomunicaciones with regard to interconnection and access to the public networks and numbering' 12 ('Royal Decree 1651/1998'). The preamble to that Decree states that it transposes into Spanish law the content of the relevant Community 20. Article 23 of Law 11/1998 defines a directives and in particular Directive 97/33. 'dominant operator' as a network or service operator which has acquired — in the previous year and within the municipality, autonomous region, State or other defined geographical area — a market share that is 25% or more. 23. Article 9 of Royal Decree 1651/1998 is entitled 'Obligations of operators deemed to occupy a dominant position in the market' and provides in so far as relevant:

21. Under Article 24 owners of public telecommunications networks who are deemed to occupy a dominant position in 'Public telecommunications network opera- the market must provide access to their tors deemed to occupy a dominant position networks, under objective, transparent and in the market shall be subject to the non-discriminatory conditions, to any users following obligations: and providers of telecommunications ser- vices who request it. Furthermore, they must meet all technically viable and prop- erly justified requests for network access at points other than the network termination points offered to the majority of end-users.

4. To provide access to the subscriber loop on such date and under such conditions as the Ministerio del Fomento (Ministry of Development) may determine for the pur- pose, if appropriate, following submission 25. The Tribunal Supremo has doubts of a report by the Comisión del Mercado de about the compatibility of Article 9(3) las Telecomunicaciones. and Article 9(4) of Royal Decree 1651/1998 with Directive 97/33 and sees in particular two alternative interpretations of Article 4(2), Article 9(2) and Annex VII of the Directive. 13

1 13 — See for the text of those provisions above paragraphs 9, 15 and 16.

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26. On the one hand, precise determination issued a report in which it proposed to of the interconnection points might seem to delete paragraphs 3 and 4 of Article 9. It have been entrusted by the Directive only felt that the situations envisaged therein to negotiation between the operators, were not amongst the spheres in which the because it is not included in the matters NRA was allowed to lay down ex ante which, according to Part 1 of Annex VII, conditions under Article 9(2) read in con- may be subject to ex ante conditions set by junction with Annex VII. NRAs. That appears to be not a mere oversight but a true exclusion since Part 2(c) of Annex VII expressly allocates the matter of interconnection points to the sphere of negotiation.

29. By order of 14 February 2000 the Tribunal Supremo decided to refer to the Court the following question:

to the subscriber loop and to offer NRAs must limit themselves to encoura- interconnection at local and higher- ging coverage in interconnection agree- level switching centres; ments. The issue 'Locations of the points of interconnection' is listed in Part 2 of Annex VII at letter (c). It follows that determination of the interconnection points is a matter reserved for negotiation between the parties. The NRAs were there- (b) or, on the contrary, do those authorities fore prohibited from requiring ex ante that have the power — with regard to an operator must offer interconnection at access and interconnection at those his local or higher-level switching centres. If specific network points — only "to the NRAs could determine the interconnec- promote" agreements negotiated tion points ex ante the division between between the various operators, but two categories of issues within Article 9(2) not to impose such access and inter- and Annex VII would be pointless. That connection as an ex ante obligation on interpretation is confirmed by several pro- an operator with significant market visions of the Directive 14 and recitals of its power?' preamble 15 which show that the Directive favours negotiation between the parties and allows ex ante regulatory intervention only where absolutely necessary.

Observations submitted to the Court

36. The national rules in issue are also in line with international obligations and in particular with Spain's and the Communi- ty's obligations arising from the Fourth protocol to the General Agreement on 34. The Spanish and Italian Governments Trade in Services concerning basic telecom- and the Commission contend that the munications services. 17 provisions of Directive 97/33 do not pro- hibit NRAs from obliging ex ante an organisation with significant market power to offer interconnection at local and higher- level switching centres and to provide access to the subscriber loop.

38. The Belgian Government does not take sions which establish the access and inter- a definitive position on the question re- connection obligations in question and not ferred, but merely discusses the relationship in the context of, for example, a concrete between full unbundled access to the local interconnection dispute. loop and the property rights of the incum- bent operator.

41. In essence the Court is therefore only requested to assess whether the Directive prohibits a Member State from adopting Assessment provisions such as Article 9(3) and (4) of Royal Decree 1651/1998.

47. According to the first subparagraph of Article 9(2) '[g]eneral conditions set down in advance by national regulatory autho- rities shall be published in accordance with Article 14(1)'. It is implicit in that obliga- tion to publish that there must be circum- stances in which NRAs have the power to 45. Under Article 4(2) certain organisa- set general ex ante conditions. tions providing public telecommunications networks and publicly available telecom- munications services with significant mar- ket power must 'meet all reasonable requests for access to the network including at points other than the network termina- tion points offered to the majority of end- 48. The second subparagraph of Arti- users'. Although the precise positive con- cle 9(2) provides: tent of that provision is not clear (e.g. the meaning of 'access to the network' or 'reasonable requests'), it is clear — and none of those submitting observations contests that interpretation — that it does not prohibit a Member State from adopting rules such as the ones at issue in the present 'In particular, in relation to interconnection case. between organisations set out in Annex II, national regulatory authorities:

— may set ex ante conditions in the areas listed in Part 1 of Annex VII; 46. Under the narrow approach advocated above I will therefore concentrate on the analysis of Article 9(2) read in conjunction with Annex VII and examine whether that provision prohibits national rules which require an organisation with significant market power to offer interconnection at — shall encourage coverage in intercon- local and higher-level switching centres and nection agreements of the issues listed to provide access to the subscriber loop. in Part 2 of Annex VII.'

49. Part 1 of Annex VII enumerates 'areas 52. First and foremost, since the second where the national regulatory authority subparagraph of Article 9(2) starts with the may set ex ante conditions'. Part 2 contains phrase 'in particular' and relates to 'inter- a list of 'other issues the coverage of which connection between organisations set out in in interconnection agreements is to be Annex II', it would seem that that provi- encouraged'. Part 2, letter (c) mentions sion does not apply to the different situa- 'locations of points of interconnection'. tion of access to or interconnection of facilities of an organisation which falls under Annex I and enjoys significant mar- ket power. In this context it must be recalled that the Spanish rules at issue, namely Article 9(3) and (4) of Royal Decree 1651/1998, apply only to 'public telecommunications network operators deemed to occupy a dominant position in the market' 22 and that under Article 23 of 50. It is true that the two-part structure at Law 11/1998 the concept of 'dominant first sight supports Telefónica's argument. operator' is defined in similar terms as the However it follows from the wording set concept of an 'organisation with significant out above that the interpretation suggested market power' under Community law. 23 by Telefónica is not the only possible one. Nothing in those provisions indicates unequivocally that the Part 1 list is exhaus- tive. There is also no clear indication that with regard to Part 2 issues NRAs are precluded from doing more than encourage their coverage in interconnection agree- ments. That the Directive requires the authorities to encourage coverage in inter- connection agreements of Part 2 issues and permits them to set ex ante conditions in Part 1 areas does not automatically mean that it prohibits a Member State from obliging a dominant operator to provide 53. Support for the thesis that the second access to the subscriber loop or to offer subparagraph of Article 9(2) applies only interconnection at certain interconnection to interconnection between Annex II orga- points. nisations can be found in Annex II itself. According to the introductory sentences of Annex II interconnection between organi- sations with rights and obligations to interconnect with each other under Arti- cle 4(1) is 'subject to additional supervision by national authorities, in accordance with Article 9(2)'. Annex I, by contrast, does not refer to Article 9(2) and states only that 51. There are moreover doubts whether the provisions of the directive in question are 22 — See above paragraph 23. applicable at all. 23 — See above paragraphs 11 and 20.

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57. According to the Commission's expla- Systematic and teleological arguments natory memorandum the proposed Direc- tive was to be characterised inter alia by 'clear responsibilities for national regula- tory authorities'. 26

60. Directive 97/33 is designed to guaran- tee the interconnection of telecommunica- tions networks, the interoperability of ser- vices and the provision of universal service in an environment of open and competitive markets (Article 1(1)). Its aim is to create 'conditions for open and efficient intercon- nection of and access to public telecommu- 58. Within the legislative procedure it was nications networks and publicly available the Council which introduced the formula- telecommunications services' (Article 1(2)). tion of Article 9(2) and of Annex VII as ultimately adopted. 27 The Council explained in its statement of reasons that in defining its position it was chiefly concerned inter alia to 'introduce greater flexibility in the planned provisions'. 28

61. In order to achieve that aim — and that is the Directive's first general charac- teristic — it gives in principle priority to commercial negotiation between the par- ties. 29

public telecommunications networks and control the means of access to one or more publicly available telecommunications ser- network termination points. 32 The bound- vices from negotiating interconnection ary of that category does not appear to be agreements between themselves'. fully harmonised since all providers of telecommunications services which are authorised by their Member State to inter- connect in that category also form part of it. 33 Under Article 4(1), Annex II organi- sations have both a right and an obligation to negotiate interconnection with each 63. According to recital 5 of the preamble other. The relationship between Annex II Organisations authorised to provide public organisations seems to be characterised by telecommunications networks or publicly strong reciprocal rights and obligations. available telecommunications services in all or part of the Community should be free to negotiate interconnection agreements on a commercial basis in accordance with Com- munity law'.

and/or possess significant market power, is 69. The fourth general characteristic is that of particular relevance for the present case. the Directive leaves the Member States a In that respect the Community has recently significant margin of manœuvre for its published a table of organisations notified implementation. by the Member States under Directive 97/33 as falling under Annex I and/or as possessing significant market power. 34 That table lists in the field of fixed voice telephony mainly the former telecommuni- cations monopolists. Organisations falling 70. Article 1(1) uses the word 'framework' under Annex I and/or enjoying significant which is qualified in Recital 2 as 'general' market power are subject to a form of in order to describe the nature of the 'asymmetric' regulation in that they have to Directive's rules. The Directive is thus not comply with specific obligations as regards designed to achieve complete harmonisa- interconnection and access pursuant to tion. Articles 4(2), 6, 7 and 8(2). 35

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tightening the proposal, introduced even — 'asymmetric' provisions which impose greater flexibility into its provisions. 41 special obligations on players with a strong position in the market,

73. That flexibility is perhaps a necessary corollary of the speed of technological and economic developments in the field of — supervision of access and interconnec- telecommunications and the divergent tion agreements by NRAs, degrees of liberalisation in the Community. In Member States where as a result of former special or exclusive rights the incumbent has a very strong position in the market, asymmetric regulation and strict supervision of access and intercon- nection agreements is indispensable in order to create competitive markets. In — a certain flexibility in its provisions. other countries in which markets are already competitive a heavy-handed regu- latory approach might on the contrary have detrimental effects on investments in infra- structure. Member States must thus neces- sarily enjoy a certain margin of apprecia- tion to adapt their regulatory framework to the evolving economic features of their national telecommunications market. 75. Under Telefonica's interpretation of Article 9(2) and of Annex VII NRAs can under no circumstances impose ex ante obligations in other areas than those listed in Part 1 of Annex VII.

74. It follows that Directive 97/33 is essen- tially characterised by

76. It follows however from the aims and general characteristics of Directive 97/33 identified above that that interpretation — priority given to commercial negotia- cannot be correct; in particular it cannot tions between interconnecting parties, apply where an Annex I organisation with significant market power is asked to pro- vide access or offer interconnection. In such 41 — See above paragraph 58. a case, to impose ex ante conditions only in

Article 16 of Directive 98/10/EC and the Fourth Protocol to the GATS

79. Under Article 9(3) NRAs may inter- vene in pursuit of the objectives of Arti- cle 9(1) 'on their own initiative' and 'at any 82. As further support for their contentions that the Spanish provisions are not contrary

42 — See for that list paragraph 16. 43 — See paragraphs 51 to 53. 44 — See above, paragraph 68.

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to Directive 97/33, the Commission refers considers therefore that in the absence of to Article 16 of Directive 98/10, 45 whilst Community regulation of the latter issue the Spanish Government refers to the the Member States were always free to 'Additional commitment by the European oblige certain organisations to provide full Communities and their Member States' unbundled access to the local loop. annexed to the Fourth protocol to the General Agreement on Trade in Services. 46

86. Furthermore it seems that the issue of the obligation to provide access to the subscriber loop is to a certain extent Access to the local loop hypothetical. It will be recalled that under Article 9(4) of Royal Decree 1651/1998 the operator concerned has to provide access to the subscriber loop only 'on such date and under such conditions' as the competent Minister decides. At the hearing the Com- mission stated that until recently the Span- 84. As regards access to the subscriber loop ish Government had not taken such a the Commission argues that Directive decision. It appears that it was only on 97/33 covers 'shared access to the local 22 December 2000 and thus four days after loop' but not 'full unbundled access to the the adoption of Regulation No 2887/2000 local loop' within the meaning of Regula- that the Government adopted a Royal tion No 2887/2000. 47 The Commission decree requiring unbundled access to the local loop. 48 45 — Cited in note 4. 46 — Cited in note 17, at page 52. 47 — Cited in note 9. 48 — Royal Decree 3456/2000, BOE 307, p. 45567.

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Conclusion

87. Accordingly I am of the opinion that the question referred by the Tribunal Supremo should be answered as follows:

Article 4(2) and Article 9(2) read in conjunction with Annex VII to Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection in Telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP) do not prohibit a Member State from obliging a public telecommunications network operator with significant market power