Contents
Judgment of the Court (Fifth Chamber)10 November 2022note(Reference for a preliminary ruling — Electronic communications networks and services — Universal service and users’ rights — Directive 2002/22/EC (Universal Service Directive) — Article 12 — Costing and financing of universal service obligations — Single universal service provider and multiple telecommunications services providers operating in the market — Determination as to whether an unfair burden exists)In Case C‑494/21,REQUEST for a preliminary ruling under Article 267 TFEU from the High Court (Ireland), made by decision of 30 July 2021, received at the Court on 11 August 2021, in the proceedingsEircom LimitedvCommission for Communications Regulation,notice parties:Vodafone Ireland Limited,Three Ireland (Hutchison) Limited,Three Ireland Services (Hutchison) Limited,THE COURT (Fifth Chamber),composed of E. Regan, President of the Chamber, D. Gratsias (Rapporteur), M. Ilešič, I. Jarukaitis and Z. Csehi, Judges,Advocate General: P. Pikamäe,Registrar: A. Calot Escobar,having regard to the written procedure,after considering the observations submitted on behalf of:– Eircom Limited, by J. Newman, Senior Counsel, J. O’Connell, Barrister-at-Law, and J. Whelan, Solicitor,– Commission for Communications Regulation, by A. Brick, R. Byrne, Solicitors, D. Dodd, Barrister-at-Law, and B. Kennedy, Senior Counsel,– Three Ireland Services (Hutchison) Limited and Three Ireland (Hutchison) Limited, by D. Hardiman, Barrister-at-Law,– the Czech Government, by J. Očková, M. Smolek and J. Vláčil, acting as Agents,– the European Commission, by G. Braun, L. Malferrari and J. Samnadda, acting as Agents,having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,gives the following
Judgment
1This request for a preliminary ruling concerns the interpretation of Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive) (OJ 2002 L 108, p. 51).
2The request has been made in proceedings between Eircom Limited, which was designated in 2003 as the sole operator for the provision of universal service in Ireland, and the Commission for Communications Regulation (Ireland) (‘ComReg’), concerning the latter’s refusal to grant Eircom financing to cover the allegedly unfair burden on that company of the net cost borne by virtue of its universal service obligations.
Legal context
European Union law
3Recitals 4, 18 and 21 of the Universal Service Directive are worded as follows:(4) Ensuring universal service (that is to say, the provision of a defined minimum set of services to all end-users at an affordable price) may involve the provision of some services to some end-users at prices that depart from those resulting from normal market conditions. However, compensating undertakings designated to provide such services in such circumstances need not result in any distortion of competition, provided that designated undertakings are compensated for the specific net cost involved and provided that the net cost burden is recovered in a competitively neutral way.…(18) Member States should, where necessary, establish mechanisms for financing the net cost of universal service obligations in cases where it is demonstrated that the obligations can only be provided at a loss or at a net cost which falls outside normal commercial standards. It is important to ensure that the net cost of universal service obligations is properly calculated and that any financing is undertaken with minimum distortion to the market and to undertakings, and is compatible with the provisions of Articles [107 and 108 TFEU].…(21) When a universal service obligation represents an unfair burden on an undertaking, it is appropriate to allow Member States to establish mechanisms for efficiently recovering net costs. Recovery via public funds constitutes one method of recovering the net costs of universal service obligations. It is also reasonable for established net costs to be recovered from all users in a transparent fashion by means of levies on undertakings. Member States should be able to finance the net costs of different elements of universal service through different mechanisms, and/or to finance the net costs of some or all elements from either of the mechanisms or a combination of both. In the case of cost recovery by means of levies on undertakings, Member States should ensure [that] … the method of allocation amongst them is based on objective and non-discriminatory criteria and is in accordance with the principle of proportionality. This principle does not prevent Member States from exempting new entrants which have not yet achieved any significant market presence. Any funding mechanism should ensure that market participants only contribute to the financing of universal service obligations and not to other activities which are not directly linked to the provision of the universal service obligations. Recovery mechanisms should in all cases respect the principles of Community law, and in particular in the case of sharing mechanisms those of non-discrimination and proportionality. …’
4Article 1 of the Universal Service Directive, entitled ‘Scope and aims’, provides, in paragraph 1 thereof:‘Within the framework of 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) (OJ 2002 L 108, p. 33)], this Directive concerns the provision of electronic communications networks and services to end-users. The aim is to ensure the availability throughout the Community of good-quality publicly available services through effective competition and choice and to deal with circumstances in which the needs of end-users are not satisfactorily met by the market.’
5Article 3 of that directive, entitled ‘Availability of universal service’, provides, in paragraph 2 thereof:‘Member States shall determine the most efficient and appropriate approach for ensuring the implementation of universal service, whilst respecting the principles of objectivity, transparency, non-discrimination and proportionality. They shall seek to minimise market distortions, in particular the provision of services at prices or subject to other terms and conditions which depart from normal commercial conditions, whilst safeguarding the public interest.’
6Article 8 of that directive, entitled ‘Designation of undertakings’, provides:1. Member States may designate one or more undertakings to guarantee the provision of universal service as identified in Articles 4, 5, 6 and 7 and, where applicable, Article 9(2) so that the whole of the national territory can be covered. Member States may designate different undertakings or sets of undertakings to provide different elements of universal service and/or to cover different parts of the national territory.2. When Member States designate undertakings in part or all of the national territory as having universal service obligations, they shall do so using an efficient, objective, transparent and non-discriminatory designation mechanism, whereby no undertaking is a priori excluded from being designated. Such designation methods shall ensure that universal service is provided in a cost-effective manner and may be used as a means of determining the net cost of the universal service obligation in accordance with Article 12.’
7Article 12 of the Universal Service Directive, entitled ‘Costing of universal service obligations’, states:1.Where national regulatory authorities consider that the provision of universal service as set out in Articles 3 to 10 may represent an unfair burden on undertakings designated to provide universal service, they shall calculate the net costs of its provision.For that purpose, national regulatory authorities shall:(a) calculate the net cost of the universal service obligation, taking into account any market benefit which accrues to an undertaking designated to provide universal service, in accordance with Annex IV, Part A; or(b) make use of the net costs of providing universal service identified by a designation mechanism in accordance with Article 8(2).2. The accounts and/or other information serving as the basis for the calculation of the net cost of universal service obligations under paragraph 1(a) shall be audited or verified by the national regulatory authority or a body independent of the relevant parties and approved by the national regulatory authority. The results of the cost calculation and the conclusions of the audit shall be publicly available.’
8Article 13 of that directive, entitled ‘Financing of universal service obligations’, is worded as follows:1.Where, on the basis of the net cost calculation referred to in Article 12, national regulatory authorities find that an undertaking is subject to an unfair burden, Member States shall, upon request from a designated undertaking, decide:(a) to introduce a mechanism to compensate that undertaking for the determined net costs under transparent conditions from public funds; and/or(b) to share the net cost of universal service obligations between providers of electronic communications networks and services.2. Where the net cost is shared under paragraph 1(b), Member States shall establish a sharing mechanism administered by the national regulatory authority or a body independent from the beneficiaries under the supervision of the national regulatory authority. Only the net cost, as determined in accordance with Article 12, of the obligations laid down in Articles 3 to 10 may be financed.3. A sharing mechanism shall respect the principles of transparency, least market distortion, non-discrimination and proportionality, in accordance with the principles of Annex IV, Part B. Member States may choose not to require contributions from undertakings whose national turnover is less than a set limit.4. Any charges related to the sharing of the cost of universal service obligations shall be unbundled and identified separately for each undertaking. Such charges shall not be imposed or collected from undertakings that are not providing services in the territory of the Member State that has established the sharing mechanism.’
9Annex IV to the Universal Service Directive, entitled ‘Calculating the net cost, if any, of universal service obligations and establishing any recovery or sharing mechanism in accordance with Articles 12 and 13’, includes a Part A, itself entitled ‘Calculation of net cost’, which provides:‘Universal service obligations refer to those obligations placed upon an undertaking by a Member State which concern the provision of a network and service throughout a specified geographical area, including, where required, averaged prices in that geographical area for the provision of that service or provision of specific tariff options for consumers with low incomes or with special social needs.National regulatory authorities are to consider all means to ensure appropriate incentives for undertakings (designated or not) to provide universal service obligations cost efficiently. In undertaking a calculation exercise, the net cost of universal service obligations is to be calculated as the difference between the net cost for a designated undertaking of operating with the universal service obligations and operating without the universal service obligations. … Due attention is to be given to correctly assessing the costs that any designated undertaking would have chosen to avoid had there been no universal service obligation. The net cost calculation should assess the benefits, including intangible benefits, to the universal service operator.The calculation is to be based upon the costs attributable to:(i) elements of the identified services which can only be provided at a loss or provided under cost conditions falling outside normal commercial standards.This category may include service elements such as access to emergency telephone services, provision of certain public pay telephones, provision of certain services or equipment for disabled people, etc.;(ii) specific end-users or groups of end-users who, taking into account the cost of providing the specified network and service, the revenue generated and any geographical averaging of prices imposed by the Member State, can only be served at a loss or under cost conditions falling outside normal commercial standards.This category includes those end-users or groups of end-users which would not be served by a commercial operator which did not have an obligation to provide universal service.The calculation of the net cost of specific aspects of universal service obligations is to be made separately and so as to avoid the double counting of any direct or indirect benefits and costs. The overall net cost of universal service obligations to any undertaking is to be calculated as the sum of the net costs arising from the specific components of universal service obligations, taking account of any intangible benefits. The responsibility for verifying the net cost lies with the national regulatory authority.’
10Article 1(1) and (7) of Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009 amending Directive 2002/22, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (OJ 2009 L 337, p. 11), entitled ‘Amendments to Directive [2002/22] (Universal Service Directive)’, provides:‘Directive [2002/22] (Universal Service Directive) is hereby amended as follows:1) Article 1 shall be replaced by the following:“Article 1Subject matter and scope1. Within the framework of Directive [2002/21] (Framework Directive), this Directive concerns the provision of electronic communications networks and services to end-users. The aim is to ensure the availability throughout the Community of good-quality publicly available services through effective competition and choice and to deal with circumstances in which the needs of end-users are not satisfactorily met by the market. The Directive also includes provisions concerning certain aspects of terminal equipment, including provisions intended to facilitate access for disabled end-users.…”…7)in Article 8, the following paragraph shall be added:“3. When an undertaking designated in accordance with paragraph 1 intends to dispose of a substantial part or all of its local access network assets to a separate legal entity under different ownership, it shall inform in advance the national regulatory authority in a timely manner, in order to allow that authority to assess the effect of the intended transaction on the provision of access at a fixed location and of telephone services pursuant to Article 4. The national regulatory authority may impose, amend or withdraw specific obligations in accordance with Article 6(2) of Directive 2002/20/EC (Authorisation Directive).”…’
11Article 4 of Directive 2009/136, entitled ‘Transposition’, provides, in the first subparagraph of paragraph 1 thereof:‘Member States shall adopt and publish by 25 May 2011 the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the [European] Commission the text of those measures.’
12It should be noted that the amendments made by Article 1(1) and (7) of Directive 2009/136 to Article 1(1) and Article 8 of the Universal Service Directive do not have any bearing on the answer to the question referred by the national court.
Irish law
13The European Communities (Electronic Communications Networks and Services) (Universal Service and Users’ Rights) Regulations 2011 (S.I. No 337) (‘the national Universal Service Regulations’) contains Regulation 11, entitled ‘Costing of universal service obligations’, which provides:(1) Where an undertaking designated as having [a universal service obligation] seeks to receive funding for the net costs of meeting the obligation concerned, it may submit to the Regulator a written request for such funding.(2) A request under paragraph (1) shall be accompanied by such supporting information as may be reasonably required by the Regulator for the purpose of paragraph (3). The data may be based on such period as may be specified by the Regulator.(3) The Regulator shall, on the basis of such information, including information supplied under paragraph (2), as it considers sufficient to enable a determination under this paragraph to be made, determine whether an obligation referred to in paragraph (1) may represent an unfair burden on the undertaking concerned.(4)Where the Regulator determines that an obligation referred to in paragraph (1) may represent an unfair burden, it shall calculate the net costs of its provision based on(a) the net costs, taking into account any market benefit which accrues to the undertaking, calculated in accordance with Schedule 2, Part A,or(b) where applicable, the net costs identified by a designation method in accordance with Regulation 7(3).(5) A designated undertaking referred to in paragraph (1) shall provide such information as is reasonably required by the Regulator for the purpose of paragraph (4).(6) Where the Regulator determines that an obligation referred to in paragraph (1) does not represent an unfair burden, it shall notify the undertaking concerned of that determination together with the reasons for the determination as soon as reasonably practicable after the determination is made.…’
14Regulation 12 of the national Universal Service Regulations, entitled ‘Financing of universal service obligations’, states:(1) Where the Regulator, on the basis of the net cost calculation referred to in Regulation 11, finds that the net cost of meeting [a universal service obligation] represents an unfair burden on an undertaking, it shall apportion the net cost of the universal service obligation among providers of electronic communications networks and services.(2) The Regulator shall establish a sharing mechanism administered by it or by a body independent from the designated undertakings, which body shall be under the supervision of the Regulator. Only the net cost, as determined in accordance with Regulation 11, of the [universal service obligations] may be financed.(3) A sharing mechanism established under paragraph (2) shall respect the principles of transparency, least market distortion, non-discrimination and proportionality … The Regulator may choose not to require contributions from undertakings whose audited national turnover is less than such amount as may, from time to time, be specified by the Regulator, having regard to any views expressed to it under any consultations carried out in accordance with Regulation 26.…’
15On 31 May 2011, ComReg published Decision 04/11, consisting of a series of numbered decisions setting out the principles and methodologies for calculating the net costs and revenues relating to the universal service obligation, the principles and methodologies for calculating the other benefits of that obligation and the approach to be taken in order to determine whether the universal service provider has been subject to an unfair burden as a result of the net costs.
16The decisions numbered 38 to 41 are worded as follows:‘38. For an unfair burden on a [universal service provider], three cumulative conditions must be met:i. There must be a verifiable and verified direct net cost;ii. The benefits of the [universal service obligation] must not outweigh the net cost (i.e. there is a positive net cost);iii. This positive net cost is (a) material compared to administrative costs of a sharing mechanism, and (b) causes a significant competitive disadvantage for a [universal service provider].39. If the positive net cost is relatively small, ComReg will determine, on the basis of audited costs of the [universal service obligation], whether [universal service obligation] financing is or is not justified, taking into account the administrative costs of establishing and operating a sharing mechanism (compared to the positive net cost of the [universal service obligation]) and taking into account whether these costs are disproportionate to any net transfers to a [universal service provider].40. If the positive net cost is not relatively small, ComReg will assess whether or not this net cost significantly affects a [universal service provider’s] profitability and/or ability to earn a fair rate of return on its capital employed; and41. If the positive net cost significantly affects a [universal service provider’s] profitability, ComReg will assess whether or not such a net cost materially impacts a [universal service provider’s] ability to compete on equal terms with competitors going forward.’
The dispute in the main proceedings and the question referred for a preliminary ruling
17Eircom is the incumbent monopoly operator in the Irish telecommunications market. That undertaking was designated by ComReg as the sole universal service provider in 2003. According to the referring court, Eircom remains, to date, the sole operator in Ireland providing access at fixed locations as well as voice services and public pay telephones.
18Following requests for funding for the net costs of the universal service obligation submitted by Eircom on the basis of Regulation 11 of the national Universal Service Regulations, and, in accordance with Regulation 12 of those regulations, that the cost of the universal service obligations be shared among the various operators present in the market, ComReg adopted, on 18 April 2019, five decisions (‘the contested decisions’) by which it found that the net cost borne by Eircom by virtue of its universal service obligations between 2010 and 2015 did not constitute an unfair burden on that undertaking. Consequently, ComReg, by the contested decisions, refused to have recourse to the sharing mechanism referred to in Regulation 12 of those regulations.
19Hearing an appeal against the contested decisions, the referring court found that it is apparent from those decisions that ComReg calculated that, over the five years concerned, the net cost to Eircom of the universal service obligations was just under EUR 43 million. That undertaking’s earnings before interest and tax for the period under consideration in respect of its fixed line business were EUR 1.397 billion.
20The referring court observes that, in each of the contested decisions, ComReg relied on an ‘Unfair Burden Report’ prepared at its request by a firm of consultants. According to those reports, as regards the conditions referred to in Decision 38, a positive net cost was borne by Eircom for each of the years in question, the benefits for that undertaking resulting from its universal service obligations did not outweigh the net cost of those obligations, and the positive net cost was material as compared with the administrative costs of a sharing mechanism.
21It is apparent from those reports that, as regards the assessment required by Decision 40, Eircom’s profitability and ability to earn a fair rate of return on its capital employed were not significantly affected by the net cost of its universal service obligations during the relevant period.
22The referring court notes that the benchmark used in those reports and approved by ComReg in order to determine Eircom’s ability to earn a fair rate of return consisted of comparing a return on capital employed (‘ROCE’) measure of Eircom’s financial returns with the weighted average cost of capital, a cost which had been previously determined by ComReg. By way of illustration, as regards Eircom’s fixed telephony business, the reports found that, taking into account the net cost of its universal service obligations, the ROCE exceeded the weighted average cost of capital for each year under consideration. The referring court observes that, in the light of the relevant findings, it is apparent from those reports that, as regards the period to which Eircom’s requests for financing related, the burden of the net cost on Eircom was not excessive in view of that undertaking’s ability to bear it.
23According to the referring court, the abovementioned firm of consultants stated that, therefore, when drawing up the reports relating to the period under consideration, it had not assessed, under Decision 41, whether the net cost of the universal service obligations borne by Eircom had had an impact on that undertaking’s ability to compete on equal terms with its competitors in the relevant market in the future.
24The referring court notes that, by the contested decisions, ComReg took the view, however, that the lack of any significant effect on Eircom’s profitability and ability to earn a fair rate of ROCE demonstrated that the net cost of its universal service obligations had not caused a significant competitive disadvantage for that undertaking. ComReg therefore found that there was no need to carry out a competitive distortion assessment as set out in Decision 41.
25The referring court notes that both the abovementioned reports and the contested decisions focus solely on the characteristics of Eircom, since neither ComReg nor the firm of consultants carried out an assessment of the position of Eircom’s competitors in the market.
26It also observes that, for the period from 2010 to 2014, Eircom’s share of the market for fixed telephony customer subscription fell from 74.5% to 47.2%, while one of Eircom’s competitors, for example, increased its domestic market share from 5% to 21.7% during that period. According to a market review conducted in 2014 by ComReg, in the context of a household survey carried out in 2013, that competitor’s market share in Dublin (Ireland) was 42%, compared with 44% for Eircom.
27The referring court points out, in that regard, that it is not disputed that it is a feature of the competitive telecommunications market that service providers which are not entrusted with universal service obligations ‘benefit from having consumers connected to the network who would otherwise remain unserved (“positive externalities”) or that it is also a recognised feature of such competitive markets that all service providers may in theory “cherry-pick” in more profitable geographic centres.’
28In those circumstances, the referring court finds that there is a disagreement between the parties as to the scope of the judgment of the Court of 6 October 2010, Base and Others (C‑389/08, EU:C:2010:584), and the application of the criteria set out therein concerning the determination of whether there is an unfair burden in a case such as that of Eircom, in which a single undertaking is entrusted with universal service obligations.
29More particularly, according to the referring court, Eircom submits that that judgment must be read in the light of the legislative context of the case which gave rise to it and that the relative ability of an undertaking entrusted with universal service obligations to bear the net costs of those obligations must be assessed by taking into account not only its own characteristics but also those of its competitors. Eircom argues that, in the absence of such an assessment, there is a significant risk that all operators will benefit from the positive externalities of such an undertaking, but that only the latter will bear the cost of those externalities, while its situation is not significantly better than that of its competitors.
30For its part, ComReg contends, according to the referring court, that it is apparent from the abovementioned judgment that, in order to determine whether the net cost of universal service obligations borne by an operator constitutes an unfair burden, it is necessary to focus on that operator’s ability to bear that cost in the light of its own characteristics. It argues that the determination of whether there is an unfair burden on the basis of a market analysis is not a requirement which follows either from the regulatory framework or from the case-law of the Court of Justice.
31In those circumstances, the High Court (Ireland) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:‘In circumstances where:(i) the telecommunications market has been liberalised and there are multiple telecommunication services providers operating in the market;(ii) one service provider … has been selected by the National Regulatory Authority (“NRA”) to perform Universal Service Obligations …;(iii) it has been determined by the NRA that there is a positive net cost associated with the performance of the [Universal Service Obligations]; and(iv) it has been determined by the NRA that the [Universal Service Obligations] Net Cost is material compared to the administrative costs of the establishment of a sharing mechanism in respect of the [Universal Service Obligations] Net Cost amongst participants in the market;If the NRA is required, pursuant to its obligations under the [Universal Service Directive], to consider whether the [Universal Service Obligations] Net Cost is excessive in view of the ability of the [Universal Service Provider] to bear it, account being taken of all the [Universal Service Provider’s] characteristics, in particular, the quality of its equipment, its economic and financial situation and its market share (as referred [to] at para. 42 of [the judgment of 6 October 2010, Base and Others (C‑389/08, EU:C:2010:584)]) is it permissible under the Directives for the NRA to conduct that assessment by having regard exclusively to the characteristics/situation of the [Universal Service Provider], or is it required to assess the characteristics/situation of the [Universal Service Provider] relative to its competitors in the relevant market?’
Consideration of the question referred
32It should be noted, as a preliminary point, that even if, formally, the referring court has not formulated its question by referring to specific provisions of the Universal Service Directive, that does not mean that the Court may not provide the referring court with all the guidance on points of interpretation that may be of assistance in adjudicating on the case pending before it, whether or not that court has referred to those points in its questions. It is, in this regard, for the Court to extract from all the information provided by the referring court, in particular from the grounds of the decision to make the reference, the points of EU law which require interpretation in view of the subject matter of the dispute (see, to that effect, judgment of 16 November 2021, Governor of Cloverhill Prison and Others, C‑479/21 PPU, EU:C:2021:929, paragraph 39 and the case-law cited).
33In the present case, it is apparent from the request for a preliminary ruling that, by its question, the referring court asks, in essence, whether Articles 12 and 13 of the Universal Service Directive must be interpreted as requiring the competent NRA, in order to determine whether the net cost of universal service obligations represents an unfair burden on an operator entrusted with such obligations, to examine the characteristics particular to that operator, taking account of its situation relative to that of its competitors in the relevant market.
34In that regard, it should be recalled that the Universal Service Directive is intended to create a harmonised regulatory framework which secures, in the electronic communications sector, the delivery of universal service, that is to say, of a defined minimum set of services to all end-users at an affordable price. According to Article 1(1) of that directive, one of its objectives is to ensure the availability, throughout the European Union, of good-quality, publicly available services through effective competition and choice (judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraph 32 and the case-law cited).
35Under Article 3(2) of the Universal Service Directive, Member States are to determine the most efficient and appropriate approach for ensuring the implementation of universal service, whilst respecting the principles of objectivity, transparency, non-discrimination and proportionality, and they are to seek to minimise market distortions, whilst safeguarding the public interest (judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraph 33 and the case-law cited).
36As recital 4 of the Universal Service Directive states, ensuring universal service may involve the provision of some services to some end-users at prices that depart from those resulting from normal market conditions. The EU legislature therefore provided – as is clear from recital 18 of that directive – that Member States should, where necessary, establish mechanisms for financing the net cost of universal service obligations in cases where it is demonstrated that those obligations can be provided only at a loss or at a net cost which falls outside normal commercial standards (judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraph 34 and the case-law cited).
37Accordingly, under the first subparagraph of Article 12(1) of the Universal Service Directive, NRAs, where they consider that the provision of universal service as set out in Articles 3 to 10 of that directive may represent an unfair burden on undertakings designated to provide universal service, must calculate the net costs of its provision.
38Although the second subparagraph of Article 12(1) of, and Part A of Annex IV to, the Universal Service Directive lay down the rules for calculating the net costs of the provision of universal service where the NRAs have considered that such provision may represent an unfair burden, it is not apparent either from Article 12(1) or from any other provision of that directive that the EU legislature itself intended to prescribe the conditions in which the NRAs are to consider, as a preliminary matter, that/whether the provision of universal service may represent an unfair burden. Conversely, it is apparent from the provisions of Article 13 of the Universal Service Directive that it is only on the basis of the calculation of the net costs of the provision of universal service, as referred to in Article 12 of that directive, that NRAs may find that an undertaking designated to provide universal service is in fact subject to an unfair burden and that Member States must then decide, upon a request from that undertaking, to introduce a compensation mechanism in respect of that cost (judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraphs 36 and 37).
39As regards the concept of an ‘unfair burden’, this is not defined by the Universal Service Directive. However, as the Court has already had occasion to observe in its judgment of 6 October 2010, Base and Others (C‑389/08, EU:C:2010:584, paragraph 42), it is apparent from recital 21 of the Universal Service Directive that the EU legislature intended to link the mechanisms for the recovery of net costs which an undertaking may incur as a result of the provision of universal service to the existence of an unfair burden on that undertaking. In that context, in concluding that the net cost of universal service does not necessarily represent an unfair burden for all the undertakings concerned, it intended to exclude the possibility that any net costs of universal service provision automatically give rise to a right to compensation. The Court concluded from this that the unfair burden which must be found to exist by the NRA before any compensation is paid is a burden which, for each undertaking concerned, is excessive in view of the undertaking’s ability to bear it, account being taken of all the undertaking’s own characteristics, in particular the quality of its equipment, its economic and financial situation and its market share.
40In the absence of any specific provision in this regard in the Universal Service Directive, it falls to the NRA to lay down general and objective criteria which make it possible to determine the thresholds beyond which – taking account of the characteristics mentioned in the preceding paragraph – a burden may be regarded as unfair. However, the NRA cannot find that the burden of providing universal service is unfair, for the purpose of Article 13 of that directive, unless it carries out an individual assessment of the situation of each undertaking concerned in the light of those criteria (judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraph 43).
41If the NRA finds that one or more undertakings designated as providers of universal service are subject to an unfair burden or if one or more of those undertakings requests compensation, it then falls to the Member State to establish the necessary mechanisms to that end, in accordance with Article 13 of the Universal Service Directive (see, to that effect, judgment of 6 October 2010, Base and Others, C‑389/08, EU:C:2010:584, paragraph 44).
42In the light of the foregoing, the Court concluded, in its judgment of 6 October 2010, Base and Others (C‑389/08, EU:C:2010:584, paragraph 45), that Member States cannot, without infringing their obligations under the Universal Service Directive, make a finding that the provision of universal service in fact constitutes an unfair burden in respect of which compensation is payable unless they have calculated the net cost which such provision represents for each undertaking responsible for it and have assessed whether that cost constitutes an excessive burden for the undertaking concerned, nor, lastly, can they adopt a compensation scheme in which the compensation is unrelated to that net cost.
43In that regard, it should be noted at the outset that any consideration of the market share of the universal service provider implies that the process of determining whether the burden on that provider by virtue of its universal service obligations may be unjustified has an integral comparative component which cannot be disregarded by the NRA. The mere finding of facts relating to the market share of that provider, considered in isolation, does not allow any useful conclusions to be drawn in the absence of a comparison with the market shares held by its competitors. Those conclusions may vary according to the number of competitors present in the market, the links which may exist between them, or even the different sectors of the relevant market in which those competitors are present.
44Therefore, as Eircom, the Czech Government and the Commission submit, it is apparent from the relevant provisions of the Universal Service Directive that the competent NRA is required, in the context of that process, to take account of the situation of the universal service provider relative to that of its competitors in the relevant market.
45As has been recalled in paragraphs 34 and 35 above, according to Article 1(1) of that directive, the main objective of the latter is to ensure the availability, throughout the European Union, of good-quality publicly available services through effective competition and choice. In addition, when implementing universal service, Member States must, under Article 3(2) of that directive, inter alia, seek to minimise market distortions, in particular the provision of services at prices or subject to other terms and conditions which depart from normal commercial conditions, whilst safeguarding the public interest.
46Furthermore, as regards, more specifically, the calculation of the net cost of universal service obligations and their possible financing, recital 4 of the Universal Service Directive states that compensating undertakings designated to provide some services to some end-users at prices that depart from those resulting from normal market conditions need not result in any distortion of competition, provided that designated undertakings are compensated for the specific net cost involved and provided that the net cost burden is recovered in a competitively neutral way.
47It follows that the assessment of the competitive situation in the relevant market is an integral part of the conditions for the application of Articles 12 and 13 of the Universal Service Directive (see, to that effect, judgments of 19 June 2008, Commission v France, C‑220/07, not published, EU:C:2008:354, paragraphs 45 and 46, and of 21 December 2016, TDC, C‑327/15, EU:C:2016:974, paragraph 49).
48Furthermore, it should be noted that an assessment of the characteristics particular to a universal service provider in the light of the competitive environment in which that provider operates is also consistent with the objectives of the Universal Service Directive.
49That is the case, in particular, as regards facts relating to the economic and financial situation of a universal service provider. The mere finding that such a provider remains profitable despite the burden on it by virtue of the net cost of its universal service obligations does not allow conclusions to be drawn as to the repercussions of that net cost for that provider’s ability to compete with the other operators present in an evolving market. It cannot be ruled out that the burden which the net cost of universal service obligations represents for such a provider prevents, or makes more difficult or more complicated, the financing of investments in new technologies or related markets, investments which its competitors might possibly be in a position to make and which are therefore likely to procure significant competitive advantages for those competitors.
50Thus, by taking account of the situation of a universal service provider relative to that of its competitors, it is possible for the NRA to determine whether the net cost of its universal service obligations constitutes, by reason of the resulting distortions of competition in the relevant market to the detriment of that provider, an unfair burden on the latter, within the meaning of Articles 12 and 13 of the Universal Service Directive.
51In that regard, as has been noted in paragraph 45 above, the availability, throughout the European Union, of good-quality publicly available services through effective competition and choice is the main objective of the Universal Service Directive, according to Article 1(1) thereof. In so far as the deterioration in the competitive position of a universal service provider on account of the unfair nature of the burden imposed on that provider by virtue of its universal service obligations would adversely affect effective competition in the relevant market, such a circumstance would be liable to undermine the conditions for providing the universal service and, ultimately, the achievement of that objective.
52Thus, in accordance with Part A of Annex IV to the Universal Service Directive, it is necessary to assess, when calculating the net cost borne by the universal service provider, the costs that any designated undertaking would have chosen to avoid had there been no universal service obligation. It is in relation to the conclusions which it draws from that process that the NRA must take account of the situation of that provider relative to that of its competitors in the relevant market.
53In the context of that analysis, the NRA, when dealing with a request such as that referred to in Article 13 of the Universal Service Directive, must also take account of the scope of that request and the evidence relied on by the provider seeking revision of the conditions for financing the net cost of the universal service obligations.
54In the light of all of the foregoing considerations, the answer to the question referred is that Articles 12 and 13 of the Universal Service Directive must be interpreted as requiring the competent NRA, in order to determine whether the net cost of universal service obligations represents an unfair burden on an operator entrusted with such obligations, to examine the characteristics particular to that operator, taking account of its situation relative to that of its competitors in the relevant market.
Costs
55Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
Operative part
On those grounds, the Court (Fifth Chamber) hereby rules: Articles 12 and 13 of Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive),must be interpreted as requiring the competent national regulatory authority, in order to determine whether the net cost of universal service obligations represents an unfair burden on an operator entrusted with such obligations, to examine the characteristics particular to that operator, taking account of its situation relative to that of its competitors in the relevant market.
Delivered in open court in Luxembourg on 10 November 2022.
Source: EUR-Lex, © European Union, 1998-2026. Reuse authorised under Decision 2011/833/EU.