Case C-240/15, ISTAT – independence, regulatory capture and economic crisis [judgment 2016, ECLI:EU:C:2016:608]

The communications sector in Italy is regulated by AGCOM. At the heart of this case is the issue of whether AGCOM can deliver impartial, independent and effective regulation when it is not only heavily dependent on the money it extracts from the companies it regulates but also at a time when the Italian State has imposed spending cuts on public bodies. The question in this case is whether AGCOM has found a legal way to escape the Italian State’s budget cuts by dint of AGCOM’s obligations under the EU’s ‘Authorisation’ Directive 2002/20/EC, and the EU’s ‘Framework’ communications networks Directive 2002/21/EC?

Background
In its 2009 quest to restrict, control and ‘rationalise’ public finances, the Italian State passed a law which required all ‘independent authorities’ to stick to the public-sector financing rules. The phrase all ‘independent authorities’ applied to the Italian telecoms regulator known as AGCOM [the Autorità per le garanzie nelle comunicazioni].

Subsequently starved of cash, AGCOM now claims it has lost the necessary organisational and financial autonomy to regulate the Italian telecoms sector effectively – a task that is incumbent upon it by dint of, and enshrined in, EU law.

Moreover, AGCOM points out that it is heavily dependent on money extracted from telecoms companies that are active in the Italians telecoms market, money that is raised under an Italian system of self-financing. Consequently, AGCOM claims it is unable to impose spontaneous policy actions on those companies – the very companies which are supposed to be subject to AGCOM’s regulatory control! In its view, AGCOM thinks it should be treated like the old central bank of Italy, the Banca d’Italia, and thereby enjoy an equivalent wide margin of discretion.

These allegations and policy suggestions are refuted by the respondents in this case: the Italian Ministry of Economy and Finance, the Italian National Statistical Office (the Istituto Nazionale di Statistica — ISTAT), and the President of the Italian Council of Ministers.

The Italian Council of State does not know what the correct interpretation should be in respect of the relation that exists between two EU Directives, and the obligations of financing and independence.

The first piece of legislation mentioned in the eventual question asked by the Italian Council of State is the EU’s ‘Framework’ Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (OJ [2002] L108/33).

The relevant rules state:

CHAPTER II
NATIONAL REGULATORY AUTHORITIES
Article 3

National regulatory authorities
1. Member States shall ensure that each of the tasks assigned to national regulatory authorities in this Directive and the Specific Directives is undertaken by a competent body.

2. Member States shall guarantee the independence of national regulatory authorities by ensuring that they are legally distinct from and functionally independent of all organisations providing electronic communications networks, equipment or services. Member States that retain ownership or control of undertakings providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory function from activities associated with ownership or control.

3. Member States shall ensure that national regulatory authorities exercise their powers impartially and transparently.

4. Member States shall publish the tasks to be undertaken by national regulatory authorities in an easily accessible form, in particular where those tasks are assigned to more than one body. Member States shall ensure, where appropriate, consultation and cooperation between those authorities, and between those authorities and national authorities entrusted with the implementation of competition law and national authorities entrusted with the implementation of consumer law, on matters of common interest. Where more than one authority has competence to address such matters, Member States shall ensure that the respective tasks of each authority are published in an easily accessible form.

5. National regulatory authorities and national competition authorities shall provide each other with the information necessary for the application of the provisions of this Directive and the Specific Directives. In respect of the information exchanged, the receiving authority shall ensure the same level of confidentiality as the originating authority.

6. Member States shall notify to the Commission all national regulatory authorities assigned tasks under this Directive and the Specific Directives, and their respective responsibilities.

The interpretation of this Article is linked to Recital 11, which provides:

In accordance with the principle of the separation of regulatory and operational functions, Member States should guarantee the independence of the national regulatory authority or authorities with a view to ensuring the impartiality of their decisions. This requirement of independence is without prejudice to the institutional autonomy and constitutional obligations of the Member States or to the principle of neutrality with regard to the rules in Member States governing the system of property ownership laid down in Article 295 of the Treaty. National regulatory authorities should be in possession of all the necessary resources, in terms of staffing, expertise, and financial means, for the performance of their tasks.

The second piece of EU legislation mentioned in the preliminary question is the EU’s ‘authorisation’ Directive 2002/20/EC on the authorisation of electronic communications networks and services (OJ [2002] L108/21).

Article 12 provides:

Administrative charges
1. Any administrative charges imposed on undertakings providing a service or a network under the general authorisation or to whom a right of use has been granted shall:
(a) in total, cover only the administrative costs which will be incurred in the management, control and enforcement of the general authorisation scheme and of rights of use and of specific obligations as referred to in Article 6(2), which may include costs for international cooperation, harmonisation and standardisation, market analysis, monitoring compliance and other market control, as well as regulatory work involving preparation and enforcement of secondary legislation and administrative decisions, such as decisions on access and interconnection; and
(b) be imposed upon the individual undertakings in an objective, transparent and proportionate manner which minimises additional administrative costs and attendant charges.

2. Where national regulatory authorities impose administrative charges, they shall publish a yearly overview of their administrative costs and of the total sum of the charges collected. In the light of the difference between the total sum of the charges and the administrative costs, appropriate adjustments shall be made.

It is an Article which should be interpreted in light of Recitals 30 and 31, which provide:

(30) Administrative charges may be imposed on providers of electronic communications services in order to finance the activities of the national regulatory authority in managing the authorisation system and for the granting of rights of use. Such charges should be limited to cover the actual administrative costs for those activities. For this purpose transparency should be created in the income and expenditure of national regulatory authorities by means of annual reporting about the total sum of charges collected and the administrative costs incurred. This will allow undertakings to verify that administrative costs and charges are in balance.

(31) Systems for administrative charges should not distort competition or create barriers for entry into the market. With a general authorisation system it will no longer be possible to attribute administrative costs and hence charges to individual undertakings except for the granting of rights to use numbers, radio frequencies and for rights to install facilities. Any applicable administrative charges should be in line with the principles of a general authorisation system. An example of a fair, simple and transparent alternative for these charge attribution criteria could be a turnover related distribution key. Where administrative charges are very low, flat rate charges, or charges combining a flat rate basis with a turnover related element could also be appropriate.

Question Referred
According to the Curia website, the Italian Council of State has asked:

1. Do the impartiality, financial autonomy and organisational independence which national regulatory authorities must be granted under Article [3] of Directive 2002/21/EC […] and the substantial self-financing of such authorities referred to in Article 12 of Directive 2002/20/EC […] preclude national legislation (such as that relevant to the present proceedings) which additionally makes such authorities subject, in general, to legislation on public finance and, in particular, to specific provisions relating to containing and streamlining expenditure incurred by public administrative authorities?

Update – 13 September 2015
AGCOM’s financial difficulties in extracting money from telecoms companies active on the Italian market were exposed in the context of Case C-231/12, Vodafone Omnitel – does the Authorisation Directive authorise not paying AgCom?

AGCOM’s attempts to build a database so that it has a better knowledge of the financial situation of the companies active on the Italian market are now the subject of a fresh preliminary reference from Italy; see further, Case C-322/15, Google Ireland and Italy – refusing to let the Italians look at their financial books.

Update – 24 September 2015
The independence obligation in Article 3 of the communications network Directive has also now been raised in a preliminary reference involving the former Spanish telecoms authority, the CMT; see further, Case C-424/15, Ormaetxea Garai – dismissed so unfairly as to query the independence of regulators.