The R&TTE Directive: The Effects of Telecom Deregulation

As the European telecommunications market has deregulated, some concern has arisen that the new R&TTE directive has gone too far.

Andy Salisbury

Since the early 1980s, the European telecommunications market has experienced a gradual face-lift in terms of how regulatory issues are governed and controlled. The move toward deregulation has delivered favorable results, with simplified routes for approval and quicker routes to market. However, it is important to consider whether the new Radio and Telecommunications Terminal Equipment (R&TTE) 99/5/EC directive has taken the concept of deregulation too far. In practice, with the introduction of this new regime comes the threat of potential market mayhem, instability, and even risk to consumers. This article assesses the social and commercial implications of the new legislation, which goes into force April 8, 2000.

In a nutshell, the R&TTE directive attempts to amalgamate the regulatory laws for telecommunications terminal equipment with radio products across the European Union (EU). The particular legal requirements are fairly abstract, drawing on a combination of existing standards for electromagnetic compatibility, common technical regulations, and the Low Voltage Directive 73/23/EEC (but with no voltage limits!).

In the future, the onus for ensuring that products comply with the necessary standards will be placed firmly on manufacturers, who will be required to make a Declaration of Conformity (DoC) based on applicable standards supported by testing to the essential requirements. Products can then be placed directly on the market, regardless of the country of origin and without further national testing. A few other provisos will apply. For instance, radio products and equipment should only use harmonized frequency allocations, which means a product may need to be customized for each country. Public telephone and telegraph (PTT) or national radio bodies will check a product's spectrum usage four weeks before market launch. Manufacturers will be responsible for the CE marking of products. If suppliers fail to observe guidelines or if a product is proven to damage a network or user, then the directive imposes hefty penalties, including fines, imprisonment, and possibly withdrawal of all the company's goods from the particular national market. When the directive takes effect, the European Commission will be responsible for its implementation.

A Dream Come True?

In theory, the R&TTE directive, which coincides with the millennium, is intended to signify a new era in the radio and telecommunications marketplace. The directive promises to rid the marketplace of impenetrable bureaucracy and tiresome delays in approving products for individual countries, or even for Europe as a whole. More importantly, because the costs of approval will be minimal (approval costs are typically $5000 each for products such as modems or telephones), the directive is expected to encourage smaller players to enter the market. In turn, this should stimulate competition and, in theory, drive down consumer prices. The free market economy—or market forces approach—pledges to provide the benefits of full-blown capitalism with more opportunity and scope for innovation.

The only drawback with this vision is that it ignores the detrimental effects of the directive. What on paper seeks to provide a utopian-like environment—where manufacturers are liberated from the myriad regulatory associations demanding compliance—may prove to be a naive and oversimplified solution.

Loopholes Lead to Anarchy

There is nothing wrong with liberalism or openness in principle, but problems arise when there is little room for compromise. The R&TTE directive is innately flawed in that it places no clearly defined limits on manufacturers. Because there are no boundaries for conformance testing, standards will naturally slip, and it will be consumers who suffer.

The EU is working on harmonized standards to underwrite the directive, but not for wired products. In the interim, however, many loopholes exist that unscrupulous manufacturers can exploit. Because the DoC is at the manufacturers' discretion with no additional testing required, routine testing on new products could be overlooked. The smaller the net income, the greater the temptation to cut corners to save money. With the new routes to market presenting few technical or financial obstacles, cheaper and inferior products will flood the market. The drawback will be substandard quality, and consumers will be the losers.

Guarantees Not Included

Each EU member currently has strict enforceable rules governing the quality of telecommunications products, as well as a system (typically a widely recognized label issued by a national PTT) that enables consumers to be confident in a product's quality. Once the R&TTE directive takes effect, ubiquitous CE marking will replace such labels. Unfortunately, consumers perceive the CE mark as a guarantee, but the CE mark provides no indication of product quality. In fact, it will give consumers a false sense of security. Although the CE mark signifies that the product has been registered on the European market, it holds no other official weight.

Those responsible for the directive argue that telecom and radio products should be treated as commodities in much the same way as TVs. A significant difference, however, is that a substandard TV affects only an individual, whereas telecom and radio devices interact with networks and other apparatus. This means that they can have a domino effect on other users, especially if a network is damaged.

Does Competition Mean Quality?

As the telecom market becomes saturated with products from all over the world, this will likely put pressure on manufacturers currently producing quality goods. Whether the trend for these companies will be to reduce the time and resources allocated to obtaining approvals is debatable. However, one thing is certain: the importance of approvals is likely to diminish. Take, for example, the humble telephone. Under the R&TTE directive, the rules remain basically the same, but manufacturers are under no legal obligation to provide proof of network compatibility and interworking. If, as predicted, some manufacturers are remiss in thoroughly complying with standards, consumers will suffer from the unfavorable consequences. In the United Kingdom for instance, inferior products may not recognize different dial tones from newer PTT services. Customers will have to return such products to prove that they are unfit for use. Whereas this sort of malfunction is easy to demonstrate to retailers, it will be more difficult to convince vendors that phones have poor line quality. There is no yardstick to measure this by, and the likelihood is that as approval procedures are relaxed, a larger number of poor quality devices are going to filter through.

Home Is Where the Hurt Is

Home users typically have little technical knowledge and therefore will bear the brunt of unreliable technology. Business users who use devices for mission-critical activities will be less likely to tolerate imperfections because they are often more educated about products and their manufacturers.

For example, business users are likely to be familiar with how fast a 56K modem downloads information from the Internet. If they were to purchase one that was inadequately designed, they would then recognize reduced performance. On the other hand, first-time Internet users would be unaware of deterioration in performance because they have no means of comparison. With the increase in self-employed individuals, smaller companies, and teleworkers, even the business community may fall victim to substandard equipment.

Another area where pundits fear a significant upheaval is in the changing composition of manufacturers in the marketplace. With the upsurge in competition, reputable manufacturers may lose profits to smaller rivals. Although this could force reduced prices, inferior manufacturers could also force respectable suppliers out of business.

Watchdogs Lose Their Bark

The problems for consumers will be compounded by the absence of a central body to receive and act on complaints. Currently, a national technical body addresses such complaints. After the directive is imposed, the authority is less certain, with responsibility falling into the hands of semitechnical bodies such as trading standards organizations, which may have inadequate technical knowledge to field complaints. The scope of trading standards organizations also varies from country to country. In the United Kingdom, for instance, such organizations tend to be passive or reactive, whereas in countries such as Germany, they have historically enforced a greater degree of policing and rigorous checking.

In their defense, the organizers of the R&TTE directive insist that because manufacturers will be subject to severe penalties if they fail to properly design products, the quality of products and services will not be affected. If you subscribe to this point of view, then you are taking a "cure rather than prevention" stance. Although it might be appropriate to sue companies whose products fail to meet reasonable standards, this approach might not be as straightforward as anticipated. Effects such as inadequate labeling in which the manufacturer or source is unclear may hamper legal action. With large-scale rebadging of products for different markets, legal action could be a long and drawn-out process in some cases.

The Way Forward—Down Under

Although many features of the directive spell trouble in the short term, it is probable that with some modifications the directive could and should work—eventually. The one issue that fails to be addressed, and therefore leaves consumers wide open, is the lack of accountability or traceability. If these two areas could be improved, then the directive could make the approvals industry more efficient, yet still maintain high standards. The European Commission would benefit from looking at how Australia has dealt with traceability and accountability. Australia has a similar system in place, but it has tighter regulations that apply to product registration. Suppliers must register themselves, clearly linking a manufacturer to a particular product. The problem in Europe is compounded because the originator of the product will not necessarily be the manufacturer printed on the product itself. With the proliferation of OEM agreements and the extensive practice of rebadging goods, it becomes harder to establish accountability in the absence of a traceable serial number.

Considering all of these issues, the directive will likely undergo a series of alterations in the future if the prophecies of market saturation and poorly designed products manifest themselves.

Full Circle, Free Fall, or Compromise?

Many theories have been put forward on the market's reaction to the directive. The telecommunications community has alluded to three likely scenarios. The market may be thrown into free-fall mode, particularly likely in the initial stages when the directive will be at the mercy of market forces. After 18 months, the market will have had a chance to settle down, and it is only then that the full impact of the directive will be realized. At that point, the European Commission will conduct a moratorium on the directive and may be forced to either tighten the framework of regulations, returning to the original system (full circle), or—what is more probable— reform the directive to ensure more protection for the telecom and radio infrastructure. In practice, the directive will essentially test the market, allowing the EU to identify faults and develop a blueprint for the future.

Andy Salisbury is the technical director of approvals consultancy, TTA Communications (Bristol, UK).

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