OUG 114/2018 – Industry Feedback

The National Association of Internet Service Providers in Romania (ANISP) draws attention to the negative effects of GEO 114/29.Dec.2018 on the development of this strategic importance industry.

Article 77 of the Emergency Ordinance requires a surcharge of 3% of turnover, generating the following negative effects:

1. The excessive taxation of the telecommunications industry is affecting investments. Consequently, the targets for Romania’s digitalizing, introduction of 5G, IoT, smart city technologies, coverage of “white” areas – will be missed. This will lead to a slowdown in Romania’s future economic growth;
2. The excessive taxation of the telecommunications industry leads to higher tariffs for end-users. As a side effect, the increase in the number of Internet subscriptions and / or mobile telecommunication services will slow down;
3. The excessive taxation of the telecommunications industry is affecting the competitive environment. Competition on the telecoms market is currently very intense. Net profit margins of the largest operators are averaging at 5%, in certain years falling in the negative territory. If in such an ultra-competitive environment a 3% turnover burden is added, some alternative operators will face bankruptcy. As an indirect effect, a decrease in the state budget revenues stemming from wage related taxes of the personnel facing unemployment shall be observed, as well a new brain drain of the most qualified to other EU countries;
4. The excessive taxation of the telecommunications industry contravenes the Romanian and European law on telecommunications. Thus:
   (a) ANCOM (the regulatory authority) has to charge tariffs to ensure nothing more than its normal functioning (under Article 12 of Directive 2002/20 / EC of the European Parliament and of the Council of 7 March 2002 on the authorization of electronic communications networks and services);
   (b) Directive 2014/61 / EU of the European Parliament and of the Council of 15 May 2014 requires Member States to identify measures to reduce the cost of installing electronic communications networks;
   (c) The Constitution provides for the rightful settlement of tax burdens (Article 56) and equality before the law (Article 16) – articles infringed by discriminatory over-taxation of providers of electronic communications services;
   (d) The Constitution provides for the priority of EU rules on contrary provisions of national law (Articles 11 and 148) – articles violated by the adoption of a mechanism for setting the monitoring tariff, contrary to the European calculation mechanism related to NRA budgeting.

Benchmarking against other EU states, one notice the monitoring fee is elsewhere much lower or even non-existent. For example, the UK regulator (OFCOM) is requesting a 0.1160% turnover rate – only for companies with a turnover of over 5 million pounds (according to OFCOM website for 2018 and 2019). In Germany, the Bundesnetzagentur does not charge surveillance fees. These examples demonstrate once again that the new Romanian 3% monitoring tax is exaggerated by far.

Another series of negative effects is generated by art. 85 of Order 114/2018, since excessive penalties – up to 10% of turnover – are imposed on “suppliers who contract maintenance, replacement of networks … and the infrastructure elements necessary to support them … in the absence of a building permit”. In other words, an operator performing maintenance work (for example, an intervention to repair a communications cable) can be fined with 10% of the turnover because it is not waiting the issue of a construction permit – a process that may take several months. Meanwhile, service users are deeply disturbed (and for good reasons) by a service unavailability of several hours.

Having in mind all these effects, ANISP requested the Ombudsman to submit to the Constitutional Court’s attention the unconstitutionality of art. 77 point 4 of GEO 114/2018. At the same time, ANISP sent a letter to the EU Commission’s Directorate-General for Communication, Content and Technology (DG CONNECT), requesting Commission’s support, based on the above arguments.