Select Committee on European Union Written Evidence

Memorandum by Vodafone Ltd

  Vodafone is submitting these comments in addition to the Operators Group response to question 1 of the enquiry. In case of any perceived inconsistency between the Operators Group response and this response, the comments in this response should be taken as Vodafone's view.



1.  Consumers need to trust websites, and the means of access, if they are to purchase goods and services using them. For consumers to gain that trust they will need to be able to recognise whether a company behind a site is likely to meet certain standards of service. A good standard of service would include delivering the service or product of the quality requested, and ensuring the customer has a secure link when submitting personal information to the site. The providers of the diverse possible range of access channels, whether these channels be PSTN, cable or mobile etc, must provide a secure framework both for passing information, such as credit card details, and for providing a customer's identity, for example by electronic signature. Voluntary measures by industry, government-facilitated action which does not involve formal regulation, consumer and market led initiatives are ways of engendering that trust.

Leading the Way

  2.  European and UK government institutions should lead by example in the electronic age. Citizens should be able to communicate and transact with government institutions electronically. A good example of this is the UK Government's incentivising of UK citizens to return taxation details and to pay tax electronically.


  3.  The following are a sample of the problem areas Vodafone is currently aware of.


  4.  Businesses need to know how to deal with VAT. Crucial business decisions are being taken now with a view to services being launched within a few months but there are still no clear guidelines on VAT treatment. The issue must be pushed to the top of the agenda, rather than being dealt with only at the six monthly OECD meetings. Speed is essential.

  5.  Businesses are currently working in a void when determining the treatment of new types of supplies and payment collection. For instance, if a telecommunications operator were to supply a broking service as agent via its internet site, with payment collected through the monthly telephone bill, what would the liability of that service be as denoted on the bill? Different rules apply to telecoms services compared to broking services—not only are broking services often exempt, but the place of supply rules differ too. There is no general guidance on deciding the liability of services provided via the internet so businesses are having to take their "best guess" and set up and configure their systems accordingly. If the EU does eventually implement general rules or specific guidance, businesses will be forced to pay for costly operational and systems changes.

  6.  Neither should UK business be put at a competitive disadvantage to, say, US business because of VAT legislation. However, until legislation is passed, non-EU businesses can easily provide digitised services VAT free. Digitised services are those which can be downloaded from the Internet. In addition, if the option chosen is to require non-EU business to register in one EU Member State, UK business will still be at a disadvantage due to the difference in VAT rates across Europe.

  7.  To help to combat the uncertainty government should update business on progress on taxation, by issuing regular monthly Business Briefs which can be communicated via local VAT offices. If there are key proposals or major hold ups, business should be informed—even if it is to say there has been no advance since the last Brief, it would keep the issue live and changes would not come unexpectedly.

UK Financial Services and Markets Bill

  8.  The Treasury recently consulted on this Bill which is intended to provide a modern framework for the regulation of financial services. Unfortunately it appears to diverge from general regulatory principles now being articulated at a European level notably within the draft Electronic Commerce Directive. It may also create a complex and confusing regulatory structure inhibiting development of new internet-based financial services. This may, in turn, undermine investment and innovation in the on-line financial services market and in supporting markets such as communications services.

  9.  The Bill concentrates on the use of "country of reception" as a principle. This may lead to regulatory uncertainty when contrasted with the stance of the European Union, supported by the DTI, which asserts that to promote e-commerce services "country of origin" should be the overriding principle. The DTI and the Treasury need to co-ordinate their work to use the country of origin.

  10.  Regulatory authorities examining issues in e-commerce have generally recognised that it is desirable to exempt network operators and internet service providers (ISPs) from excessive liability and undue burdens with respect to third party content provided to retail customers using operators' and ISPs' services. In this way new electronic media are being regulated on a level playing field with established forms of communication such as postal services. This also reflects the realities of providing network services where liability for content would suppress incentives to make new network services available and would result in barriers to the deployment of new retail services (financial in this case).

  11.  Some more specific concerns about the Bill include:

    (a)  Clause 19 of the draft Bill extends the restriction on financial promotion to a communication originating outside the UK if "the communication is capable of having an effect in the United Kingdom". This appears inconsistent with EU legislation. We would therefore like Clause 19 amended to accept financial promotions directed at the UK market, originating in another Member State, provided they comply fully with the legislation of the originating Member State.

    (b)  Clause 19 also states that "if A's website contains a . . . link to B's website, A may, nevertheless, breach the clause 19 prohibition if B's website contains material amounting to an unlawful financial promotion if A has in fact "caused" the unlawful financial promotion on B's website to be communicated". While those establishing hypertext links from their websites to those of others should take reasonable care the legislation should not place an undue burden on website hosts. Periodic checks to ensure that links do not infringe this provision should be sufficient.

    (c)  We believe that companies acting as mere conduits of "invitations or inducements" should be excluded from liability. It is not clear that telecommunications operators and ISPs would fall within the mere conduit exemption where the content being transmitted is not the operator's own. If this is the case it is also inconsistent with other legislation and would be another barrier to e-commerce.

e-Commerce Directive

  12.  Comments have already been provided in the Operators Group response to question one on the current derogation for consumer contracts from the country of origin principle. As it stands consumers from the rest of the EU who bought goods off a small UK company's website will be able to use consumer laws in each of their respective states and sue using the courts of each of those states if they had a dispute with the company. Of course, this could put a small company out of business and could stretch unduly the resources of even large companies.

  13.  Instead of these potentially catastrophic measures more emphasis needs to be placed on options like alternative dispute resolution which appear to be being promoted by the European Parliament. It might be possible to achieve this by setting up an online arbitration and settlement procedure, establishing an independent tribunal for claims, or a scheme such as that provided by the Financial Services Ombudsman in the UK. Such schemes could be supported by self-regulatory sectoral codes of conduct. The aim would be to ensure basic standards of consumer protection for contracts and commercial communications effected by electronic means, while at the same time preserving the advantages (to both suppliers and consumers) ofe-commerce.

  14.  Other concerns about the Directive include:

    Articles 9-12: Formation of a Contract

    The draft Directive proposes a three part process:

-(a)  acceptance of the offer by the customer;

-(b)  an electronic acknowledgement of receipt of the customer's acceptance;

-(c)  confirmation of receipt of the acknowledgement of receipt by the customer.

  Acknowledgement of receipt is deemed to be received and confirmation is deemed to have been given when the parties to whom they are addressed are able to access them. The aim behind these provisions is to ensure that the time at which the contract is concluded can be established. However, by providing that the contract is concluded when the receipt has been accessed, no account is taken of delays and faults in the transmission of e-mails or of the difficulty in establishing when the customer has accessed the acknowledgement. Currently there is no guaranteed technological means of establishing that an acknowledgment has been received. This will, in practice lead to uncertainty on the part of the service provider as to when the contract has been concluded and may mean that services will be provided to a customer before a contract has been put in place, exposing the service provider to serious risk of losses. It would be preferable to amend the requirements to provide that a contract is concluded once the receipt is sent to the correct address, which would bring the provisions in line with the postal rule.

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