Telecommunications market liberalisation

1
Telecommunications market liberalisation

• Feliksas Dobrovolskis
• Deputy Director, Telecommunications Department
• RRT, Lithuanian Communications Regulatory
  Authority

Round table Telecommunications market
competition, investments and regulatory
issues Minsk, 25 May, 2004
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The main issues

• Competition and liberalisation, main objectives
• Understanding of the changing roles of national
  regulatory authorities (NRA)
• Building and increasing NRAs capacity to promote
  appropriate regulation what is the role of the
  governments?

3
Lithuanian market situation

• Population 3.5 millions
• GDP 2003 15.9 milliards EUR
• GDP growth 8.1 per 2003 and 7.5 forecast for
  2004
• Telecommunications market size 0.59 milliards
  EUR (telephony, interconnection, leased lines
  and access to internet only)
• Main market players

FIXED MOBILE MOBILE MOBILE
Name Lietuvos telekomas Omnitel Bite GSM Tele2
Group TeliaSonera TeliaSonera TDC Tele2
Subscribers 822 000 (98) 1 053 000 507 000 592 000
Market share 96 56 25 17
Penetration 24 63
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Main objectives

• More diversity for consumers
• To have relevant quality at relevant price
• To attract more investments
• To be ready for convergence of the
  telecommunications, broadcasting and IT sectors
• To be more competitive in process of
  globalisation

5
Means to achieve objectives

• Ensure the legal certainty for market players
• Full liberalisation of the Telecommunications
  market
• Introduction of the competition in the market
• Establishment of the special regulatory measures
  in non-competitive sectors

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Why to regulate?

• Telecommunications infrastructure based
  economic branch
• Mostly historic state owned monopolies
• Infrastructure substantive barrier for
  competitors
• The main aims
• Promotion of economic efficiency in the sector
• Protection of public interests
• Electromagnetic compatibility

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How to regulate?

• General competition law
• Common regulations
• Remedies after violation (ex-post approach)
• Mostly inefficient
• It takes quite long time to remove violation (1-5
  years or more)
• It is difficult to state violation
• It is problematic to ensure USO provision
• Sector specific regulation
• Specific regulations adopted for
  Telecommunications
• Advance remedies to prevent competition problems
  (ex-ante approach)
• Regulatory Authority is necessary for sector
  specific regulations

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EU law requirements for NRAs

• Independence
• legally distinct from and functionally
  independent of all organisations providing
  electronic communications networks, equipment or
  services
• Right of appeal
• any user or provider of electronic communications
  networks or services have to be allowed to appeal
  to an independent appeal body in the case of any
  disputes with NRA
• Impartiality and transparency
• NRAs exercise their powers according to the
  principles impartiality and transparency
• NRAs make arrangements for consultation of the
  interested parties

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Indicators of the Independence of NRA

• Separation of functions and powers between policy
  making bodies and the NRA
• NRA should have all necessary powers and
  responsibilities to attain all regulatory tasks
• NRA with its own personnel and independent
  appointment process
• NRA with separate Budget, self-financing
  (sufficient to operate effectively)
• No appeals to or directions from the Government
  on the regulatory issues

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Lithuanian case liberalisation of
telecommunications

• The main three steps
• 07.07.1998 - Privatisation of Incumbent
• Special Telecom Law
• Granted monopoly right for fixed telephony till
  2003
• Hard licensing regime
• Contemplation of establishment of Lithuanian NRA
  - RRT
• 01.01.2003 - End of fixed telephony monopoly
• New Telecommunications Law inline to the EU
  telecommunications regulatory framework, 1998
• No licensing for telecommunications activities
• 01.05.2004 - EU accession
• Electronic communications law came in to force
• Inline to the New Regulatory Framework

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Lithuanian caseEstablishment of National
Regulator - RRT

• Lithuanian Communication Regulatory Authority RRT
  has been established on 01.05.2001
• 20 months till end of fixed telephony monopoly
• On the basis of State Radio Frequency Authority
• Limited regulatory power
• No SMP doctrine
• New Telecommunications Law has been adopted by
  the Parliament on 05.07.2002 and came into force
  on 01.01.2003
• 6 months for preparation of secondary legal acts
  including SMP designations and RIO publications
• New regulatory powers concentrated in one
  institution

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Evolution of the communications regulatory regime
in the European Union
Market opening
Strong sector specific regulation
Strong sector specific regulation Transition phase
Strong sector specific regulation Flexible sector specific regulation
Competition Law Competition Law Competition Law
REGULATION LEVEL
ex-ante approach
ex-post approach
TIME SCALE
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Comparison of the stages of market liberalization
in the EU and Lithuania
1998 1999 2000 2001 2002 2003 2003 2004 2004 2005..
EU 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW New RFW New RFW New RFW New RFW
LTU Monopoly Monopoly Monopoly Monopoly Monopoly 98 RFW 98 RFW 98 RFW New RFW New RFW
01.01.2003 - End of fixed monopoly in Lithuania
24.07.2003 - Deadline for implementation of the
New RFW in the Member States
01.05.2004 Lithuania EU Accession Electronic
Communications Law came into force
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Comparison of the stages of market liberalization
in the EU and Lithuania
1998 1999 2000 2001 2002 2003 2003 2004 2004 2005..
EU 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW 98 Regulatory FW New RFW New RFW New RFW New RFW
LTU Monopoly Monopoly Monopoly Monopoly Monopoly 98 RFW 98 RFW 98 RFW New RFW New RFW

• Market opening phase (green fields)
• 5.5 years in the EU (for networks and services)
• 1.5 year in Lithuania big challenge for
  Regulator
• Very young Regulatory Authority without
  experience
• Big market players owned by advanced foreign
  operators

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Lithuanian case Market opening phase

• Took 16 months before EU accession
• 1998 Regulatory Framework was in place
• Strong regulation framework no flexibility for
  Regulator
• With some New RFW features
• Authorisation regime individual licences has
  been withdrawn
• Incumbent has been designated as SMP undertaking
  since 01.01.2003
• Fixed voice telephony networks and services
  market
• Leased lines market
• National interconnection market
• RIO has been published on 01.01 2003

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Lithuanian case Market opening phase (2)

• National regulatory authority
• Has quite enough powers to implement regulations
• But
• It is still quite young
• Market players are very advanced
• Time frame to make decisions and to have result
  is very tight
• Courts regulatory decisions stopped till the
  final court decision
• Nevertheless
• Incumbent interconnection price reduced more than
  twice
• Incumbent has been penalized for infringing
  accounting separation obligation
• First instance proved regulatory decision
• Case still in the court

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Lithuanian case Market opening phase (3)

• The RRT had power amongst others to set price for
  interconnection (IC) and access in order to
  ensure cost orientation
• Fully Distributed Costs based on Historical Cost
  Accounting until LRIC model will be developed
• In some cases indirect approaches might be used
  to set IC price (best practice, retail minus)
• Now public consultation on LRIC concept has been
  finished
• Temporal Incumbents IC price has been set in the
  end of 2003

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Lithuanian case Market opening phase (4)

• The RRT experience shows
• 1998 regulatory framework is not flexible enough
• Inflexibility causes non-proportionality
• Hard for SMPs and for NRAs
• Might be dangerous for sector in long term
• Market opening phase in Lithuania finished six
  days ago by entering into force Electronic
  Communications Law
• The RRT has more flexibility in setting pricing
  regimes for wholesale products such as
  interconnection
• Price-caps and by fixing the highest price
• Cost accounting standards and models
• Best practice
• Retail minus

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Role of the government

• Background EU regulatory framework
• Rules of the game for whole sector
• Direct requirement for independence of NRA
• Defined main NRA powers
• National Law should empower NRA
• To ensure
• Independence including financial and political
• No involvement of policy makers
• Budget subject to annual audit by independent
  audit firm
• Full authority to take regulatory decisions and
  recruit staff
• enough power is necessary to achieve regulatory
  efficiency
• In general to promote and encourage sector
  economy

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Conclusions

• Ex-ante approach prevention of abuse of the
  market position
• The main background strong, independent and
  efficient National Regulatory Authority
• Consistent transition from market opening phase
  to the flexible Electronic Communications Regime
  should be ensured
• Technology neutral and proportional regulation
  conditioned by the convergence
• Role of national regulators in the CEE countries
  is going to be increased

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THANK YOU FOR YOUR ATTENTION
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Questions?

• Communications Regulatory Authority
• Algirdo str. 27
• LT-03219 Vilnius
• Lithuania
• Phone [phone]
• Fax [phone]
• http//www.rrt.lt

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• Communications Regulatory Authority
• Algirdo str. 27
• LT-03219 Vilnius
• Lithuania
• Phone [phone]
• Fax [phone]
• http//www.rrt.lt