WTO Telecommunications Reference Paper

1
WTO Telecommunications Reference Paper

• Prof Franco Papandrea
• Director
• Communication and Media Policy Institute
• University of Canberra
• Email franco.papandrea_at_canberra.edu.au

2
GATS TelecommunicationsRequirements

• All WTO member countries are bound by GATS
  obligations and disciplines such as
• Non-discriminatory market access provided to
  operators from member countries (Most Favoured
  Nation Treatment)
• Licensing must not be used as a barrier to trade
• All requirements for entry of foreign operators
  in telecommunications market must be published
  (Telecommunications Annex to GATS)
• Comply with additional commitments made as part
  of WTO Agreement on Basic Telecommunications (ABT)

3
WTO Reference Paper

• Annex to commitments of most WTO members under
  Agreement on Basic Telecommunications
• Developed as part of the GATS negotiations on
  basic telecommunication services
• Applies to basic telecom services (not value
  added)
• Establishes legally binding principles for
  government regulation of major suppliers
• A major supplier is one that can affect the terms
  of participation in the market (price and supply)
  because
• it has control over essential facilities
• It possess substantial market power
• Essential facilities are elements of a public
  network necessary for the delivery of a service
• that are exclusively provided by one operator
  and
• whose substitution is not economically or
  technically feasible

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Purpose of Reference Paper

• Provides for special treatment of basic
  telecommunications services within GATS trade
  regime
• Allows domestic regulation that may constrain
  free trade for social policy reasons
• But sets limits to the extent and form of the
  regulation
• Ensures that permissible regulation is
• Transparent
• Objective and
• Non-discriminatory
• Restrain major suppliers from anti-competitive
  use of their market power
• Promote outcomes likely to prevail in a fully
  competitive market
• Ensure equity and transparency in regulatory
  policy and procedures

5
Coverage

• The WTO Telecommunications Reference Paper covers
  six areas
• Safeguards to Prevent Anti-competitive Practices
  by Major Suppliers
• Interconnection with Major Suppliers
• Universal Service
• Transparency in Licensing
• Independent Regulator
• Allocation and Use of Scarce Resources

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Anti-Competitive Safeguards

• Major suppliers have market power that can be
  used to frustrate competition
• Ample opportunity to abuse market power
  particularly in the supply of services to other
  operators that compete with them
• General approach is to ensure fair competition in
  the supply of services
• WTO requires appropriate regulation to prevent
  major suppliers from engaging in or continuing
  anti-competitive practices, such as
• Engaging in anti-competitive cross-subsidization
• Using information obtained from competitors with
  anti-competitive results
• Withholding timely technical information about
  essential facilities and commercially relevant
  information needed by competitors to supply
  services (in competition with major supplier).

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Interconnection

• Interconnection is extremely important to the
  competitive supply of telecommunication services
• An established operator can frustrate competition
  in a variety of ways including
• Charging excessive rates for interconnection
• Unnecessarily delay provision of equipment and
  facilities needed for interconnection
• Misuse of customer and competitive information
• Impose limits on the number of points of
  interconnection
• Impose unnecessarily stringent technical
  standards for interconnection
• Supply a lower grade of network services to
  interconnecting parties

8
Regulation of Interconnection

• Effective and efficient interconnection
  arrangements backed by regulator needed
• WTO requires regulation to establish the right of
  competitors to interconnect with major suppliers
• The rates and procedures for interconnection must
  be enforceable
• The rates and procedures for interconnection must
  be available publicly
• Public procedures must be established for the
  resolution of interconnection disputes

9
Reasons for Public Procedures

• Publicly available principles and procedures for
  interconnection are required because
• Established suppliers have little or no incentive
  to facilitate competitors connections to their
  facilities
• Publication of principles and procedures will
  facilitate negotiations and reduce disputes
• Avoids special or anti-competitive deals not
  available to all operators
• Major suppliers should be required to either
  publish their interconnection agreements or a
  reference interconnection
• Regulator may publish a reference agreement
  applicable to all parties setting out minimum
  requirements for interconnection
• Dispute settlement should be on the same basis as
  the published principles and procedures for
  interconnection
• Dispute settlement must be timely

10
WTO Interconnection Requirements

• Interconnection must be provided on transparent
  non-discriminatory terms, conditions and rates
• Rates must be transparent, cost-oriented and
  reasonable having regard to economic feasibility
• The interconnecting service must be sufficiently
  unbundled to exclude payment for components or
  facilities not required for the supply of the
  service
• Interconnection must be ensured at any
  technically feasible point
• On request, at other than network termination
  points on charges reflecting the cost of
  construction of necessary additional facilities
• Interconnection must be supplied in a timely
  fashion
• Quality must be no less favourable than that
  provided to the own production of similar
  services.

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Interconnection Charges

• Charges should approximate those likely to
  prevail in a competitive market.
• WTO requires cost-oriented rates but does not
  specify the use of a particular methodology
• The basis of calculating appropriate rates,
  therefore, requires judicious consideration and
  careful choice
• A major feature of competitive markets is that
  prices of products or services naturally tend
  towards marginal cost

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Economic Cost Models
SRMC (Short run marginal cost)

LRIC (Long run incremental cost)
Specifically related fixed costs
variations include LRAIC, TSLRIC, TELRIC


Specifically related fixed costs
FDC (Fully distributed cost)
Allocate part of common costs



SAC (Stand alone cost)
All fixed and common costs
Specifically related fixed costs
Allocate part of common costs




13
Universal Service

• Most countries consider access to
  telecommunications services to be important for
  social and economic development
• The primary objective of universal service is
  policies is to provide basic telecommunication
  services at affordable prices to everyone
• Without such a policy, access to services in many
  areas, including rural and remote, would reflect
  the high cost of serving those areas
• Traditionally, cross-subsidies were used by
  monopolist operators to fund the provision of
  access in high cost areas
• In a liberalized environment, competitive
  operators will not supply uneconomic areas
  without some form of universal service obligation
  (USO)

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WTO USO Provisions

• A country has the right to define the kind of
  universal service obligation it wishes to
  maintain.
• Any such USO obligation will not be regarded as
  anticompetitive per se, provided it is
• Transparent
• Non-discriminatory
• Competitively neutral
• No more burdensome than necessary to achieve the
  defined universal service.
• Important to define a practical and realistic
  universal service goal
• No more burdensome usually means that levies
  are cost-based and relate only to provision of
  USO services

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Purposes of Licensing

• Licensing is used for a variety of reasons,
  including
• Attract investment
• Promote an orderly industry structure and
  development for the provision and extension of
  services
• Provide regulatory certainty by defining rights
  and obligations of licence holder (important for
  investment)
• Define competitive framework (particularly where
  there is no strong competition legislation in
  place)
• Establish basic rights (protection) of consumers
• Establish enforcement procedures
• Allocate scarce resources
• Generate revenue

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WTO Requirements for Licensing

• The use of licensing for promotion orderly
  industry development and regulatory
  administration is recognised
• Licensing must not be used for anti-competitive
  purposes
• Must be transparent and fair
• Specifically, the following are to be publicly
  available
• All the licensing criteria
• The period of time normally to reach a decision
  on the allocation of a licence
• The terms and conditions of individual licences
• In addition, the reasons for the denial of a
  licence are to be made known to an applicant upon
  request
• Licence revocation and suspension procedures must
  be equally transparent and based on objective
  criteria

17
Independent Regulator

• WTO reference paper requires the establishment of
  an independent regulator.
• An independent regulator is separate from and not
  accountable to any supplier of basic
  telecommunications
• does not mean independence from the laws and
  policies established by the government
• Regulator is accountable to government or
  legislature for the performance of its mandate
• The decisions and procedures of the regulator
  must be impartial with respect to all market
  participants
• important to market confidence and promotion of
  investment
• Need to avoid conflict of interest between the
  regulator and operators (including
  government-owned operators)
• Regulators must not be appointed to the Board of
  directors or any other office in an operator or
  hold a financial or other interest

18
Regulatory Process

• The regulatory process must be
• Objective
• Independent
• Transparent and
• Efficient
• All decisions, rules procedures and notices
  should be publicly available
• Operators should not have doubt on what their
  rights and obligations are
• Desirable to consult publicly with interested
  parties on all proposed rules or major changes to
  existing rules
• Independent appeal and dispute resolution
  arrangements

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Regulatory Decisions Principles

• Decisions are consistent with the regulators
  mandate
• Government policy is properly applied
• Must not be made at the direction of others
• Decisions are made in good faith and for proper
  purposes
• Decisions are reasonable
• Only relevant matters are considered
• Decisions are based on factual evidence
• The reasons for a decision are made public
• Affected parties are given the right to respond
  to evidence before a decision is made
• Affected parties have the right to appeal
  regulatory decisions to a court or tribunal

20
Allocation of Scarce Resources

• Each country may define its own policies for the
  allocation of scarce resources (e.g., spectrum,
  numbers and rights of way)
• Procedures for the allocation of scarce resources
  must be
• Objective
• Timely
• Transparent
• Non-discriminatory.

21
Spectrum Licensing

• The current spectrum allocation plan is to be
  made publicly available
• Detailed identification of frequencies for
  specific government use is not required
• Establish procedures for the allocation of
  frequencies to telecommunications operators
• Terms and conditions of licences must be publicly
  available, objective and non-discriminatory
• All rights and obligations of users must be
  clearly established
• Terms and conditions of use of spectrum must be
  transparent

22
Telephone Numbers

• Telephone numbers are a scarce resource
• A numbering plan is to be made publicly available
• Establish procedures for the allocation of
  numbers to operators
• Terms and conditions of allocation must be
  publicly available, objective and
  non-discriminatory
• Ensure equitable allocation of desirable numbers
  and access codes among operators

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Conclusion

• Regulation of telecommunications is directed at
• Prevention of anti-competitive practices by major
  suppliers
• Ensuring interconnection
• Establishing a USO policy
• Licensing may be used for orderly industry
  development and allocate scarce resources
• All regulation (and Licensing) must be
• Transparent
• Objective, and
• Non-discriminatory
• Regulated charges must be cost-based
• Independent regulator required to administer
  regulation