1 WTO Telecommunications Reference Paper Prof Franco Papandrea Director Communication and Media Policy Institute University of Canberra

2 GATS: Telecommunications Requirements 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

4 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: 1.Safeguards to Prevent Anti-competitive Practices by Major Suppliers 2.Interconnection with Major Suppliers 3.Universal Service 4.Transparency in Licensing 5.Independent Regulator 6.Allocation and Use of Scarce Resources

6 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).

7 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.

11 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

12 Economic Cost Models FDC (Fully distributed cost) LRIC* (Long run incremental cost) SRMC (Short run marginal cost) SAC (Stand alone cost) Cost of producing extra unit Specifically related fixed costs Cost of producing extra unit Specifically related fixed costs Allocate part of common costs All fixed and common costs = = = = * variations include LRAIC, TSLRIC, TELRIC

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)

14 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

15 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

16 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

19 Regulatory Decisions Principles  Decisions are consistent with the regulator’s 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

23 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